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

[Wizard]

"Don't worry about the yield curve."

That was the mantra in March 2000.

That worked out swell.

 

[Quips]

liars figure, and figures may lie

Eh, I found some numbers in the AARP Feb. 2006 Bulletin the other day that answered a few questions I had last week.

I 'm inclined to trust the numbers, although I'm sure they don't tell the whole story. The article is called "Red Ink Rising".

It states that American babies are born into $156,000 debt

That's the estimated debt that every American owes the federal government, courtesy of the annual budget deficit, plus the national debt ... plus promised, but long term unfunded commitments like ... Medicare and Social Security payments.

It goes on by saying, "Not only that, but the burden is growing. By ... working age , that amount could double or triple if nothing dramatic is done."

Further on the article says, "The Heritage Foundation's top budget analyst explains the deficit this way: "Right now the federal government spends $22,000 per household -- the highest since World War II adjusted for inflation and we tax about $19,000 per household. That's an annual budget deficit of $3,000 per household.""

The last high point to mention is that the article says that Social Security probably still will have a defined basic benefit, but that amount may relate less to past salary and more to present economic status ... and (we) will have to wait longer to get benefits.

So, that's from the AARP Bulletin and it quantifies things. Those numbers seem realistic to me.

 

[Quips]

liars figure, and figures may lie

Eh, I found some numbers in the AARP Feb. 2006 Bulletin the other day that answered a few questions I had last week.

I 'm inclined to trust the numbers, although I'm sure they don't tell the whole story. The article is called "Red Ink Rising".

It states that American babies are born into $156,000 debt

That's the estimated debt that every American owes the federal government, courtesy of the annual budget deficit, plus the national debt ... plus promised, but long term unfunded commitments like ... Medicare and Social Security payments.

It goes on by saying, "Not only that, but the burden is growing. By ... working age , that amount could double or triple if nothing dramatic is done."

Further on the article says, "The Heritage Foundation's top budget analyst explains the deficit this way: "Right now the federal government spends $22,000 per household -- the highest since World War II adjusted for inflation and we tax about $19,000 per household. That's an annual budget deficit of $3,000 per household.""

The last high point to mention is that the article says that Social Security probably still will have a defined basic benefit, but that amount may relate less to past salary and more to present economic status ... and (we) will have to wait longer to get benefits.

So, that's from the AARP Bulletin and it quantifies things. Those numbers seem realistic to me.

 

[Quips]

However ....

The article does not state how 401(K), Roth IRA, bank savings and checking accounts, money market account, pension funds, saving bonds and etc. help to off-set those amounts.

Or, if all the above instruments were already included/taken into consideration in the numbers that were published in the article.

I believe the Red Ink Rising article DID NOT take those instruments into consideration.

 

[Quips]

And on the other side of the coin

chances are those figures DO NOT include consumer debt and mortgages.

 

[vectorman]

Appears the Euro is sitting at a support, and the U.S. dollar is facing some resistence, looking at a 2 year chart. Hope there will be some profit taking on the dollar market tomorrow.
Euro chart...http://finance.yahoo.com/q/bc?s=EURUSD=X&t=2y&l=on&z=m&q=l&c=
Dollar chart...http://finance.yahoo.com/q/bc?s=USDEUR=X&t=2y&l=on&z=m&q=l&c=

 

[robo]

Dollar May Extend Rally to Longest Since 2000, Survey Shows

Place your bets for next week. It's a coin toss. Heads its up, tails it's down. Will Bernanke signal anything in his comments about furture rate hikes. Should be a fun week for traders!!!!

You can make some money if your correct about his comments, or lack of them about future rate hikes!!!!. Risk/reward will be high. Might make a 10 to 20% play in the I Fund next week. I'll watch Monday, and Tuesday's early action before investing money. For those that are long I hope it goes your way... Good investing!!!!


Fifty percent of the 58 strategists, investors and traders surveyed on Feb. 10 from Sydney to New York advised buying the dollar against the euro, up from 43 percent last week. The survey also predicted the dollar will gain against the British, Swiss, Australian and Canadian currencies.

Bernanke will speak to Congress this week.



http://quote.bloomberg.com/apps/news?pid=10000103&sid=a3ZBgA3kzsTE&refer=news_index


http://www.bloomberg.com/apps/news?pid=10000087&sid=aB0PooxR1OH0&refer=top_world_news

 

[Quips]

yield curve

The yield curve ended the week inverted.

I've read that the European Union's Central bank is planning a couple 0.25% interest rate hikes this year.

The Fed has to take other things into consideration when it hike rates. For instance, the higher interest rates are here, the more attraction for US government notes and bonds. That is one reason why long term interest rates are unusually low ... and why there is a temporary inverted yield curve.

As the EU central bank begins to raise its rates, well, there will be less attraction/demand for US notes and bonds. That in and of itself may help to raise long term interest rates without the Fed doing anything.

