Dollar Heads for Worst Quarter Versus Euro in More Than 2 Years

[roguewave]

The dollar may fall this March
01/14/2006 16:41

Still, it is difficult to say how much damage the default will cause to the United States. Meanwhile, experts point out that America is definitely getting ready for default.

The thing is, a number of events are due take place in March. The events look very alarming to the world of the dollar.

First, Iran is to officially switch into the euro in its foreign trade operations including oil exports. Second, China is hinting at a potential increase of the euro share in its Central Bank basket of currencies. The dollar share currently holds 70% of the basket. The dollar will be severely affected should the two countries, an oil and gas producer and a manufacturer, take action in a simultaneous manner.

Besides, the U.S. Federal Reserve is going to stop publishing the so-called "M 3 aggregate" reports i.e. data on increase rates in money supply. Given the New Year's predictions by John Snow, the Fed's intentions look pretty suspicious. In other words, the international community will have no tool for measuring a real value of the dollar.

Russia has no reason to panic over the coming changes since it keeps its M 3 aggregate data in the dark too.

The Fed is going to pull the plug on the data in March this year. Several events should occur in different countries more or less at the same time and thus damage credibility of the U.S. securities. Risk-averse investors get rid of speculative securities e.g. the dollar securities under the circumstances.

http://english.pravda.ru/world/20/91/368/16741_dollar.html

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Anyone counting on a 10% rise in the DJIA in 2006 better not quit their day job…especially so, if they are long term buy and holders in that sector.

The I-Fund will represent the best hedge against inflation and a falling dollar in 2006 and beyond, as compared to the other TSP funds.

The G-Fund can only be considered safe if one is content with losing 15-20 % in purchasing power this year alone. So, if you have $100,000 in the G-Fund today and can live with the fact that $100,000 will only purchase $80,000-85,000 worth of goods and services by the end of 2006, go for it. The G-Fund, with its downside risk (inflation factor), is still a much better play than the C-Fund, in my opinion, when one compares the 2005 returns on investment between those two funds and the fundamental overvaluation of the C-Fund. The downside risk in the C-Fund is much greater than the downside risk to the G-Fund (inflation factor).

The C & S Funds will grind sideways to major down the rest of this decade and will lose a tremendous amount in purchasing power over the next 4 to 6 years due to inflation/devaluation. The smart money will be selling into strength on any bounces all the way down this slippery bear market slope.

As the article above implies, this dollar devaluation is purposeful versus being accidental and will be necessary to bring the triple deficits back under control. This necessary purging process should be completed around 2012 or thereabouts.

I’m looking for a 3,000 DJIA when all is said and done and this will represent some wonderful buying opportunities as everyone, and I mean EVERYONE, will think anyone buying general equities is deserving of a padded room at the Funny Farm.

Bingo! Most people don't understand inflation and even fewer understand the concept of purchasing power. A lower dollar won't cure the trade deficit problem because, by-in-large, we as a country are not a manufacturing giant like in the past. We primarily export dollars. It's a much deeper problem then most understand. In order for the Dow to reflect anything of real value or recoup its lost purchasing power over just the last five years it should be trading at about 23,000 to 25,000 in todays dollars versus commodities(gold in particular and gold has a ways to go to recoup its PP).

Good luck Wimpy because this year is shaping up to be a real volatile one in terms of many things. We could actually see a moon shot in the dollar which no one is expecting beginning in late March and following through for a few months but it won't be because of some chart or wave.

 

[roguewave]

The Illusion of a Rising Dow

Peter Schiff

This week, Wall Street strategists cheered as the Dow Jones closed above 11,000 for the first time in four and a half years. As a result, many are now predicting a new all-time high, which would see the index finally exceeding its 11,750 peak first reached back in January of 2000. Do not succumb to the hype.

