Lou Thomas's Comments RSS Syndication from SeekingAlpha.com http://seekingalpha.comuser/165067/comments http://seekingalpha.com/article/134139-wip-and-tip-better-than-gold?source=feed#comment-554563 554563
Increases in TIPS value due to inflation will help to offset this decline, but by how much? That would seem to depend upon the term of the TIPS bond purchased vs. the near-term effects of inflation.

So, TIPS have the same down side as regular treasuries, but have an up side as well if there is inflation. But the popping of the treasury bubble is probably a more certain thing than high inflation, given the dire economic situation, which holds many deflationary aspects.

Anyway, I'm no expert at all in this, but these are the thoughts that occur to me when reading your article.]]> Fri, 19 Jun 2009 18:32:10 -0400
Increases in TIPS value due to inflation will help to offset this decline, but by how much? That would seem to depend upon the term of the TIPS bond purchased vs. the near-term effects of inflation.

So, TIPS have the same down side as regular treasuries, but have an up side as well if there is inflation. But the popping of the treasury bubble is probably a more certain thing than high inflation, given the dire economic situation, which holds many deflationary aspects.

Anyway, I'm no expert at all in this, but these are the thoughts that occur to me when reading your article.]]> http://seekingalpha.com/article/115246-foreign-governments-dumping-u-s-assets?source=feed#comment-359569 359569
From blogs.cfr.org/setser/ :

China sold $9.2 billion of long-term Treasuries. But it also bought $38.2b of short-term Treasuries. China’s total Treasury holdings are up by $29.1b. By contrast it sold $3.1b of long-term Agencies and also reduced its short-term holdings by about $5 billion. China reallocated its US portfolio, but it hasn’t cut back on its dollar purchases.]]> Mon, 19 Jan 2009 07:43:06 -0500
From blogs.cfr.org/setser/ :

China sold $9.2 billion of long-term Treasuries. But it also bought $38.2b of short-term Treasuries. China’s total Treasury holdings are up by $29.1b. By contrast it sold $3.1b of long-term Agencies and also reduced its short-term holdings by about $5 billion. China reallocated its US portfolio, but it hasn’t cut back on its dollar purchases.]]> http://seekingalpha.com/article/113006-time-to-short-treasuries?source=feed#comment-346180 346180
It may be that there are so many ways to stack the deck and fix the game domestically if you are the Fed that the only point at which reality will eventually come to bear (no pun intended) is in foreign exchange.]]> Mon, 05 Jan 2009 08:18:35 -0500
It may be that there are so many ways to stack the deck and fix the game domestically if you are the Fed that the only point at which reality will eventually come to bear (no pun intended) is in foreign exchange.]]> http://seekingalpha.com/article/113006-time-to-short-treasuries?source=feed#comment-346166 346166
I think that Roubini and others at RGE have said (check me on this) that the dollar will probably continue to rise vs. all but the yen during the first half of 2009 due to forced repatriation of dollars via deleveraging. That implies he does not think that the market is going up in that interval, right?

Where will this money go, if not treasuries?

Conversely, at the point that these flows diminish, one would think that treasury yields would have to rise to attract further foreign investment. However, at just that point, the dollar might begin to fall vs. other currencies, because the forced repatriation from deleveraging would be diminishing. This could indeed cause a cycle of extreme treasury interest rate increases, as foreign money would be even more difficult to find with the dollar tanking, and yet the need for such money to finance huge deficits from stimulus (and continuing trade deficits) would be increasing.

So, I do believe that treasuries are a bubble that will eventually collapse. But it occurs to me that the dollar may decline just as treasury values are tanking, and since funds that short treasuries such as TBT are in the dollar, you'd end up earning dollars just as the dollar was going down vs. other currencies. In other words, going short treasuries requires continuing to own the dollar, which may tank at the same time that treasuries do.

So, perhaps a better idea would be to go into the Euro at the point that deleveraging flows cease to support the dollar? It could be down pretty low by then - some think as low as $1.10.

If this is correct, then it comes down to a quantitative analysis regarding the extent of treasury decline vs. the extent of dollar decline. I am certainly not prepared to even speculate regarding such quantitative tradeoffs. But can anyone see a scenario in which treasury interest rates must rise but the dollar does not tank vs. other currencies?

Well, that's the general notion. Any thoughts?

]]> Mon, 05 Jan 2009 07:58:58 -0500
I think that Roubini and others at RGE have said (check me on this) that the dollar will probably continue to rise vs. all but the yen during the first half of 2009 due to forced repatriation of dollars via deleveraging. That implies he does not think that the market is going up in that interval, right?

Where will this money go, if not treasuries?

Conversely, at the point that these flows diminish, one would think that treasury yields would have to rise to attract further foreign investment. However, at just that point, the dollar might begin to fall vs. other currencies, because the forced repatriation from deleveraging would be diminishing. This could indeed cause a cycle of extreme treasury interest rate increases, as foreign money would be even more difficult to find with the dollar tanking, and yet the need for such money to finance huge deficits from stimulus (and continuing trade deficits) would be increasing.

So, I do believe that treasuries are a bubble that will eventually collapse. But it occurs to me that the dollar may decline just as treasury values are tanking, and since funds that short treasuries such as TBT are in the dollar, you'd end up earning dollars just as the dollar was going down vs. other currencies. In other words, going short treasuries requires continuing to own the dollar, which may tank at the same time that treasuries do.

So, perhaps a better idea would be to go into the Euro at the point that deleveraging flows cease to support the dollar? It could be down pretty low by then - some think as low as $1.10.

If this is correct, then it comes down to a quantitative analysis regarding the extent of treasury decline vs. the extent of dollar decline. I am certainly not prepared to even speculate regarding such quantitative tradeoffs. But can anyone see a scenario in which treasury interest rates must rise but the dollar does not tank vs. other currencies?

Well, that's the general notion. Any thoughts?

]]> http://seekingalpha.com/article/110790-what-if-the-great-depression-analogy-is-wrong?source=feed#comment-341425 341425
We need to recognize that:

* The export of heavy industry from the U.S. to other nations is a key factor in the present trade imbalance, and in the terminal dependency upon monetary manipulation and, more benignly, the service economy, which are dysfunctional and unsustainable, respectively.

* A large part of what remains of U.S. industry is dedicated to military production, which is a net negative for the real economy, and that dependence upon the external projection of power has destroyed the integrity of the U.S. economy, while building a fifth column in the form of a military-industrial complex that tends to lock the U.S. in to this destabilizing policy.

* Other centers of power have emerged as the internal decay of the U.S. through militarism and other corruption has undermined U.S. economic power and military alliances.


We need some truly creative ways of addressing these problems, such as:

* Making deals with nations with net surplus reserves that have grown tired of financing U.S. overspending, to obtain additional investment in exchange for the U.S. (and its clients) drawing back from present aggressive policies, and also by using these funds for a massive conversion of the military industry to civilian productive purposes (e.g., green technology) that the world needs and that can therefore ultimately correct the trade imbalance.

* Cutting the military budget and using the proceeds for part of the required stimulus.

* Including as part of the stimulus package Federal grants for worker-run cooperatives to take over idled manufacturing facilities, as happened during the recent Argentinian crisis.

* Putting zombie banks out of their misery and dealing with the chain reaction of failures by replacing these failed institutions with direct public investment, instead of pouring TARP funds down a bottomless pit of financial chicanery.

* Tight regulation of what remains of the financial sector.

Can we do it? It comes down to our will to survive.

]]> Tue, 30 Dec 2008 10:47:26 -0500
We need to recognize that:

* The export of heavy industry from the U.S. to other nations is a key factor in the present trade imbalance, and in the terminal dependency upon monetary manipulation and, more benignly, the service economy, which are dysfunctional and unsustainable, respectively.

* A large part of what remains of U.S. industry is dedicated to military production, which is a net negative for the real economy, and that dependence upon the external projection of power has destroyed the integrity of the U.S. economy, while building a fifth column in the form of a military-industrial complex that tends to lock the U.S. in to this destabilizing policy.

* Other centers of power have emerged as the internal decay of the U.S. through militarism and other corruption has undermined U.S. economic power and military alliances.


We need some truly creative ways of addressing these problems, such as:

* Making deals with nations with net surplus reserves that have grown tired of financing U.S. overspending, to obtain additional investment in exchange for the U.S. (and its clients) drawing back from present aggressive policies, and also by using these funds for a massive conversion of the military industry to civilian productive purposes (e.g., green technology) that the world needs and that can therefore ultimately correct the trade imbalance.

* Cutting the military budget and using the proceeds for part of the required stimulus.

* Including as part of the stimulus package Federal grants for worker-run cooperatives to take over idled manufacturing facilities, as happened during the recent Argentinian crisis.

* Putting zombie banks out of their misery and dealing with the chain reaction of failures by replacing these failed institutions with direct public investment, instead of pouring TARP funds down a bottomless pit of financial chicanery.

* Tight regulation of what remains of the financial sector.

Can we do it? It comes down to our will to survive.

]]> http://seekingalpha.com/article/110790-what-if-the-great-depression-analogy-is-wrong?source=feed#comment-341414 341414
We need to recognize that:

* The export of heavy industry from the U.S. to other nations is a key factor in the present trade imbalance, and in the terminal dependency upon monetary manipulation and, more benignly, the service economy, which are dysfunctional and unsustainable, respectively.