So, the Fed has to take interest rate hikes overseas into consideration and how those affect the US and world economy. If it overtightens -- without consideration of what happens in the EU for instance -- it can bring on a recession.

Things are dicey enough for me concerning international events in the Persian Gulf. I hope things fall into place concerning interest rate hikes and finding a neutral monetarty policy.

 

[Quips]

something to consider

The EE savings bonds now yield 3.2%

I bonds yield something like 6.72%.

That is some kind of spread. I wouldn't know what an acceptable spread should be between the two, but 3.5% is a heck of a lot.

The 5 year treasury now yields a little better than 4.5%. Since EE bonds pay 90% of that rate the next time EE bond rates are adjusted it will amount to something around 4.2 to 4.5%.

By that time the Fed is hoping for I bond rates to drop. If I'd pull a number out of the air, say, 5.5%. So the spread between I Bonds and EE decrease to something more acceptable to the Fed.

It is something to watch for.

However, if tensions in the Persian Gulf escalate, and oil jumps to Katrina levels, and gasoline prices do as well, you can bet I Bonds will be the place to be.

Oil prices have slowly dropped in the past few weeks close to $62 a barrel.

A "perfect storm" would involve much higher oil/gasoline prices in a higher interest rate environment. It could induce stagflation.

Wouldn't it be something if EE bonds would pay 4.5 to 4.75% while I Bonds paid another round of 6.75%? If I bonds paid that again, chances are they would outperform the S&P index over the year.

And who knows if EE bonds themselves wouldn't outperform the S&P in 2006! But I wouldn't bet on that.

 

[Wimpy]

Hmmmm...It Wasn't That Long Ago the 30 Year Bond Was Trashed

The Return of the Long Bond
By Peter Schiff
February 13, 2006

Last week, in what amounted to the biggest refinancing in world history, the Federal Government finally resumed issuing thirty-year bonds. The return of the long bond comes none too soon, but it may be a day late and a couple of trillion dollars short.

For the past four years, the treasury has been artificially suppressing its interest expenses by borrowing massively at the short end of the yield curve. Like millions of Americans who have made the same mistake (with adjustable rate mortgages), this act of fiscal expedience exacts steep long-term costs. When individuals borrow on the short end, at least they do so with their own money, or at least their lender’s money. But when the Federal government commits this financial sin, the entire nation bears the burden.

http://www.kitco.com/ind/Schiff/feb132006.html

-------------------

 

[Wimpy]

This could become contagious...

UPDATE 2-Syria switches to euro amid confrontation with US
Mon Feb 13, 20065:11 PM ET
DAMASCUS, Feb 13 (Reuters) - Syria has switched all of the state's foreign currency transactions to euros from dollars amid a political confrontation with the United States, the head of state-owned Commercial Bank of Syria said on Monday.

"This is a precaution. We are talking about billions of dollars. Switching to the euro will help us avoid settlement problems in the United Sates," Duraid Durgham told Reuters.

http://today.reuters.com/investing/financeArticle.aspx?type=governmentFilingsNews&storyID=URI:urn:newsml:reuters.com:20060213:MTFH50822_2006-02-13_22-10-01_L13432231:1

 

[Quips]

good observation

Appears that the move was more of a matter of inept or too aggressive foreign policy than it has to do with economic matters.

That is my hope. But yes, it could become contagious, sure. It can become an effective tool when it comes to foreign policy, sanctions and the like. What is good for the goose is good for the gander, etc.

Yet if gold is so great, why not hold monetary reserves -- foreign or domestic -- in gold rather than in Euros or dollars?

 

[Wimpy]

Frozen Accounts

Appears that the move was more of a matter of inept or too aggressive foreign policy than it has to do with economic matters.

That is my hope. But yes, it could become contagious, sure. It can become an effective tool when it comes to foreign policy, sanctions and the like. What is good for the goose is good for the gander, etc.

Yet if gold is so great, why not hold monetary reserves -- foreign or domestic -- in gold rather than in Euros or dollars?

----

When Ayatollah Khomeini's followers seized the American Embassy in 1979, Carter retaliated by freezing Iranian assets in the U.S. to use as a bargaining chip for negotiations. The problem this presented was that the followers of Khomeini were not wealthy types with assets in the U.S. and therefore could care less about trading hostages for money. Carter essentially froze the money of those who had nothing to do with the seizure of the embassy and the hostages, but by the time he figured it out he couldn't lift the freeze for fear of losing face and appearing weak. Those from the Mideast have excellent memories and they sense things are heating up with all the sabre rattling going on.

The question they have all got to be asking is, "Will they freeze our assets or foreign exchange settlements indiscriminately as they did in 1979?"

It sounds like they learned their lesson on that score and are appropriately mitigating risk.