11,750 hardly has the same purchasing power today as it did in January of 2000. The significant inflation of the last six years (bogus CPI numbers not withstanding) has rendered any direct dollar comparisons meaningless. To get a more accurate assessment, try measuring the index in terms of something other than depreciating dollars. Historically, the best comparison is relative to gold. Back in January of 2000, with the Dow Jones at 11,750 and gold at $280 per ounce, the Dow was worth about 42 ounces of gold. Today, with the Dow at 11,000 and gold over $550 per ounce, the Dow is only worth less then 20 ounces of gold. In other words, measured in terms of gold, the Dow has actually declined in value by over 50%. To make a real new high, given the current price of gold, the Dow would have to rise above 23,000.

http://www.gold-eagle.com/editorials_05/schiff011306.html

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So, if the DOW desires to run with the big dogs it is first going to have to get off the porch, or better yet, out from under the porch. A 13,000 DOW is a dead dog, a money loser, in terms of real purchasing power relative to the purchase of that asset class in 2000. In all asset classes it is important to determine whether the perceived rise (numerical) is based on a price crisis (inflation) or supply and demand. Any asset class can go up (numerically) on either score or a combination of the two. An inflation inspired rise is strictly an illusion as the asset class is not gaining in real value but imaginary value because the measuring stick (the dollar) is not constant. If the dollar goes down 20%, there is an automatic corresponding numerical gain of 20% in the asset class being measured. The numerical gain, in this instance is not a REAL gain, but only an illusion of gain. In essence, and absent any supply and demand pressure, the 20% gain was simply a break even computation. For example, if the G-Fund gains 5.00% in 2006 and the real inflation rate (not based on phoney CPI figures that exclude food, housing, and fuel) is 8%, the G-Fund loses 3% of its purchasing power. In honest weights and measures, the numbers and markings on the measurement device never change. When it comes to a fiat currency, there are no honest weights and measures other than gold. Gold is currently telling the story of a great fraud being perpetrated on those ignorant of what real money is and isn't. Few are listening. Gold will hit $750 or higher before the end of this year. Most of the gold gain to $600 will be related to price crisis rather than supply and demand. The run from $600 to $3,000, between now and 2012, will be more greatly influenced by supply and demand and therefore will represent REAL gains versus the illusionary gains associated with a falling dollar.

"For example, if the G-Fund gains 5.00% in 2006 and the real inflation rate (not based on phoney CPI figures that exclude food, housing, and fuel) is 8%, the G-Fund loses 3% of its purchasing power."


I agree with most of your comments, however, this loss in purchasing power is much much more then 3%. It's a 60% loss in PP.

 

[robo]

Dollar gold and Oil all up!

Be watching all this close this week! Dollar up .70 Oil close to 65.00 Gold up again!

 

[robo]

The dollar gains

http://quote.bloomberg.com/apps/news?pid=10000103&sid=aaZhJwnJVwUk&refer=news_index

 

[robo]

M3 Supply, Bonds and the Dollar, Where are we headed?

http://www.safehaven.com/article-4475.htm

 

[Wimpy]

Clear and Present Danger to the Dollar

The Proposed Iranian Oil Bourse

Abstract: the proposed Iranian Oil Bourse will accelerate the fall of the American Empire.

By Krassimir Petrov, Ph.D.

A nation-state taxes its own citizens, while an empire taxes other nation-states. The history of empires, from Greek and Roman, to Ottoman and British, teaches that the economic foundation of every single empire is the taxation of other nations. The imperial ability to tax has always rested on a better and stronger economy, and as a consequence, a better and stronger military.

http://www.informationclearinghouse.info/article11613.htm


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A very good read!

 

[Quips]

lots of luck Wimpy

Separating the wheat from the chaff is not easy.

But we all remember the Y2K hype.

And the Dow @ 30,000 hype.

And what was that stuff about a market crash and the Hindenberg?

It was interesting reading, and some of that is very believable. But some people vehemently believed -- hook, line and sinker -- the stuff previously listed.

Eh, I'm respectful, but skeptical that the end of the financial system as we know it is that near at hand.

 

[Wimpy]

The Financial Sky Really is Falling

Re: Y2K…I hear ya. I bought a little extra ammo…still got it. Bought a water filter, a sun oven, extra TP, plastic bags, stocked a little extra food, and placed some cash where I could get to it pretty easy. Still not a bad plan, in my opinion.

Like you, I was a little skeptical that the world, as we knew it, would come to an end, but respectful enough of the possibilities to take out a little insurance in the form of the above provisions.

Most of us are skeptical that our houses will burn down or blow down, but we still insure them against such a loss.

Owning a little gold and silver is a good insurance policy against political calamity.