* A large part of what remains of U.S. industry is dedicated to military production, which is a net negative for the real economy, and that dependence upon the external projection of power has destroyed the integrity of the U.S. economy, while building a fifth column in the form of a military-industrial complex that tends to lock the U.S. in to this destabilizing policy.

* Other centers of power have emerged as the internal decay of the U.S. through militarism and other corruption has undermined U.S. economic power and military alliances.


We need some truly creative ways of addressing these problems, such as:

* Making deals with nations with net surplus reserves that have grown tired of financing U.S. overspending, to obtain additional investment in exchange for the U.S. (and its clients) drawing back from present aggressive policies, and also by using these funds for a massive conversion of the military industry to civilian productive purposes (e.g., green technology) that the world needs and that can therefore ultimately correct the trade imbalance.

* Cutting the military budget and using the proceeds for part of the required stimulus.

* Including as part of the stimulus package Federal grants for worker-run cooperatives to take over idled manufacturing facilities, as happened during the recent Argentinian crisis.

* Putting zombie banks out of their misery and dealing with the chain reaction of failures by replacing these failed institutions with direct public investment, instead of pouring TARP funds down a bottomless pit of financial chicanery.

* Tight regulation of what remains of the financial sector.

Can we do it? It comes down to our will to survive.

]]> Tue, 30 Dec 2008 10:41:23 -0500
We need to recognize that:

* The export of heavy industry from the U.S. to other nations is a key factor in the present trade imbalance, and in the terminal dependency upon monetary manipulation and, more benignly, the service economy, which are dysfunctional and unsustainable, respectively.

* A large part of what remains of U.S. industry is dedicated to military production, which is a net negative for the real economy, and that dependence upon the external projection of power has destroyed the integrity of the U.S. economy, while building a fifth column in the form of a military-industrial complex that tends to lock the U.S. in to this destabilizing policy.

* Other centers of power have emerged as the internal decay of the U.S. through militarism and other corruption has undermined U.S. economic power and military alliances.


We need some truly creative ways of addressing these problems, such as:

* Making deals with nations with net surplus reserves that have grown tired of financing U.S. overspending, to obtain additional investment in exchange for the U.S. (and its clients) drawing back from present aggressive policies, and also by using these funds for a massive conversion of the military industry to civilian productive purposes (e.g., green technology) that the world needs and that can therefore ultimately correct the trade imbalance.

* Cutting the military budget and using the proceeds for part of the required stimulus.

* Including as part of the stimulus package Federal grants for worker-run cooperatives to take over idled manufacturing facilities, as happened during the recent Argentinian crisis.

* Putting zombie banks out of their misery and dealing with the chain reaction of failures by replacing these failed institutions with direct public investment, instead of pouring TARP funds down a bottomless pit of financial chicanery.

* Tight regulation of what remains of the financial sector.

Can we do it? It comes down to our will to survive.

]]> http://seekingalpha.com/article/112213-inflation-is-in-our-future-not-deflation?source=feed#comment-337371 337371 Wed, 24 Dec 2008 08:27:18 -0500 http://seekingalpha.com/article/102025-dollar-valuations-built-into-fomc-cut?source=feed#comment-293224 293224
I agree that the dollar is an animated corpse, jerked upward by deleveraging, without sufficient fundamentals to give it sustainable viability. But that deleveraging is still going on, and so the dollar still twitches. As for equities being over-valued, Nouriel Roubini opines that the markets could fall another 30 percent, and bases his conclusions on price/earnings.

Yesterday's rally is weird and unwarranted. Maybe something to do with the election? Nobody can seem to figure out what is causing it. Some combination of coming rate cut and Plunge Protection Team, perhaps...? Whatever it is, it will not last long. The Dow futures already are at negative 2 percent prior to Wednesday's open.

Whenever the market jerks upward briefly, as it did Tuesday, we see a pause in deleveraging, and the dollar trends downward, as does the yen. That gives a preview of what might happen when deleveraging actually ends. But that has not yet occurred.

It seems to me that bond liquidation could occur by foreign creditors (e.g., China) even without an rally in equities. If China has less incentive to export to the U.S. because of the tapping out of the U.S. consumer, and needs to start building its own middle class, it could take some of its dollars and try to spend them on its own population. I would guess that before that occurs they'll buy up everything in sight that they might possibly use through their SWF, a process that does not push the dollar downward so long as those selling the assets are doing so to get cash to pay dollar-denominated debts (i.e., the dollars they convert to euros or whatever to buy assets from distressed firms will get converted right back into dollars to pay the sellers' debts).

Frankly it is depressing to see everything falling apart so rapidly. Nobody really knows how this will turn out, and but here's my contribution to the confusion.

]]> Wed, 29 Oct 2008 05:16:32 -0400
I agree that the dollar is an animated corpse, jerked upward by deleveraging, without sufficient fundamentals to give it sustainable viability. But that deleveraging is still going on, and so the dollar still twitches. As for equities being over-valued, Nouriel Roubini opines that the markets could fall another 30 percent, and bases his conclusions on price/earnings.

Yesterday's rally is weird and unwarranted. Maybe something to do with the election? Nobody can seem to figure out what is causing it. Some combination of coming rate cut and Plunge Protection Team, perhaps...? Whatever it is, it will not last long. The Dow futures already are at negative 2 percent prior to Wednesday's open.

Whenever the market jerks upward briefly, as it did Tuesday, we see a pause in deleveraging, and the dollar trends downward, as does the yen. That gives a preview of what might happen when deleveraging actually ends. But that has not yet occurred.

It seems to me that bond liquidation could occur by foreign creditors (e.g., China) even without an rally in equities. If China has less incentive to export to the U.S. because of the tapping out of the U.S. consumer, and needs to start building its own middle class, it could take some of its dollars and try to spend them on its own population. I would guess that before that occurs they'll buy up everything in sight that they might possibly use through their SWF, a process that does not push the dollar downward so long as those selling the assets are doing so to get cash to pay dollar-denominated debts (i.e., the dollars they convert to euros or whatever to buy assets from distressed firms will get converted right back into dollars to pay the sellers' debts).

Frankly it is depressing to see everything falling apart so rapidly. Nobody really knows how this will turn out, and but here's my contribution to the confusion.

]]> http://seekingalpha.com/article/98530-golden-state-asks-public-pension-plan-for-help?source=feed#comment-274053 274053
If the U.S. government is broke, then where will the funding for this depression's green industry / infrastructure "WPA" come from? Government spending got us out of the last depression, but the parasites were more effective this time and have drained the host nation of its vital force.]]> Sun, 05 Oct 2008 13:34:30 -0400
If the U.S. government is broke, then where will the funding for this depression's green industry / infrastructure "WPA" come from? Government spending got us out of the last depression, but the parasites were more effective this time and have drained the host nation of its vital force.]]> http://seekingalpha.com/article/97965-an-end-of-quarter-dollar-rally-in-face-of-bailout-drama?source=feed#comment-270095 270095
Lately, while the target rate has remained at 2 percent, the effective rate has swung wildly as high as 7 percent and as low as about 1.3 percent. So, while public perception may be that the rate is at 2 percent, the effective rate is the result of the Fed's actual policies, as well as market conditions, including the overall reluctance that banks have to lend to one another.

The Fed fund futures mentioned in the article are settled at the effective rate, not the much more visible target rate, and so that is probably one of the main reasons that they do not accurately predict what the Fed is going to announce publicly as its target.

It occurs to me that since the dollar is extremely vulnerable, the Fed may not want to cut the visible rate, but may still be undertaking policies that attempt to lower it below the public target of 2 percent. I say attempt because in the current environment, dominated, as the article notes, by counterparty risk, this may not always be possible. Hence, the wild fluctuations in the effective rate, which usually follows the target fairly closely.

Since a rate cut must be supported by open market operations to inject liquidity sufficient to cause banks to lend to one another at the lower rate, and since the Fed has already swapped a great deal (all?) of its original 900 billion of good stuff for junk collateral, one has to wonder whether the Fed actually has the wherewithal to support a lower effective rate, but so far they are below the target at least some of the time. Didn't the treasury have to do a special bond issue to back $40 billion of the AIG bailout? That may have been the point that the Fed's assets were (at least temporarily) exhausted.

Regarding the LIBOR, while home equity loans were mentioned, the larger problem would seem to be ARMs, which are generally tied to the LIBOR. The ARMs are in the pipeline fully ARMed and waiting to explode in the coming months. If those adjustable rates are adjusted way higher due to LIBOR increases, it will make the calamity just that much worse.

Overall, a reasonable and well-considered article, IMHO.]]> Tue, 30 Sep 2008 21:50:39 -0400
Lately, while the target rate has remained at 2 percent, the effective rate has swung wildly as high as 7 percent and as low as about 1.3 percent. So, while public perception may be that the rate is at 2 percent, the effective rate is the result of the Fed's actual policies, as well as market conditions, including the overall reluctance that banks have to lend to one another.

The Fed fund futures mentioned in the article are settled at the effective rate, not the much more visible target rate, and so that is probably one of the main reasons that they do not accurately predict what the Fed is going to announce publicly as its target.

It occurs to me that since the dollar is extremely vulnerable, the Fed may not want to cut the visible rate, but may still be undertaking policies that attempt to lower it below the public target of 2 percent. I say attempt because in the current environment, dominated, as the article notes, by counterparty risk, this may not always be possible. Hence, the wild fluctuations in the effective rate, which usually follows the target fairly closely.