The worth of a fiat currency is relative to other fiat currencies. The Euro is seen as having less risk simply from the fact there is less concentrated political power behind it. The countries comprising or backing the Euro failed in their attempt to consolidate political power in that region...kind of like attempting to herd cats in the rain. In my opinion the Euro is also a basket of junk but it will look much better than the dollar over the next few years. Actually, the currencies of countries who are resource rich, like Canada, should do much better. I would suspect some of the South American countries like Chile and Argentina's currencies will also shine as metal prices escalate.

Day to day foreign exchange transactions in gold have not been practical due to portability issues. With the internet, encryption, and digital applications backed by a high degree transparency...that could change in the not too distant future.

Those countries with reserves of gold on hand who allow their currency to be redeemed in gold are considered to be backed by gold. Nixon closed the gold window in 1971 and you know the rest of the story...it has been a steady downhill slide for the dollar ever since...at least in the
long-term.

I think the issue you raised of why not gold (if its so good) over the dollar and euro...is being addressed with the price of gold doubling in the last five years. I think it will double again in the next 18 months.

 

[Quips]

----

The worth of a fiat currency is relative to other fiat currencies. The Euro is seen as having less risk simply from the fact there is less concentrated political power behind it. The countries comprising or backing the Euro failed in their attempt to consolidate political power in that region...kind of like attempting to herd cats in the rain. In my opinion the Euro is also a basket of junk but it will look much better than the dollar over the next few years. Actually, the currencies of countries who are resource rich, like Canada, should do much better. I would suspect some of the South American countries like Chile and Argentina's currencies will also shine as metal prices escalate.

I can agree with that; I would say the prudent thing would be to hedge any natural resource investments in an international value fund or a Canadian fund. However, as their currencies gain strength so will the cost of their goods sold here, no?

So, it sounds like a no win situation if worst comes to worst and if one decides to hedge. No- win is better than a loss though.

Perhaps gold itself should be a part of any well balanced/diversified portfolio. That said most financial experts would place no more than 5% in any particular company or sector.

 

[Wimpy]

Whoooops!

That said most financial experts would place no more than 5% in any particular company or sector.

-----

How many on this board are over 5% in the G-Fund?

 

[Quips]

not fair!

Come on hamburger man, your judgement has mis-steped there.

The G-Fund is comparible to a short-term bond fund and the F-Fund goes farther out in term of duration, i.e. longer term.

The 5% allocation is mentioned is the limit on any one particular holding or sector.

Some sectors are larger than others; whereas gold, as a sector, is still fairly tight and may include other precious and semi-precious metals as well, but still is tighter than a cat's butt.

I don't know how many companies are included in, say, the i-share index gold fund, but most I would venture to GUESS they are valued less for the profitability of their operations than what their end product -- principally -- is.

I wouldn't count a 5% limit applicable to to the S or C or I funds since they are what they are, indicies each of super vast market segments -- if they can even be considered segments.

That 5% limit to something like a Canadian index fund would dilute gold interests that are in the fund, but would be more of a hedge for other Canadian industries and perhaps its currency. Maybe a Canadian fund itself would be no more than 5% into gold, but that would depend on the fund manager and the mutual fund its a part of.

For sure there is little if any market representation of health care industry and its associated industries in any Canadian index fund, that would be for sure.

Interesting aside though, I wonder if there is any DIRECT foreign investment in, say, South Africa where a public corporation can simply buy an area where gold is mined ... in effect staking a claim on that real estate and all that it includes, i.e. mineral rights and etc.? HAHA

Is direct foreign investment/ownership prohibited on their land, or are those lands nationalized and its investment restricted to it own citizens?

 

[Wimpy]

Not Fair? I couldn't resist...the devil made me do it

Some sectors are larger than others; whereas gold, as a sector, is still fairly tight and may include other precious and semi-precious metals as well, but still is tighter than a cat's butt.

You are quite correct in this statement. The physical gold and silver market and their related stocks ARE tighter than a cat's butt. When JoeSixPack and SuzieSUV attempt hopping on board at the top of this gold bull market, in the 2010-1012 time frame, the small SUPPLY cavity (as in cat's butt) they will all be attempting to pass through, at the same time, naturally only serves to increase DEMAND which drives PRICING.

The message here is: You don't want to be a cat's cavity nor do you want to share passage in that cavity with the crowd, unless you enjoy paying those stinky premiums.