Owning more than a little gold and silver makes one an investor in precious metals. Those investors who buy in early (low) get to sell to the Johnny-come-latelys who are always following the crowd and who typically buy in late (high). The early bird gets the worm.

If one is buying gold for insurance, the price is seldom too high. If one is buying as an investor…that is a different story. Today’s price of gold at $560 or so is about $250 in 1980 dollars…which is not even close to the 1980 top of $850. Physical gold could easily be a 3 bagger with gold and/or silver stocks being 10-20 baggers before this run is over.

Being prepared (having insurance) is being responsible.

I think many of us, with mostly government experience, have a tendency to believe ‘they’ (the gov) will take care of us and not let ‘that’ happen to us while those with more private sector experience tend to be a little more skeptical. Well, the government boondoggle is showing signs of wear and tear and there is evidence of a paring down being undertaken in a very strategic and systematic fashion.

Gold is currently telling the story of a disaster in the making. The dollar is a loaded diaper hanging by a diaper pin (interest rates) above an oscillating fan. To be without insurance (gold/silver) in this scenario is foolhardy. Not being an investor in precious metals, in this scenario, is simply a bad decision. People make bad decisions all the time and survive them, but those foolhardy souls who go naked (without insurance) in hurricane country (financial or otherwise) get no sympathy from me.

 

[Wimpy]

Financial Nukes of Mass Destruction

By Doug Casey
February 2, 2006


www.KitcoCasey.com

The article below originally appeared in the January 15, 2006 edition of the Casey Energy Speculator, a monthly newsletter, written by best seller and renowned investor Doug Casey, which focuses on junior exploration energy stocks with the very real potential for 100% or better growth within 12 months. To learn more about a risk-free trial subscription, click here.


Is the Declining Dollar Causing High Oil Prices?

All kinds of theories have been floated over the past few years to explain the rapidly rising price of oil. But few analysts have noted that expensive crude might not be a function of supply and demand, but rather a simple function of inflation.

Since the younger Bush took office, the U.S. has been frantically printing money to stave off recession and keep the bloated American economy from collapsing. Fiat dollars have made their way around the world and now constitute the major foreign currency holdings of most countries. Central banks in China and Japan hold an estimated combined total of $1.3 trillion. With the modern equivalent of printing presses going flat-out, the world supply of money has almost doubled since 2000, from less than $2.5 trillion to just below $4.5 trillion.


http://www.kitcocasey.com/displayArticle.php?id=525

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The rise to $65 a barrel is the result of a ‘price crisis’ (inflation) versus supply and demand.

The attack on Iraq was not about nuclear weapons of the military kind but rather of the financial kind. In 2000 Saddam chose to not accept dollars in trade for oil. Not long after that Iraq was attacked.

In March of 2006, Iran is scheduled to implement something even more threatening to the dollar by establishing the Iranian Oil Bourse. We will see the momentum build to attack Iran, in one form or another.

Iran has the backing of China, Russia, and now Venezuela has also thrown down the gauntlet in support of Iran by threatening to withhold supplies of oil to the U.S. if Iran is attacked. China will certainly be able to absorb Venezuela’s extra supplies of oil with their excess U.S. dollar reserves and it is guaranteed that this supply oil will NOT find its way back, via serpentine fashion, to U.S. shores.

And if all that isn’t enough, when, not if, one drop of Saudi oil goes up in flames…the price of oil will be over $100 dollars a barrel in the blink of an eye. There is very little elasticity in the supply of oil. Previous estimates of world supply have been exaggerated.

All we’ve seen thus far in the price of oil is a ‘price crisis’. Once THE ‘supply crisis’ enters the picture, it will be an entirely different ballgame without any doubt about whose balls will be used for batting practice. The ‘shop til you drop’ American consumer, with their negative saving’s rate, will be hit the hardest.

How will all this most likely affect our TSP funds? The C and S Funds will continue their sideways chop drawing in a few more suckers who’ve failed to recognize the bull in general equities is over for the next decade or so and then it will drop hard.

The I Fund will rise on the dollar’s decline. The dollar’s decline will continue to be orchestrated until the triple deficits are brought under control. Once monetary policy becomes very clear, as it was during Volcker’s term, the G and F funds will be the place to be as interest rates begin their decline from the area of 25-30%.