Since a rate cut must be supported by open market operations to inject liquidity sufficient to cause banks to lend to one another at the lower rate, and since the Fed has already swapped a great deal (all?) of its original 900 billion of good stuff for junk collateral, one has to wonder whether the Fed actually has the wherewithal to support a lower effective rate, but so far they are below the target at least some of the time. Didn't the treasury have to do a special bond issue to back $40 billion of the AIG bailout? That may have been the point that the Fed's assets were (at least temporarily) exhausted.

Regarding the LIBOR, while home equity loans were mentioned, the larger problem would seem to be ARMs, which are generally tied to the LIBOR. The ARMs are in the pipeline fully ARMed and waiting to explode in the coming months. If those adjustable rates are adjusted way higher due to LIBOR increases, it will make the calamity just that much worse.

Overall, a reasonable and well-considered article, IMHO.]]> http://seekingalpha.com/article/94977-sell-the-u-s-dollar-into-strength?source=feed#comment-251346 251346
First paragraph: insult, no information.

Second paragraph: Gloating about unsupported claims of your success, without saying on what basis you made your decisions, or how your criteria differed from those presented by the article.

Third paragraph: Telling us what we all know already, that gold is presently down. Well, the dollar is presently up, too. Does that mean that gold will remain down and the dollar will remain up? Where is the analysis?

Fourth paragraph: OK, you kind of make a claim here that the problems in Europe are comparable to or worse than those of the U.S., but you don't even exactly say that, and you certainly don't say why you think this is the case. It is not a credible premise, for so many obvious reasons, but why should I bother to list them, since you haven't listed a single reason for believing that Europe is in anywhere near the terrible shape that the U.S. is?

I felt compelled to respond to you because of the especially arrogant attitude with which you made your unsupported assertions. Arrogance is only bearable if it is backed up by something of intellectual interest.]]> Thu, 11 Sep 2008 08:28:28 -0400
First paragraph: insult, no information.

Second paragraph: Gloating about unsupported claims of your success, without saying on what basis you made your decisions, or how your criteria differed from those presented by the article.

Third paragraph: Telling us what we all know already, that gold is presently down. Well, the dollar is presently up, too. Does that mean that gold will remain down and the dollar will remain up? Where is the analysis?

Fourth paragraph: OK, you kind of make a claim here that the problems in Europe are comparable to or worse than those of the U.S., but you don't even exactly say that, and you certainly don't say why you think this is the case. It is not a credible premise, for so many obvious reasons, but why should I bother to list them, since you haven't listed a single reason for believing that Europe is in anywhere near the terrible shape that the U.S. is?

I felt compelled to respond to you because of the especially arrogant attitude with which you made your unsupported assertions. Arrogance is only bearable if it is backed up by something of intellectual interest.]]> http://seekingalpha.com/article/94977-sell-the-u-s-dollar-into-strength?source=feed#comment-251266 251266
I would disagree, however, that the dollar intervention was primarily intended to placate a (U.S.) public that is tired of inflation. That would not explain the participation of other central banks in the intervention, and the Fed could not have done this without a lot of help, or at least the tolerance of China and other major holders of dollars.

The reality is more complex. The U.S. owes more money than it can pay. Creditor nations have allowed the U.S. to run up a huge tab in order to build their own export industries, and possibly, if we can imagine them as being a bit diabolical, to put the U.S. into a weaker position. But in the process they have accumulated our moldy green scrip, which they've invested into our mortgage and equity bubbles, inflating them in the process, and thereby furthering a cycle of unsustainable consumption.

Now, it has become clear that the U.S. can never pay its debts. Even more importantly, the bubbles are popping, and the U.S. consumer is dying, and that is reducing the incentive that China and others have to keep propping up the U.S. economy and dollar in order to support exports to our (formerly) profligate consuming class. But if they pull the plug, then all of that green paper falls to its true value, and they have quite a lot of it. So, it is kind of a dilemma for everyone. And that is why so much energy is going into the various mechanisms of denial (e.g., bailouts, special lending windows, and so on) that postpone, and make worse, the final cataclysm.

The GSE bailout is the most recent and trenchant example. Here, the Federal government is "guaranteeing" the debts of foreign investors. But, the Federal government already borrows a large percentage of its budget each day from those same foreign investors. So, who will be asked to invest even more money to pay for this Federal guarantee? Those same foreigners, of course! You could say that it is a Ponzi scheme, except for the fact that there are no new suckers to be added - it is borrowing from Peter to pay...Peter! So, Peter had better be a schizophrenic if you want that scheme to work out for very long.

Somebody asked where they should put their money if they take it out of the dollar. This is a good question, as there is no safe place in a world that is falling apart. But there are many things that will probably be better than the dollar! So, look around and see what you can find. I'm leaning toward German sovereign debt, myself, but the analysis on which that is based is complicated and tenuous, and I am just an amateur, not someone who does this for a living. But anyway:

It's clear that the main U.S. trade imbalance is with Asia and the oil producing nations. However, Asia in particular is very export-oriented, and so its economy will suffer a serious blow when the U.S. consumption machine finally succumbs. It will probably not be able to grow its middle classes quickly enough to take up the slack. Therefore, it will need to look for ways to expand in areas of the world that do have significant consuming classes. I see Europe as one of the main such areas other than the U.S. So, my thought is that China will sell U.S. Treasuries and GSE bonds and buy European bonds to push the Euro in particular up relative to the yuan so that they can sell some of the exports that used to go to the U.S. (that they can't absorb internally) there.

Also, I'm a bit more afraid of currency controls and other forms of intervention affecting foreign investors in China in particular than in Europe, although that's not based on a good understanding of China, but rather, just a lack of information and general uneasiness. But China has tended toward insularity in the past.

As for gold, once again, probably better than the dollar, but gold is a commodity, and we're headed into a worldwide recession - possibly a depression. Commodities tend to lose value as demand drops. How much agreement will there be that gold is a reasonable store of value, when what people really need is food. Ask King Midas about gold - you can't eat it. A fiat currency such as the Euro that is tied to a real economy that makes stuff that people really want might actually do better - but then again, maybe not!

Good luck, if you deserve it! If you don't, you know who you are - focus on human relationships to get you through the coming difficulties.
]]> Thu, 11 Sep 2008 06:15:07 -0400
I would disagree, however, that the dollar intervention was primarily intended to placate a (U.S.) public that is tired of inflation. That would not explain the participation of other central banks in the intervention, and the Fed could not have done this without a lot of help, or at least the tolerance of China and other major holders of dollars.

The reality is more complex. The U.S. owes more money than it can pay. Creditor nations have allowed the U.S. to run up a huge tab in order to build their own export industries, and possibly, if we can imagine them as being a bit diabolical, to put the U.S. into a weaker position. But in the process they have accumulated our moldy green scrip, which they've invested into our mortgage and equity bubbles, inflating them in the process, and thereby furthering a cycle of unsustainable consumption.

Now, it has become clear that the U.S. can never pay its debts. Even more importantly, the bubbles are popping, and the U.S. consumer is dying, and that is reducing the incentive that China and others have to keep propping up the U.S. economy and dollar in order to support exports to our (formerly) profligate consuming class. But if they pull the plug, then all of that green paper falls to its true value, and they have quite a lot of it. So, it is kind of a dilemma for everyone. And that is why so much energy is going into the various mechanisms of denial (e.g., bailouts, special lending windows, and so on) that postpone, and make worse, the final cataclysm.

The GSE bailout is the most recent and trenchant example. Here, the Federal government is "guaranteeing" the debts of foreign investors. But, the Federal government already borrows a large percentage of its budget each day from those same foreign investors. So, who will be asked to invest even more money to pay for this Federal guarantee? Those same foreigners, of course! You could say that it is a Ponzi scheme, except for the fact that there are no new suckers to be added - it is borrowing from Peter to pay...Peter! So, Peter had better be a schizophrenic if you want that scheme to work out for very long.

Somebody asked where they should put their money if they take it out of the dollar. This is a good question, as there is no safe place in a world that is falling apart. But there are many things that will probably be better than the dollar! So, look around and see what you can find. I'm leaning toward German sovereign debt, myself, but the analysis on which that is based is complicated and tenuous, and I am just an amateur, not someone who does this for a living. But anyway:

It's clear that the main U.S. trade imbalance is with Asia and the oil producing nations. However, Asia in particular is very export-oriented, and so its economy will suffer a serious blow when the U.S. consumption machine finally succumbs. It will probably not be able to grow its middle classes quickly enough to take up the slack. Therefore, it will need to look for ways to expand in areas of the world that do have significant consuming classes. I see Europe as one of the main such areas other than the U.S. So, my thought is that China will sell U.S. Treasuries and GSE bonds and buy European bonds to push the Euro in particular up relative to the yuan so that they can sell some of the exports that used to go to the U.S. (that they can't absorb internally) there.

Also, I'm a bit more afraid of currency controls and other forms of intervention affecting foreign investors in China in particular than in Europe, although that's not based on a good understanding of China, but rather, just a lack of information and general uneasiness. But China has tended toward insularity in the past.

