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October 27, 2006
A soft $USD getting softer, Fri., Oct. 27, 2006, 2:57 PM
Alan Greenspan, former head of the U.S. Federal Reserve, once held the job of protecting the $USD. Not once do I recall him trashing it. Until now.
The $USD is now falling fast against the Yen.
Here is an explanation:
Swiss Central Bank Lifts Yen, Pares Dollar Holdings (Update1)By Simon Kennedy Oct. 27 (Bloomberg) "
The Swiss central bank raised its holdings of yen and pared investments in dollars last quarter after the yen fell to its weakest since October 1998 compared with the currencies of Japan's biggest trading partners.
The Swiss National Bank boosted its yen investments by 68 percent to 208.3 billion yen ($1.8 billion) from the end of June, according to figures posted on its Web site today. The bank's dollar holdings fell to $12 billion from $12.4 billion. SNB spokesman Werner Abegg declined to comment on the report.
The share of foreign-currency investments in yen rose to 4.9 percent of the 45.4 billion franc- ($36.4 billion) total last quarter. Russia's monetary authority may also lift its holdings of the Japanese currency, Alexei Ulyukayev, the central bank's first deputy chairman, told reporters last week. ``Central banks are seeing the yen as undervalued,'' said Neil Jones, head of European hedge fund sales at Mizuho Capital Markets in London. ``It's definitely in vogue right now and we'll likely see more of this diversification. We could see some yen strength next week.''
As of Sept. 29, 26 percent of the central bank's currency reserves were in dollars compared with 27 percent at the end of June, the SNB said. Its allocation of other currencies, which it didn't specify, rose to 16 percent from 15 percent. The bank's holdings of euros were unchanged at 48 percent and sterling stockpiles held at 10 percent. The reserve figures included derivatives.
I have been opining for several weeks that the $USD had run into technical resistance and could not break out to the upside. That seemed to be holding gold down as the $USD was hugging the upper channel of its trading range.
I figure that as soon as the $USD starts its descent, that $GOLD will start its major rally; maybe not the same day, but the Gold Rally day is soon to arrive. And, you don't want to miss it.
The latest economic woes of the U.S. will require more reflation (ie, money printing), which is more important to gold prices than the interest yields in the bond market, and as you can see, there is a major difference between the 5.25 pct Fed Rate and the yields on T-Bills (4.96) and 30-year T-Bonds (4.79), and all treasury paper in between.
You know, except for Monday, it's been a tough week for the $USD, which even Larry Kudlow must admit.
Posted by Posted by Bill Cara on October 27, 2006 02:58:07 PM | Category: Forex
Discourse
ALoHa BiLL !!
BIG government unlimited spending got us in this mess, so why shouldn't the US dollar suffer?
Thank God us Americans have the likes of Ben Bernanke on our side to help us fight inflation. A special thanks
goes out to Hank Paulson for protecting us poor dumb bastards from a potential stock market crash! WOW ... do I
ever sleep like a baby !!!!
What would happen if us voters were not so addicted to government welfare and decided to elect representatives that
did not spend on "our behalf" to get re-elected? In other words what would happen to costs if the money supply
were fixed and did not expand due to government policies? Will you agree that most government policies are
failed? If not please inform me of one that has been a resounding success ...
Prices go up due to monetary expansion. The US Constitution called for less government because they knew politicians
would spend welfare money to get re-elected. BIG GOVERNMENT = BIG GOVERNMENT SPENDING ... It is just that
simple. I give you the Iraq War and Medicare as examples of current HUGE failed government policies.
Here is what would have happened if in 1959 the US government decided not to spend and fixed the US monetary
supply and did not expand it. Would you believe 12cent hamburgers and $9,000 houses?
Posted by: kaimu ![[TypeKey Profile Page]](http://www.billcara.com/nav-commenters.gif)
at
October 28, 2006 7:22 AM [link]
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ALOHA !!
Yes Bill, keeping the USD Index above 80 has been a real struggle for the Fed and with the help of China and Japan they have been successful so far. Any breach would be catastrophic, especially psychologically. Yet there are more dire consequences than just Forex trading.
Back in the early 70's when I lived in Perth, West Australia with my parents I recall I only got $0.85AUD for $1USD. That sucked, especially for Americans, but for Aussies it was great because they could come to the USA cheaper and buy more junk. At the time I was a student at the University Of West Australia(Uni)and so decided to start up an import/export biz in my spare time. I wrote to a friend(back in those days there was no e-mail)and asked him to go to Licorice Pizza(a record shop)where he lived in Fullerton,CA and buy some albums like Elton John, Beatles, Beach Boys, Neil Young, Joni Mitchell, Canned Heat, Creedence Clearwater, etc. In the USA he could buy an album for $2USD to $6USD and in Perth I could sell them for $15AUD. He bought them and I sold them by putting up posters around the "Uni campus". I had a throng of strange people coming to my parents house day and night(which they did not like)but I found it very easy to sell these albums for $10AUD to $15AUD, since the same album at an Aussie record store was $18AUD+. I would then send my friend Australian dollars that I got(I'd keep some for my profit and he too)and then he'd change it into USD and could actually buy more albums than before. So the business grew and grew and so did our profits until pretty soon we were shipping quite a few BIG boxes. The biz eventually ended when I moved back to the USA. That was my first experience with a "weak US dollar" and my first "home based entrepunerial endevour" ... I quit working for my "allowance" since it became "chicken feed" compared to my record biz and the perks were "way better" ...
My point is there will be the negative effects here by US consumers but there will also be some positives and of course, some new businesses from a weak US dollar will spring up. In fact, for a change, you Canadians that live near US cities will be coming here for your medicine.
What I worry about is what the US government(our elected idiots)will do to "us" in the way of tarrifs, etc. I also worry that we have a much greater dependance on imports than we did in the 70's so I think WalMart prices will start looking like Neiman Marcus aside from the gas pump ... Its all inter-related and so much more complex isn't it? This new way of life for Americans would really put a crimp on any travel and the fixed income AARP seniors whose numbers will begin to swell rapidly starting in 2008.
Posted by: kaimu![[TypeKey Profile Page]](http://www.billcara.com/nav-commenters.gif)
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October 28, 2006 7:01 AM [link]