In the meantime, however, the safety of the G-Fund is an illusion in an inflationary environment. It is a guaranteed loser with its declining purchasing power. Think Argentina…and you will have the picture. The U.S. is already in technical default. How the U.S. handles this default will define its moral character and future.

 

[Quips]

Time out

Wait a sec!

Whoa!

The American consumer -- whether we like it or not -- is the economic engine of the world economy. And I will agree that there is a problem when that "engine" is increasingly dependent on foreign central banks holding increasing amounts of US consumer and national debt.

Yet no other nation -- be it Japan or China or any other country holding that debt -- has the leverage to use their holdings of it against us. If they tried to do that they would cut off their noses to spite their faces.

Maybe a totalitarian country like China could or would do that since it would simply call out the army to restore or impose order on its people, yet the standard of living of its people would no longer rise: it would fall. And if that happened, well, oil consumption would decrease not only there, but world-wide.

So, by calling for payment of US debt, sure, the price of oil would drop like a stone ... much like the economy of every nation on the earth.

I think America is a nation that is in a situation of being "too large to fail". Whereas Argentina was and is not.

 

[Wizard]

Roman Empire?
British Empire?

Two examples in recent history that were too big to fail.

If the "engine" is the ability to borrow and spend then it is going to throw a rod.

Sooner or later countries are going to start to trade "real stuff" between each other and cut us out of the picture with our come on and get some more of our treasury debt certificates for your citizens hard labor manufactored goods.

Main reason the two above Empires failed? Outsourced their manufactoring base and imported workers "to do the jobs no one wanted". Also the citizens got fat and lazy.

Even more recently Germany outsourced their manufactoring base to us in the 1910s and we in turned sold our goods to them for their debt. You know that time we were the manufactoring superpower of the world? After the crash in 1929 we called in their debt and their economy was crushed. For example: You went and had a beer. By the time you finished drinking your beer the price had tripled. When you have a moment you may want to look that up on the internet. Interesting reading.

Oh this just dawned on me. We outsourced and are continuing to outsource our manufactoring base to China and they are buying our debt.....

To be continued.

 

[Wizard]

http://www.economagic.com/chartg/fedstl/m3sl.gif

M3 data will no longer will be available after March. Hmmm.

 

[dell]

It concerns me greatly that for years the US has increasingly become a debtor nation. We owe substantial amounts to a number of governments. friend and foe. Bullets and missles will not be necessary to completely disrupt our government (not defeat, disrupt). If say tree or four of the major nations to whom we owe money (and who are our adversaries, or align themselves with our adversaries, decide they will collectively stop paying their bills, what will do?

Economic sanctions? So what? Curse them at the UN ? Yawn. Yell at them on CNN and FOX and tell them we will not stand for it? Bigger yawn.

Start lobbing missles? I don't think so. Fight a small scale limited engagement? Oh, the media would salivate at that thought.

Would we print more money? Maybe. We would seek to embargo imports and exports? Can't do it. There is no US Corproation or Japanese Corporation, etc. They are all multi-national.

The economic infrstructure would not collapse but would be seriousl damaged. Now couple that scenario with another attack at the CBOX or on Wall Street and the US Mint. For a day or two, stocks and bonds stop trading and money stops flowing.

Would we recover? Not easily. Would it be painful. You betcha.

 

[Wimpy]

Too Large to Fail?

I think America is a nation that is in a situation of being "too large to fail". Whereas Argentina was and is not.

You are certainly not alone with the above thought. The majority of ‘shop til you drop’ American consumers are betting heavily along similar lines, with other people’s money (Asians).

It reminds me though of those party animals on the Titanic who thought that ship was too big to sink. Matter of fact, there was some arrogant soul on board who made the foolish comment that, “God himself couldn’t sink this ship.” Then it sank.

Rome was, once upon a time, too big to fall. Then it fell.

The Chinese internal economy is bustling with enormous energy…energy that will be just as self-sustaining as our economy once was when we had a healthy manufacturing base.

The Chinese people are ready for the good life and have real savings to back their play.

China’s leadership, historically authoritarian, is actually building trading relationships with resource rich countries and locking in agreements based on mutual benefit while the U.S. gov’t, historically respectful of liberty, now uses a more caveman like approach to securing its future. One approach exudes the confidence of a nation on the rise while the other approach depicts the desperation of a nation in decline. I’ll let you decide which one is which.