As for gold, once again, probably better than the dollar, but gold is a commodity, and we're headed into a worldwide recession - possibly a depression. Commodities tend to lose value as demand drops. How much agreement will there be that gold is a reasonable store of value, when what people really need is food. Ask King Midas about gold - you can't eat it. A fiat currency such as the Euro that is tied to a real economy that makes stuff that people really want might actually do better - but then again, maybe not!

Good luck, if you deserve it! If you don't, you know who you are - focus on human relationships to get you through the coming difficulties.
]]> http://seekingalpha.com/article/94157-job-numbers-don-t-freak-out-dollar-bulls?source=feed#comment-246688 246688
This column doestn't tell us a lot that we couldn't have read from the charts, but it does provide a nice little irritating grain of sand around which we unwashed folks can post our little pearls of wisdom.

Some of the other posters have opined that deflation might be the reason that the dollar is up vs. the Euro. Certainly, when you wipe out huge amounts of financial paper through write-downs and deleveraging, you reduce the number of dollars in circulation.

But consider that there is over $6 trillion in cumulative trade surplus waiting to rush in to fill that hole by buying up our businesses for a fraction of their earlier values. Did you notice that there are now 26 Sovereign Wealth Funds with over $2 trillion in dollars waiting to roll into the U.S. with their carpetbags? The IMF tried to get them to subscribe to a voluntary code of behavior last week, and they said, "OK, so long as there is no transparency and no enforcement mechanism." They are getting ready to put those dollars back into circulation.

With the U.S. consumer tapped out, there is less incentive for these export-oriented nations to continue to prop up the dollar so that they can sell to the U.S. Maybe if Europe is in better (not good, just better) shape they will buy some Eurozone treasuries to prop up the Euro so that they can start selling more there. And, of course, they will start to grow their middle classes, but that could take a few years to accomplish.

When the SWFs get here with their big empty shopping bags, will there be enough desirable businesses to consume all of those foreign-held greenbacks, given the cratering of the stock market and the U.S. economy? Already, we see Lehman walking around with its hat in its hand, sipping on a bottle of low cost gin and hallucinating contributors out of the shadows. Financials have been a rather harsh experience for foreign investors. If they don't get something more to their liking, how long will it be before those dollars find their way onto the forex markets to obtain the currencies of other nations that still have something to export? Then where will the dollar be going?

And let's not forget about *dis*-investment. The market is tanking. Fannie and Freddie are tanking. Oops - breaking news - U.S. is assuming Fannie and Freddie's debt - which makes me wonder: will the U.S. Treasury be able to retain the AAA rating on its bonds? Just one of those vile thoughts that sneaks in when everything is going to seed (and that's a euphemism).

Yes, the Euro has problems, but nothing like those of the U.S. The dollar is heading down. I live in the U.S., but still with all of our aggressive, illegal invasions, its hard to complain about this present turn of events. Hope that we can patch things together eventually and become a kinder, gentler place that only invades other nations, say, every twenty years or so. Here's a wild thought: make them save up the money in advance *before* they can have a war. *That* should keep things relatively peaceful. We U.S. citizens need to work on developing a sense of shame and disgust; this is my little contribution to that project.
]]> Fri, 05 Sep 2008 22:52:01 -0400
This column doestn't tell us a lot that we couldn't have read from the charts, but it does provide a nice little irritating grain of sand around which we unwashed folks can post our little pearls of wisdom.

Some of the other posters have opined that deflation might be the reason that the dollar is up vs. the Euro. Certainly, when you wipe out huge amounts of financial paper through write-downs and deleveraging, you reduce the number of dollars in circulation.

But consider that there is over $6 trillion in cumulative trade surplus waiting to rush in to fill that hole by buying up our businesses for a fraction of their earlier values. Did you notice that there are now 26 Sovereign Wealth Funds with over $2 trillion in dollars waiting to roll into the U.S. with their carpetbags? The IMF tried to get them to subscribe to a voluntary code of behavior last week, and they said, "OK, so long as there is no transparency and no enforcement mechanism." They are getting ready to put those dollars back into circulation.

With the U.S. consumer tapped out, there is less incentive for these export-oriented nations to continue to prop up the dollar so that they can sell to the U.S. Maybe if Europe is in better (not good, just better) shape they will buy some Eurozone treasuries to prop up the Euro so that they can start selling more there. And, of course, they will start to grow their middle classes, but that could take a few years to accomplish.

When the SWFs get here with their big empty shopping bags, will there be enough desirable businesses to consume all of those foreign-held greenbacks, given the cratering of the stock market and the U.S. economy? Already, we see Lehman walking around with its hat in its hand, sipping on a bottle of low cost gin and hallucinating contributors out of the shadows. Financials have been a rather harsh experience for foreign investors. If they don't get something more to their liking, how long will it be before those dollars find their way onto the forex markets to obtain the currencies of other nations that still have something to export? Then where will the dollar be going?

And let's not forget about *dis*-investment. The market is tanking. Fannie and Freddie are tanking. Oops - breaking news - U.S. is assuming Fannie and Freddie's debt - which makes me wonder: will the U.S. Treasury be able to retain the AAA rating on its bonds? Just one of those vile thoughts that sneaks in when everything is going to seed (and that's a euphemism).

Yes, the Euro has problems, but nothing like those of the U.S. The dollar is heading down. I live in the U.S., but still with all of our aggressive, illegal invasions, its hard to complain about this present turn of events. Hope that we can patch things together eventually and become a kinder, gentler place that only invades other nations, say, every twenty years or so. Here's a wild thought: make them save up the money in advance *before* they can have a war. *That* should keep things relatively peaceful. We U.S. citizens need to work on developing a sense of shame and disgust; this is my little contribution to that project.
]]> http://seekingalpha.com/article/93506-the-dollar-can-continue-to-rally-despite-the-weak-economy?source=feed#comment-243715 243715
What is your comment? "Whoa, look at that dollar go, even though the economy is tanking!"

I'm wondering why you are not instead stating that the fundamental weakness of the U.S. economy augurs against a continuing rise in the dollar's value against other currencies, and identifies the recent rise as an aberration rather than a trend. We should beware of chasing the chart, rather than giving a true prediction, through analysis, of what the dollar is likely to do next. This brings to mind those boilerplate statements that warn us that past performance is not a guarantee of what will happen in the future.

You cite the 3.3% increase in U.S. GDP during the second quarter. However, that number is not properly adjusted for inflation, which was at the highest levels in 17 years. As the London Financial Times relates,

"The true story on these GDP reports is the dubious use of the "deflator," the inflation number that government subtracts from nominal growth to derive supposedly "real" growth. The GDP deflator they use is far lower than other inflation measures, which, if used, would reveal negative real growth."

(see business.timesonline.c...
titled "US GDP rise gives false recovery hope")

That's right - *negative* real growth, when properly adjusted for inflation.

As for the decrease in the trade deficit, that was in June, and was based upon a weakening dollar. The U.S. trade deficit stands at over 5 percent of GDP. According to the IMF World Economic Outlook report of this past April, a sustainable deficit would be between 2 and 3 percent. That is at least 40 percent less than the present deficit. June's decline in the deficit was 4.1 percent of the deficit, so the dollar would have to continue falling from where it was in June sufficient to trim at least ten times that amount from the deficit before the dollar could stabilize.

I would also note that the increase in exports that created the change in the deficit may itself be unsustainable, as U.S. manufacturing has been cored out over the past couple of decades through the relocation of plants to cheap labor havens under NAFTA, CAFTA, APEC and so on.

You write that "The Federal Reserve has already done its work and rates are low enough that they will not be decreased again in this monetary policy cycle. Everyone else on the other with the exception of the Bank of Japan still have plenty of room to cut rates."

Are you saying that because rates in the U.S. have gone down, now they are likely to go up? And are you saying that because rates in Europe have gone up that now they are likely to go down? That hardly deserves to be called an argument. Surely we must consider the specific economic and inflation-related factors before making such a judgement.

You end by saying that the dollar's recent strength may not be good for the U.S. economy. This is true, but the problems of the U.S. economy are much more serious than that. We are talking about an economy that is dependent upon constant foreign infusions of investments and credit. The kind strangers who are extending that credit have reasons of their own for doing so, and as the U.S. economy implodes, while inflation grows in China and elsewhere, some of those reasons are starting to look less convincing.
]]> Tue, 02 Sep 2008 08:01:33 -0400
What is your comment? "Whoa, look at that dollar go, even though the economy is tanking!"

I'm wondering why you are not instead stating that the fundamental weakness of the U.S. economy augurs against a continuing rise in the dollar's value against other currencies, and identifies the recent rise as an aberration rather than a trend. We should beware of chasing the chart, rather than giving a true prediction, through analysis, of what the dollar is likely to do next. This brings to mind those boilerplate statements that warn us that past performance is not a guarantee of what will happen in the future.

You cite the 3.3% increase in U.S. GDP during the second quarter. However, that number is not properly adjusted for inflation, which was at the highest levels in 17 years. As the London Financial Times relates,

"The true story on these GDP reports is the dubious use of the "deflator," the inflation number that government subtracts from nominal growth to derive supposedly "real" growth. The GDP deflator they use is far lower than other inflation measures, which, if used, would reveal negative real growth."

(see business.timesonline.c...
titled "US GDP rise gives false recovery hope")

That's right - *negative* real growth, when properly adjusted for inflation.