 

[Wimpy]

Congressman Ron Paul: The End of Dollar Hegemony

The End of Dollar Hegemony

by Ron Paul

​

Before the US House of Representatives, February 15, 2006
Amazingly, a new system was devised which allowed the U.S. to operate the printing presses for the world reserve currency with no restraints placed on it – not even a pretense of gold convertibility, none whatsoever! Though the new policy was even more deeply flawed, it nevertheless opened the door for dollar hegemony to spread.
Realizing the world was embarking on something new and mind-boggling, elite money managers, with especially strong support from U.S. authorities, struck an agreement with OPEC to price oil in U.S. dollars exclusively for all worldwide transactions. This gave the dollar a special place among world currencies and in essence “backed” the dollar with oil. In return, the U.S. promised to protect the various oil-rich kingdoms in the Persian Gulf against threat of invasion or domestic coup. This arrangement helped ignite the radical Islamic movement among those who resented our influence in the region. The arrangement gave the dollar artificial strength, with tremendous financial benefits for the United States. It allowed us to export our monetary inflation by buying oil and other goods at a great discount as dollar influence flourished.
http://www.lewrockwell.com/paul/paul303.html

-------------

This is a pretty good historical account of the dollar-oil relationship and how we got there and also what lies in store as it relates to current events in the Mideast and the impact it may have on our finances.

 

[Wimpy]

The Doll-ar Chicks Are Coming Home to Roost

The doll-ar is in freefall. There is a bit of support at .83 on the USDX. We will see how well it holds. If the pause is only momentary the next significant support point will be .80. After that…it is a black hole. The I-Fund is still looking good here. There could be a little bounce off .83, but I think it will be short and back down fast. Might be able sell I-Fund into strength, but could just as easily buy those shares back at higher prices if the dollars continues on through and to .80 USDX. I sold a third of my I-Fund position in the mid-19s thinking it was looking a little toppy, but after that clear doll-ar head and shoulders break I bought my I-Fund shares back at a higher 19.96. The volatility will be increasing from here on out with the black box trading schemes competing with one another to get the jump on momentum. There is nothing fundamental about black box trading…it is all about momentum. The downtrend for dollar is locked in. Therein lies the value for the I-Fund. At some point (and I think we are approaching that point at breakneck speed) it will be time to lash our wrists to the I-Fund pommel and be prepared for nosebleed. Key Indicator: When my bud shamefacedly throws in the towel on his sagging C-Fund wallflower and enthusiastically embraces the hot I-Fund, it will signal a top and I will be selling out of my I-Fund position.

Geo-political factors weighing on the doll-ar:

• The Iran deadline for giving up their uranium enrichment program has come and gone. In theory, they NOW have what they need for assembly and delivery of nuclear warheads to Israel and beyond. With Saddam out of the way (thanks to the U.S.) Iran is the new sheriff in the Middle East.

• Nothing short of nuclear bunker busters will take care of the Iranian 'threat'. This wouldn't be the first time the U.S. used nuclear weapons with great loss of life to innocent men, women, and children. The whole world will turn on America with a vengeance and there will be no credibility left to America or its common stock, the U.S. dollar. It will be toast and the Empire will collapse. Bush painted himself in a corner with his 'deadlines' and is damned if he does nuke 'em and damned if he doesn't nuke 'em. If he doesn't nuke 'em, the new sheriff in the Middle East will be doing his own version of the Texas two-step.

• Russia has business ties and a great interest in any negative outcome with a conventional U.S. attack on Iran. They are also holding a lot of dollars they could dump in a heart beat…and they’ve already begun talking about it openly.

• China has been less vocal, but they also hold a lot of dollar clout. If Russia has to sell doll-ars to make a point, China may decide to get off the bench and head for the doll-ar exits before it gets too crowded.

• The doll-ar represents the common stock of USA, Inc. Despite rhetoric to the contrary…deficits do matter. Until policy changes take place to rein in the triple deficits the doll-ar will continue downward until it hurts. Make war policy isn’t helping the doll-ar one bit. Once inflation becomes so severe that enough JoeSixPacks and SuzieSUVs are screaming at the top of their lungs for relief, the necessary policies will be enacted to bring the deficits in check. Until that happens the I-Fund will continue to do well.

For a number of years the U.S. was successful in exporting inflation to the rest of the world and price inflation in the U.S. has not been that terribly great. The tide is changing, however, and those jet setting doll-ar chicks will be returning home to roost. They will be returning home all worn out and used up. The FED will be applying a little interest rate ‘make-up’ to these gals, but it won’t be able to hide the wrinkles and the sags. These ‘repaired’ chicks might be passed off successfully in ‘low light’ conditions, but anyone with a clue won’t give them a second glance.

 

[Oceansideguy]

Wimpy,

I agree with you regarding the I fund's attractiveness due to the dollar drop, however, it assumes that the value of the I fund remains relatively stable. I am not so sure about that given the iran problem. However, if the Iran thing does NOT happen, the dollar would have still dropped and the market will at worst probably stay flat or drop only a bit. In such a scenario, the I fund looks hihgly attractive. If a war with Iran begins, which many do believe will happen, myself included, the I fund will only gain from the dollar's drop. However, it can still lose overall due to a drop in value.