The empire is crumbling…but the music continues to play and the party goers are still dancing. Kind of reminds me of those who whistle while walking past the graveyard. It sounds good…but the bravado doesn’t come across as the real McCoy. Like, who are they really trying to convince?

If the American consumer is the economic engine of the world, that engine is running on borrowed fuel (debt). The Asians are tiring of getting the fuel returned to them watered down (devalued dollars). The economic engine of the world is already beginning to sputter and miss and is running on fumes. The gas gauge is in the red and the fuel light is on and the drivers are not paying a bit of attention as they zip on past in the HOV fast lane while applying their makeup and lipstick (sorry ladies). Their large SUV gas tanks are too big to run out of fuel…or so they think. Then it runs out of fuel. That big bad greasy economic engine then becomes nothing but a big bad greasy economic paperweight.

As far as noses go…American noses are generally much longer than Asian noses and that might account for the American nose always finding its way into everyone else’s business, with other peoples money (Asians).

In the case of the Asians, the shorter the nose…the less it will be missed. They will deal with it without a whole lot of drama. You won’t see them throwing a tizzy fit when a mirror is thrust in front of their face for a reality check.

I can’t say the same for the driver of the SUV who attempts to cross six lanes of busy traffic while her fuel starved engine sputters and coughs and coasts to the shoulder of the highway while the driver is frantically trying to remove the lipstick from her forehead.

 

[Wizard]

Here is what is going on JUST NEXT WEEK in treasury land:

4-Week Bill Announcement
[Bullet] 11:00 ET

3-Month Bill Auction
[Bullet] 1:00 ET

6-Month Bill Auction
[Bullet] 1:00 ET

Treasury STRIPS
[Bullet] 3:00 ET

4-Week Bill Auction
[Bullet] 1:00 ET

3-Year Note Auction
[Bullet] 1:00 ET

10-Year Note Auction
[Bullet] 1:00 ET

Weekly Bill Settlement

3-Month Bill Announcement
[Bullet] 11:00 ET

6-Month Bill Announcement
[Bullet] 11:00 ET

30-Year Bond Auction
[Bullet] 1:00 ET
--------------------

Reminder debt ceiling is $8,184B.
01/31/2006 $8,196,070,437,599.52



We are all ready in technical default.

 

[Wizard]

01/31/2006 $8,196,070,437,599.52


09/30/2005 $7,932,709,661,723.50
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OK. Does not look to bad.

OK. Lets do the math. $264B in four months!!!!!!!

That means we are going in the hole at a rate of $2.2B per day. Just in current account.

We also have trade balance and unfunded liabilities.

Last I looked at unfunded liabilities it was over $43T.

 

[Wizard]

BTW: The war on terror funding is in another pot.

Can not get a firm number on that (for some reason) it is between $464B-1T.

 

[Wizard]

Interesting factoid:

When Argentina blow a gasket they had less debt per capital then us.

Before they blow the gasket their stock market was up nicely and everyone was a home speculator because of the cheap money interest rates.

 

[Quips]

crash NOT

So, if all American economic growth is an illusion, then world economic growth is an illusion too.

Should the locomotive pulling the train and its cars of the world economic system break down, I take it from reading these posts, that the Chinese people and its government would be the least affected.

Well, I wonder what is the average wage in China? And what is the spread between the haves and the have nots is?

China would be the least affected because it has the lowest standard of living of any industrial country. It would be interesting to see what would happen if China called in the debt it holds. It would either raise its standard of living to ours ... comparitively ... or lower ours to theirs. Yet there is not much of a middle class in China, so the distribution of its wealth would be even further skewed. Maybe to the point where 2% of its people control 90% of its wealth?

Come on! We all know that's ridiculous!

 

[Wizard]

You should go back and read Wimpy's post. He/she is right on point about China.

If you listen to conference calls they remarks I hear about China the most are "It is easier to do business there" "Less red tape" "Things happen faster".

If you have ever been to China - yes they have poor but they are going in the opposite direction of us. We are getting more poor and more rich. And they are getting more poor and more rich.

Once they have the manufactoring base they can start to raise prices. This is part of the slow boil process I speak about. China is become the only game in town.

Yahoo ran a piece with pictures last week about the new found wealth class of China. It was very interesting.