As for the decrease in the trade deficit, that was in June, and was based upon a weakening dollar. The U.S. trade deficit stands at over 5 percent of GDP. According to the IMF World Economic Outlook report of this past April, a sustainable deficit would be between 2 and 3 percent. That is at least 40 percent less than the present deficit. June's decline in the deficit was 4.1 percent of the deficit, so the dollar would have to continue falling from where it was in June sufficient to trim at least ten times that amount from the deficit before the dollar could stabilize.

I would also note that the increase in exports that created the change in the deficit may itself be unsustainable, as U.S. manufacturing has been cored out over the past couple of decades through the relocation of plants to cheap labor havens under NAFTA, CAFTA, APEC and so on.

You write that "The Federal Reserve has already done its work and rates are low enough that they will not be decreased again in this monetary policy cycle. Everyone else on the other with the exception of the Bank of Japan still have plenty of room to cut rates."

Are you saying that because rates in the U.S. have gone down, now they are likely to go up? And are you saying that because rates in Europe have gone up that now they are likely to go down? That hardly deserves to be called an argument. Surely we must consider the specific economic and inflation-related factors before making such a judgement.

You end by saying that the dollar's recent strength may not be good for the U.S. economy. This is true, but the problems of the U.S. economy are much more serious than that. We are talking about an economy that is dependent upon constant foreign infusions of investments and credit. The kind strangers who are extending that credit have reasons of their own for doing so, and as the U.S. economy implodes, while inflation grows in China and elsewhere, some of those reasons are starting to look less convincing.
]]> http://seekingalpha.com/article/92232-10-financial-entities-on-the-brink?source=feed#comment-237011 237011
And yes, foreign investors have already lost their shirts on financials, and so are reluctant at this point to lose their trousers, as well. So, there goes another possible way of postponing massive insolvencies. How long will it be before CDO assets have to be sold for their true worth? Merrill Lynch just unloaded a bunch of these for a tiny fraction of their mark to model value, and they had to finance that purchase with their own money!

Hey, you guys who are tearing into Mish regarding this column: if you are such bulls, then how come you appear to have been hibernating in a cave during the bulk of this crisis? Wake up and smell the burning mortgage-backed paper.
]]> Fri, 22 Aug 2008 23:48:32 -0400
And yes, foreign investors have already lost their shirts on financials, and so are reluctant at this point to lose their trousers, as well. So, there goes another possible way of postponing massive insolvencies. How long will it be before CDO assets have to be sold for their true worth? Merrill Lynch just unloaded a bunch of these for a tiny fraction of their mark to model value, and they had to finance that purchase with their own money!

Hey, you guys who are tearing into Mish regarding this column: if you are such bulls, then how come you appear to have been hibernating in a cave during the bulk of this crisis? Wake up and smell the burning mortgage-backed paper.
]]> http://seekingalpha.com/article/92240-financial-crisis-getting-old?source=feed#comment-237001 237001 Fri, 22 Aug 2008 23:19:40 -0400 http://seekingalpha.com/article/91260-start-looking-for-a-bottom?source=feed#comment-233709 233709 www.nytimes.com/2008/0...
]]> Tue, 19 Aug 2008 02:25:31 -0400 www.nytimes.com/2008/0...
]]> http://seekingalpha.com/article/90051-forex-wrapup-dollar-benefits-as-traders-focus-on-weak-economies-elsewhere?source=feed#comment-231497 231497
First of all, as I mentioned, as recently as July 30th Grace opined that the dollar rally was likely to stall just as it really took off, so based upon what should we watch her for further news?

Secondly, as everyone knows and agrees, if Trichet continues to increase interest rates, that favors the Euro and puts downward pressure on the USD, not the other way around as you have stated.

Thirdly, yes, the European economy would be able to export more if the dollar is stronger, so I agree with you there, although of course a stronger dollar means that the U.S. can continue to run a deficit better, which feeds inflation in Europe, and that is an offsetting concern that may make the ECB, whose mission is to control inflation, take a hard line on interest rates.

Finally, the more inflation China has the less inclined it will be to continue supporting the dollar, which is the most important single thing that has kept the dollar afloat at all for so long - so Chinese inflation is not good for the dollar. One could argue that the present decline of commodity prices helps to *reduce* Chinese inflation, and therefore gives them more room to support their exports to the U.S. by supporting the USD, and that would be a reasonable argument, but you seem to have said the opposite.

And, the U.S. does not really benefit from a rising dollar, because as the world's largest debtor nation, the less its currency is worth, the lower the value of its outstanding debts to others. Inflation always favors debtors, although of course if they have to borrow more the cost of borrowing will go up.]]> Fri, 15 Aug 2008 16:24:26 -0400
First of all, as I mentioned, as recently as July 30th Grace opined that the dollar rally was likely to stall just as it really took off, so based upon what should we watch her for further news?

Secondly, as everyone knows and agrees, if Trichet continues to increase interest rates, that favors the Euro and puts downward pressure on the USD, not the other way around as you have stated.

Thirdly, yes, the European economy would be able to export more if the dollar is stronger, so I agree with you there, although of course a stronger dollar means that the U.S. can continue to run a deficit better, which feeds inflation in Europe, and that is an offsetting concern that may make the ECB, whose mission is to control inflation, take a hard line on interest rates.

Finally, the more inflation China has the less inclined it will be to continue supporting the dollar, which is the most important single thing that has kept the dollar afloat at all for so long - so Chinese inflation is not good for the dollar. One could argue that the present decline of commodity prices helps to *reduce* Chinese inflation, and therefore gives them more room to support their exports to the U.S. by supporting the USD, and that would be a reasonable argument, but you seem to have said the opposite.

And, the U.S. does not really benefit from a rising dollar, because as the world's largest debtor nation, the less its currency is worth, the lower the value of its outstanding debts to others. Inflation always favors debtors, although of course if they have to borrow more the cost of borrowing will go up.]]> http://seekingalpha.com/article/90107-a-closer-look-at-the-dollar-rally?source=feed#comment-229091 229091
goldmoney.com/en/comme...

"When central banks intervene in the currency markets, they exchange their currency for dollars. Central banks then use the dollars they acquire to buy US government debt instruments so that they can earn interest on their money. The debt instruments central banks acquire are held in custody for them at the Federal Reserve, which reports this amount weekly.

"On July 16, 2008 (the closest date of the weekly reports to the July 15th low in the Dollar Index), the Federal Reserve reported holding $2,349 billion of US government paper in custody for central banks. In its report released today, this amount had grown over the past three weeks to $2,401 billion, a 38.4% annual rate of growth. To put this phenomenally high growth rate into perspective, for the twelve months ending this past July 16th, assets in the Federal Reserve's custody account grew by 17.3%, which is less than one-half the growth rate experienced over the past three weeks."

That is $650 billion in just three weeks. To give an idea of how much money this is, I think it is about 4.4 percent of the GDP for the entire Eurozone. One would have to think that intervention at those levels is not sustainable. Rather, it is probably an attempt to batten down the hatches by wringing out speculative bets vs. the dollar in preparation for the inevitable continued eruption of very, very bad economic news from the U.S. The goal would probably be to prevent a disorderly decline of the U.S. currency.
]]> Tue, 12 Aug 2008 23:59:07 -0400
goldmoney.com/en/comme...

"When central banks intervene in the currency markets, they exchange their currency for dollars. Central banks then use the dollars they acquire to buy US government debt instruments so that they can earn interest on their money. The debt instruments central banks acquire are held in custody for them at the Federal Reserve, which reports this amount weekly.

"On July 16, 2008 (the closest date of the weekly reports to the July 15th low in the Dollar Index), the Federal Reserve reported holding $2,349 billion of US government paper in custody for central banks. In its report released today, this amount had grown over the past three weeks to $2,401 billion, a 38.4% annual rate of growth. To put this phenomenally high growth rate into perspective, for the twelve months ending this past July 16th, assets in the Federal Reserve's custody account grew by 17.3%, which is less than one-half the growth rate experienced over the past three weeks."

That is $650 billion in just three weeks. To give an idea of how much money this is, I think it is about 4.4 percent of the GDP for the entire Eurozone. One would have to think that intervention at those levels is not sustainable. Rather, it is probably an attempt to batten down the hatches by wringing out speculative bets vs. the dollar in preparation for the inevitable continued eruption of very, very bad economic news from the U.S. The goal would probably be to prevent a disorderly decline of the U.S. currency.
]]> http://seekingalpha.com/article/90107-a-closer-look-at-the-dollar-rally?source=feed#comment-229090 229090
The main thrust of the post, regarding currency intervention supporting the U.S. dollar, is not affected by this correction. --LT]]> Tue, 12 Aug 2008 23:54:55 -0400
The main thrust of the post, regarding currency intervention supporting the U.S. dollar, is not affected by this correction. --LT]]> http://seekingalpha.com/article/90107-a-closer-look-at-the-dollar-rally?source=feed#comment-227489 227489 Mon, 11 Aug 2008 03:48:46 -0400 http://seekingalpha.com/article/90107-a-closer-look-at-the-dollar-rally?source=feed#comment-227487 227487
Here is the chart (you have to change the FROM: date at the bottom to 6/1/2008 to get a good view, as the Ruble's
re-valuation otherwise messes it up):

tinyurl.com/6c3fzg

As can be seen, not only the Euro, but also the Swiss Franc (CHF), the Japanese Yen (JPY), the Canadian Dollar (CAD) and the British Pound (GBP) have all fallen off dramatically vs. the dollar since August 1st.

So, the claim that this is due to Euro weakness rather than to support for the dollar cannot be, well, supported.

Interestingly, the yuan (CNY) has remained pretty much level with USD.

Even more interesting, the Russian ruble (RUB) has shot dramatically *up* vs. USD.

So, I get the impression that there is a support operation going on for the dollar. China is already supporting it and probably did not want to do more at this point. Russia probably did not want to get on board because of its strong antipathy to the U.S., which has tried to build a first strike capability against it in Eastern Europe, and may have instigated the recent brush-up with Georgia. But the European and Swiss Central Banks, which has swap lines already set up with the Fed that perhaps were the instruments of this (hypothetical) support, seem to have done more than their share. Canada is more resource based, so given the central bank support from ECB and the Swiss, may have fallen just because of its commodity dependence - or maybe it actively helped, too. As for Japan, they've been supporting for a long time via the carry trade, but now carry is down somewhat due to the volatility in the forex, which makes those trades more risky (which by the way does not indicate much confidence that the recent USD moves will continue monotonically, or stabilize, either). But they do have problems of their own, in part from having supported the carry trade for so long. So, maybe the Japanese decline vs. USD is just a knock-on effect of ECB and Swiss pro-USD intervention, combined with JPY weakness.

Well, that is very "speculative" (no play upon words intended or taken), but what seems certain is that we are seeing the dollar moving up rather than the Euro moving down due to Eurozone weakness. If the Euro and CHF are moving down somewhat more than the Yen or the yuan, it is probably because those are the banks most actively intervening on behalf of USD.

]]> Mon, 11 Aug 2008 03:42:27 -0400
Here is the chart (you have to change the FROM: date at the bottom to 6/1/2008 to get a good view, as the Ruble's
re-valuation otherwise messes it up):

tinyurl.com/6c3fzg

As can be seen, not only the Euro, but also the Swiss Franc (CHF), the Japanese Yen (JPY), the Canadian Dollar (CAD) and the British Pound (GBP) have all fallen off dramatically vs. the dollar since August 1st.

So, the claim that this is due to Euro weakness rather than to support for the dollar cannot be, well, supported.

Interestingly, the yuan (CNY) has remained pretty much level with USD.

Even more interesting, the Russian ruble (RUB) has shot dramatically *up* vs. USD.

So, I get the impression that there is a support operation going on for the dollar. China is already supporting it and probably did not want to do more at this point. Russia probably did not want to get on board because of its strong antipathy to the U.S., which has tried to build a first strike capability against it in Eastern Europe, and may have instigated the recent brush-up with Georgia. But the European and Swiss Central Banks, which has swap lines already set up with the Fed that perhaps were the instruments of this (hypothetical) support, seem to have done more than their share. Canada is more resource based, so given the central bank support from ECB and the Swiss, may have fallen just because of its commodity dependence - or maybe it actively helped, too. As for Japan, they've been supporting for a long time via the carry trade, but now carry is down somewhat due to the volatility in the forex, which makes those trades more risky (which by the way does not indicate much confidence that the recent USD moves will continue monotonically, or stabilize, either). But they do have problems of their own, in part from having supported the carry trade for so long. So, maybe the Japanese decline vs. USD is just a knock-on effect of ECB and Swiss pro-USD intervention, combined with JPY weakness.

Well, that is very "speculative" (no play upon words intended or taken), but what seems certain is that we are seeing the dollar moving up rather than the Euro moving down due to Eurozone weakness. If the Euro and CHF are moving down somewhat more than the Yen or the yuan, it is probably because those are the banks most actively intervening on behalf of USD.

]]> http://seekingalpha.com/article/90107-a-closer-look-at-the-dollar-rally?source=feed#comment-227378 227378
Eurozone:

tinyurl.com/6626nr

So, OK, yes, the balance of payments is slightly negative and getting slightly more negative.
As a percent of GDP for Eurozone it went from -0.246% to -0.723%, 2007-2008, slightly above noise level.


Now, here is the U.S.:

tinyurl.com/63fg8m

The balance of payments is hugely negative, but it is true it is getting less negative.
As a percent of GDP it went from -5.335 to -4.330, 2007-2008, which is a significant reduction.

As an aside, you might want to consider that the U.S. GDP is bloated with useless military spending,
which is not true of the Eurozone, and so if one were to consider the GDP without this useless
spending, the percentage of trade deficit would be even higher than it is (not sure how it would
affect the trend). Why mention this? Because the military budget is funded by deficit spending, and
so could be arbitrarily high, which makes the economy seem arbitrarily large, and so could substantially
dilute a truly enormous trade deficit in an artificially large GDP. I don't know about you, but
if one half of a nation's economic activity amounts to borrowing money and burning it in a hole on the
lawn of the White House (if only military spending were so harmless), I'd certainly think that the real
size of its real economy was not as large as GDP would indicate, and would evaluate the significance of
its deficit accordingly. For example, the ability of the U.S. to export its way out of a deficit might not be increased by the tonnage of explosives that it stockpiles and/or drops on the heads of other people.

Whatever you may think of that argument, it must be admitted that the U.S. deficit is even nominally speaking six times that of the Eurozone as a percentage of GDP.

Note that these figures are the annual amounts, not the cumulative amounts.

According to the April, 2008 IMF WEO report, the "sustainable" level of a trade deficit is somewhere between 2 and 3 percent of GDP. Eurozone is obviously way under that level. U.S., on the other hand, is way above it. So, by that logic, the dollar's exchange rate would have to fall (at least vs. its major trading partners) by quite a bit more than it has in the last year.

If you figure that in the past year (April 2007 to April 2008) the deficit declined as a percent of GDP by
about one percent, and during that same interval, the dollar declined by about 12.5 percent vs. the Euro,
and consider that the dollar has at least another 1.3 percent to go to reach the IMF's "sustainable" level, one might think that it still had some distance to fall. Of course, maybe most of the fall will be vs. the yuan and not vs. the Euro. But if the U.S. economy is tanking, and China can't sell to U.S. anymore, and allows its currency to appreciate vs. the dollar (as it has been), where is China going to put those dollars that it has accumulated and is no longer using to buy treasury bonds to prop up the dollar? They can't absorb their present productive capacity internally yet, so they will have to sell more to Eurozone, and will probably start to prop up the Euro and sell to European consumers, and invest in European bonds and so on. Some, of course, will go to buy whatever is available for purchase in the U.S. via China's Sovereign Wealth acquisitions. Eventually, dollars will have to end up on the forex being converted into other currencies of nations that have some moveable goods.

Beyond the annual balance of payments deficit, there is a cumulative deficit of perhaps $7 Trillion dollars out there already as claims against the U.S. Certainly, that must be considered a liability. I don't know what the cumulative Eurozone deficit is, but I have to think about zero or even positive given the tiny present annual increments and even smaller earlier annual increments.

I think that implicit in those who think this recent dollar appreciation is real is the idea that all of the bad stuff about the U.S. has already been priced into the dollar. I don't believe it. The U.S. is still depending upon the "kindness of strangers," but those strangers are getting less enthused as the U.S. becomes less of a consumer and more of a simple dead weight.


Oh, and I'm not sure where you get the idea that "It's not so much dollar strength you're seeing as much as the euro losing value relative to other currencies...." According to this article,
"Strong U.S. Dollar Lone Holdout Against Well-Bid Euro," the Euro is rising against most other currencies.
Haven't actually check the charts, though - am I wrong about that?

www.economicnews.ca/ce...

Running out of time, but that's what I've got right now.

]]> Sun, 10 Aug 2008 20:33:25 -0400
Eurozone:

tinyurl.com/6626nr

So, OK, yes, the balance of payments is slightly negative and getting slightly more negative.
As a percent of GDP for Eurozone it went from -0.246% to -0.723%, 2007-2008, slightly above noise level.


Now, here is the U.S.:

tinyurl.com/63fg8m

The balance of payments is hugely negative, but it is true it is getting less negative.
As a percent of GDP it went from -5.335 to -4.330, 2007-2008, which is a significant reduction.

As an aside, you might want to consider that the U.S. GDP is bloated with useless military spending,
which is not true of the Eurozone, and so if one were to consider the GDP without this useless
spending, the percentage of trade deficit would be even higher than it is (not sure how it would
affect the trend). Why mention this? Because the military budget is funded by deficit spending, and
so could be arbitrarily high, which makes the economy seem arbitrarily large, and so could substantially
dilute a truly enormous trade deficit in an artificially large GDP. I don't know about you, but
if one half of a nation's economic activity amounts to borrowing money and burning it in a hole on the
lawn of the White House (if only military spending were so harmless), I'd certainly think that the real
size of its real economy was not as large as GDP would indicate, and would evaluate the significance of
its deficit accordingly. For example, the ability of the U.S. to export its way out of a deficit might not be increased by the tonnage of explosives that it stockpiles and/or drops on the heads of other people.

Whatever you may think of that argument, it must be admitted that the U.S. deficit is even nominally speaking six times that of the Eurozone as a percentage of GDP.

Note that these figures are the annual amounts, not the cumulative amounts.

According to the April, 2008 IMF WEO report, the "sustainable" level of a trade deficit is somewhere between 2 and 3 percent of GDP. Eurozone is obviously way under that level. U.S., on the other hand, is way above it. So, by that logic, the dollar's exchange rate would have to fall (at least vs. its major trading partners) by quite a bit more than it has in the last year.

If you figure that in the past year (April 2007 to April 2008) the deficit declined as a percent of GDP by
about one percent, and during that same interval, the dollar declined by about 12.5 percent vs. the Euro,
and consider that the dollar has at least another 1.3 percent to go to reach the IMF's "sustainable" level, one might think that it still had some distance to fall. Of course, maybe most of the fall will be vs. the yuan and not vs. the Euro. But if the U.S. economy is tanking, and China can't sell to U.S. anymore, and allows its currency to appreciate vs. the dollar (as it has been), where is China going to put those dollars that it has accumulated and is no longer using to buy treasury bonds to prop up the dollar? They can't absorb their present productive capacity internally yet, so they will have to sell more to Eurozone, and will probably start to prop up the Euro and sell to European consumers, and invest in European bonds and so on. Some, of course, will go to buy whatever is available for purchase in the U.S. via China's Sovereign Wealth acquisitions. Eventually, dollars will have to end up on the forex being converted into other currencies of nations that have some moveable goods.

Beyond the annual balance of payments deficit, there is a cumulative deficit of perhaps $7 Trillion dollars out there already as claims against the U.S. Certainly, that must be considered a liability. I don't know what the cumulative Eurozone deficit is, but I have to think about zero or even positive given the tiny present annual increments and even smaller earlier annual increments.

I think that implicit in those who think this recent dollar appreciation is real is the idea that all of the bad stuff about the U.S. has already been priced into the dollar. I don't believe it. The U.S. is still depending upon the "kindness of strangers," but those strangers are getting less enthused as the U.S. becomes less of a consumer and more of a simple dead weight.


Oh, and I'm not sure where you get the idea that "It's not so much dollar strength you're seeing as much as the euro losing value relative to other currencies...." According to this article,
"Strong U.S. Dollar Lone Holdout Against Well-Bid Euro," the Euro is rising against most other currencies.
Haven't actually check the charts, though - am I wrong about that?

www.economicnews.ca/ce...

Running out of time, but that's what I've got right now.

]]> http://seekingalpha.com/article/90051-forex-wrapup-dollar-benefits-as-traders-focus-on-weak-economies-elsewhere?source=feed#comment-226975 226975
It's not "old;" it's a magazine story that is being serialized in installments. Wait for the next one, coming quite soon. The suspense is in wondering what it will be? Fannie insolvency? Freddie insolvency? Housing values? Consumer spending? More writedowns beyond subprime in Alt-A, credit card debt (up $15 billion in July), auto loans, student loans? Hundreds of new bank insolvencies, leading the FDIC to appeal to the government for a bailout (it had only 53 billion, and Indymac alone took about 23 billion up front, all of which but 4-8 billion will be recovered, but not for 6 years or so, so they could easily run out). Stock values as consumers shut their wallets? Credit double crunch as the U.S. government pumps hundreds of billions into the deflating housing bubble by bailing out the GSEs and maybe the FDIC, and has to issue more treasuries at very high interest rates to fund those bailouts? Flight of foreign capital from GSE bonds and treasuries?

It's like waiting for the other shoe to drop when your upstairs neighbor is a centipede. Yeah, it's "old" like Europe is so "old world" and dried up, as Bush tried to claim. We only like "new" stories here, because here in the good old USA we have no historical memory. If something has already happened, then, as the song goes, "I said it once - whyyyy say it again?!"

I'm truly shocked that you could attempt to offset all of the above with some vague words about rate expectations changing. Based upon misreading Trichet's raised right eyebrow - how prophetic. Do you think that these interest rate changes rule the economic world?

And what in the Eurozone compares with the above? U.S. problems are orders of magnitude greater than those of the Eurozone.

Sorry - the dollar increase is an anomaly. You yourself predicted that the dollar's rise would not continue on July 30th, in your article "Dollar Rally Likely to Stall." This present article shows that you have no foundation in analysis - your articles are blown about by the winds of exchange rates, and your feet no longer connect with the ground.]]> Sun, 10 Aug 2008 01:15:56 -0400
It's not "old;" it's a magazine story that is being serialized in installments. Wait for the next one, coming quite soon. The suspense is in wondering what it will be? Fannie insolvency? Freddie insolvency? Housing values? Consumer spending? More writedowns beyond subprime in Alt-A, credit card debt (up $15 billion in July), auto loans, student loans? Hundreds of new bank insolvencies, leading the FDIC to appeal to the government for a bailout (it had only 53 billion, and Indymac alone took about 23 billion up front, all of which but 4-8 billion will be recovered, but not for 6 years or so, so they could easily run out). Stock values as consumers shut their wallets? Credit double crunch as the U.S. government pumps hundreds of billions into the deflating housing bubble by bailing out the GSEs and maybe the FDIC, and has to issue more treasuries at very high interest rates to fund those bailouts? Flight of foreign capital from GSE bonds and treasuries?

It's like waiting for the other shoe to drop when your upstairs neighbor is a centipede. Yeah, it's "old" like Europe is so "old world" and dried up, as Bush tried to claim. We only like "new" stories here, because here in the good old USA we have no historical memory. If something has already happened, then, as the song goes, "I said it once - whyyyy say it again?!"

I'm truly shocked that you could attempt to offset all of the above with some vague words about rate expectations changing. Based upon misreading Trichet's raised right eyebrow - how prophetic. Do you think that these interest rate changes rule the economic world?

And what in the Eurozone compares with the above? U.S. problems are orders of magnitude greater than those of the Eurozone.

Sorry - the dollar increase is an anomaly. You yourself predicted that the dollar's rise would not continue on July 30th, in your article "Dollar Rally Likely to Stall." This present article shows that you have no foundation in analysis - your articles are blown about by the winds of exchange rates, and your feet no longer connect with the ground.]]> http://seekingalpha.com/article/90084-king-dollar-roars-back?source=feed#comment-226967 226967
Since, from an anthropological standpoint, I find this behavior fascinating, I decided to look at this author's other recent articles. Here is a sample:

# King Dollar Roars Back

# Adjusted for Growth in the US Labor Force, July's Jobless Claims Are Below Average

# Economic Stimulus Package Boosts Real Disposable Income

# U.S. Oil Production Today Same as in 1948

# Second Quarter Homeownership Rate Has Largest Increase in Four Years

# There's Been Major Deflation for Some Products

And, possibly my favorite:

# Putting $1T Subprime Mortgage Losses in Perspective


This guy must sit in front of his computer all day with headphones on and Bobby McFerrin's famous mantra on infinite repeat.
]]> Sun, 10 Aug 2008 00:24:06 -0400
Since, from an anthropological standpoint, I find this behavior fascinating, I decided to look at this author's other recent articles. Here is a sample:

# King Dollar Roars Back

# Adjusted for Growth in the US Labor Force, July's Jobless Claims Are Below Average

# Economic Stimulus Package Boosts Real Disposable Income

# U.S. Oil Production Today Same as in 1948

# Second Quarter Homeownership Rate Has Largest Increase in Four Years

# There's Been Major Deflation for Some Products

And, possibly my favorite:

# Putting $1T Subprime Mortgage Losses in Perspective


This guy must sit in front of his computer all day with headphones on and Bobby McFerrin's famous mantra on infinite repeat.
]]> http://seekingalpha.com/article/90107-a-closer-look-at-the-dollar-rally?source=feed#comment-226960 226960
Sure, there are a few problems in Spain with the housing market, but those bonds are covered bonds which are regulated to have much higher loan to value ratios and which are based upon loans that have not been lent out to paupers. Sure, there are European banks that got into the subprime party and now have big hangovers, but those are knock-on effects from the much larger U.S. disaster.

The Eurozone consumes more than half of its own production. It has other markets for its goods besides the U.S.

So, why has the dollar skyrocketed in the last few weeks, and especially in the last few days. I surely don't know, but here is my theory. With the U.S. economy getting hit with one historic body blow after another (most recently the technical insolvency or near-insolvency of the two main remaining supports for the mortgage bubble), central banks concerned about the possibility of a total run on the dollar have decided to wring out as much of the speculative downside bets vs. the dollar as they can, forcing those shorting the dollar to cover their betts, thereby raising the dollar up on the very scaffold that was intended to hang it. I think that they've used targeted intervention to accomplish that end.

I suspect that this is their way of battening down the hatches for the remaining economic disasters yet to befall the U.S. They also hope to scare U.S. investors who have fled the dollar (who are not speculators) back into the dollar fold.

Nobody wants a disorderly dollar decline, and I think that it is concern about such a disorderly decline that has caused the central banks to intervene.

Naturally, when I see the dollar roaring upward the way it has, it makes me question my own theories, if not my sanity, but it makes no sense at all based upon fundamentals, so then, what is it, if not intervention? Somebody tell me; I would really like to know.
]]> Sun, 10 Aug 2008 00:07:11 -0400
Sure, there are a few problems in Spain with the housing market, but those bonds are covered bonds which are regulated to have much higher loan to value ratios and which are based upon loans that have not been lent out to paupers. Sure, there are European banks that got into the subprime party and now have big hangovers, but those are knock-on effects from the much larger U.S. disaster.

The Eurozone consumes more than half of its own production. It has other markets for its goods besides the U.S.

So, why has the dollar skyrocketed in the last few weeks, and especially in the last few days. I surely don't know, but here is my theory. With the U.S. economy getting hit with one historic body blow after another (most recently the technical insolvency or near-insolvency of the two main remaining supports for the mortgage bubble), central banks concerned about the possibility of a total run on the dollar have decided to wring out as much of the speculative downside bets vs. the dollar as they can, forcing those shorting the dollar to cover their betts, thereby raising the dollar up on the very scaffold that was intended to hang it. I think that they've used targeted intervention to accomplish that end.

I suspect that this is their way of battening down the hatches for the remaining economic disasters yet to befall the U.S. They also hope to scare U.S. investors who have fled the dollar (who are not speculators) back into the dollar fold.

Nobody wants a disorderly dollar decline, and I think that it is concern about such a disorderly decline that has caused the central banks to intervene.

Naturally, when I see the dollar roaring upward the way it has, it makes me question my own theories, if not my sanity, but it makes no sense at all based upon fundamentals, so then, what is it, if not intervention? Somebody tell me; I would really like to know.
]]> http://seekingalpha.com/article/88618-dollar-wins-on-euro-pound-weakness?source=feed#comment-221239 221239
shadowstats.com's alternate data series shows a continuation of the suppressed M3 figure, and that has indeed fallen off somewhat in the last few months, although overall the trend is *hugely* upward. My thoughts on this would be that it reflects the destruction of balance sheet and now even some off-balance-sheet CDOs, etc., that are being marked to market instead of to model at last. Note the National Australian Bank having written down to zero over $1 billion of such junk, all based on U.S. mortgages, and Merrill Lynch's subsequent writedown of billions of its own such assets to 22 cents on the dollar (see smirkingchimp.com/thre...).

Such admissions should be reflected as a reduction of the money supply, right? Deflation and deleveraging will, in fact, reduce the money supply, all other things being equal.

Of course, the Fed has been backfilling this furiously by lending out treasuries to troubled institutions in exchange for their CDO junk. And that's where I have to ask JasonC: Won't these treasuries, and the ones that the Fed has sold, be used for additional money creation on margin that the CDO junk could not (any longer) be used for?

So, we do have destruction of wealth, and hence money supply, but we also have some re-flation from the Fed, and now from the Federal government with the $300 billion credit line it recently extended to Fannie and Freddie. So, we have a collapsing bubble and desperate attempts of various windbags to breath new life into it.

Considering, though, that this bubble is tied to major asset classes that have been supported by foreign investment, how long will it be before those foreign investors flee en masses from U.S. equities, Treasuries, Fannie and Freddie bonds, etc.? And where will the $7 trillion in cumulative U.S. trade deficit end up, if not in Sovereign Wealth Funds buying up whatever is not nailed down here, and then on to the forex markets to get less degraded fiat currencies, at the expense of the USD?

The export-oriented Asian economies supported the dollar only so long as the U.S. market for their goods was strong. A recression here means less incentive to prop up the dollar, and more incentive to prop up the Euro and to sell more to the Euozone instead.

Anyway, intuitively, you have to ask yourself: how can a collapse of the U.S. economy be good for the dollar?

So, why is the dollar holding its own against the Euro for the last few months? I cannot see any explanation other than active intervention by central banks terrified that the dollar will collapse in an uncontrolled manner. The worse the U.S. news, the better the dollar gets.

As I said, still haven't figured this one out...but there are plenty of other shoes to drop on this centipede of an economic calamity, and eventually one of them is going to hit the dollar right in the middle of the forehead.



]]> Sat, 02 Aug 2008 19:23:03 -0400
shadowstats.com's alternate data series shows a continuation of the suppressed M3 figure, and that has indeed fallen off somewhat in the last few months, although overall the trend is *hugely* upward. My thoughts on this would be that it reflects the destruction of balance sheet and now even some off-balance-sheet CDOs, etc., that are being marked to market instead of to model at last. Note the National Australian Bank having written down to zero over $1 billion of such junk, all based on U.S. mortgages, and Merrill Lynch's subsequent writedown of billions of its own such assets to 22 cents on the dollar (see smirkingchimp.com/thre...).

Such admissions should be reflected as a reduction of the money supply, right? Deflation and deleveraging will, in fact, reduce the money supply, all other things being equal.

Of course, the Fed has been backfilling this furiously by lending out treasuries to troubled institutions in exchange for their CDO junk. And that's where I have to ask JasonC: Won't these treasuries, and the ones that the Fed has sold, be used for additional money creation on margin that the CDO junk could not (any longer) be used for?

So, we do have destruction of wealth, and hence money supply, but we also have some re-flation from the Fed, and now from the Federal government with the $300 billion credit line it recently extended to Fannie and Freddie. So, we have a collapsing bubble and desperate attempts of various windbags to breath new life into it.

Considering, though, that this bubble is tied to major asset classes that have been supported by foreign investment, how long will it be before those foreign investors flee en masses from U.S. equities, Treasuries, Fannie and Freddie bonds, etc.? And where will the $7 trillion in cumulative U.S. trade deficit end up, if not in Sovereign Wealth Funds buying up whatever is not nailed down here, and then on to the forex markets to get less degraded fiat currencies, at the expense of the USD?

The export-oriented Asian economies supported the dollar only so long as the U.S. market for their goods was strong. A recression here means less incentive to prop up the dollar, and more incentive to prop up the Euro and to sell more to the Euozone instead.

Anyway, intuitively, you have to ask yourself: how can a collapse of the U.S. economy be good for the dollar?

So, why is the dollar holding its own against the Euro for the last few months? I cannot see any explanation other than active intervention by central banks terrified that the dollar will collapse in an uncontrolled manner. The worse the U.S. news, the better the dollar gets.

As I said, still haven't figured this one out...but there are plenty of other shoes to drop on this centipede of an economic calamity, and eventually one of them is going to hit the dollar right in the middle of the forehead.



]]> http://seekingalpha.com/article/86335-near-term-dollar-rally-possible-as-fed-s-plosser-voices-rate-hike-urgency?source=feed#comment-212002 212002 Tue, 22 Jul 2008 22:55:00 -0400 http://seekingalpha.com/article/81216-will-the-dollar-recovery-launch-a-bank-rally?source=feed#comment-185201 185201
As for commodities, the present run-up may well be the result of banks attempting to backfill their subprime and credit default swap losses by speculation (using money from Fed credit lines!). A reversal of those gains in the short term depends upon action by the Commodity Futures Trading Commission action, but the CFTC seems quite willing to look the other way, even as Congress raises its eyebrows. It may well be that such speculation is all that is holding up the financial sector that you are predicting will revive. So, if I'm correct about this connection, then the very fall in commodity prices that your article predicts may result in the punishment of such speculating banks, and bring further pain to the financials that your articles predicts will rebound from funds shifting out of commodities and into the financial sector.

It such a volatile mess out there, and so much of what goes on is not public, that one has to make guesses as to what it really occurring, so there you have mine.

As you say, there is a falloff in demand at these rates, and so the upside of that market seems limited, while the downside is substantial, given that it is a bubble.]]> Fri, 13 Jun 2008 15:48:54 -0400
As for commodities, the present run-up may well be the result of banks attempting to backfill their subprime and credit default swap losses by speculation (using money from Fed credit lines!). A reversal of those gains in the short term depends upon action by the Commodity Futures Trading Commission action, but the CFTC seems quite willing to look the other way, even as Congress raises its eyebrows. It may well be that such speculation is all that is holding up the financial sector that you are predicting will revive. So, if I'm correct about this connection, then the very fall in commodity prices that your article predicts may result in the punishment of such speculating banks, and bring further pain to the financials that your articles predicts will rebound from funds shifting out of commodities and into the financial sector.

It such a volatile mess out there, and so much of what goes on is not public, that one has to make guesses as to what it really occurring, so there you have mine.

As you say, there is a falloff in demand at these rates, and so the upside of that market seems limited, while the downside is substantial, given that it is a bubble.]]> http://seekingalpha.com/article/80385-trichet-ecb-missing-the-point-with-crude?source=feed#comment-180575 180575
The dollar is still too high, which allows the US to continue to import more goods than it exports, which exports inflation to the Eurozone. Each time some indebted U.S. consumer takes out a home equity loan and buys a BMW, dollars from that sale are exchanged for Euros at a central bank, and those Euros in turn are used to pay workers who cannot buy that car they just made, because it is has been sent to the U.S. More money chasing too less stuff equals inflation. So the high dollar is part of the EU inflation picture and must be addressed. ECB interest rate hikes assist in that necessary correction; they are not mainly aimed at putting the brakes on Eurozone economic activity. The ECB's main concern with the dollar's decline is that it be orderly, not that it be stopped.]]> Fri, 06 Jun 2008 16:10:40 -0400
The dollar is still too high, which allows the US to continue to import more goods than it exports, which exports inflation to the Eurozone. Each time some indebted U.S. consumer takes out a home equity loan and buys a BMW, dollars from that sale are exchanged for Euros at a central bank, and those Euros in turn are used to pay workers who cannot buy that car they just made, because it is has been sent to the U.S. More money chasing too less stuff equals inflation. So the high dollar is part of the EU inflation picture and must be addressed. ECB interest rate hikes assist in that necessary correction; they are not mainly aimed at putting the brakes on Eurozone economic activity. The ECB's main concern with the dollar's decline is that it be orderly, not that it be stopped.]]>