Consumers worldwide are being lured into more and more debt. They will have to reduce
spending. This has not happened yet. But as the FED tightens money, allowing short-term demand for loans to push up rates,
the traditional response is a falling stock market.
Just when you've gotten used to low interest rates and low inflation due to a relatively muted economy
and excellent productivity increases, the world begins to change. There are no guarantees or "sure things" in the investment
business. But for what it's worth from a guy who has watched markets closely for almost 40 years, the likelihood of interest
rates and gold prices rising over the next few years is as high as ever.
American debtors would be crushed like bugs, especially all the fools today who were naïve enough
to take out adjustable-rate mortgages and other loans near half-century nominal interest-rate lows. Debtors who willingly
took this adjustable-rate risk make professional options speculators look like risk-adverse cowards by comparison.
"The market is still very sensitive to the inflation numbers so yields are likely to be
pushed higher between now and April,'' said Thomas Lam, treasury economist in Singapore at UOB Group, an affiliate of United
Overseas Bank, the island's second- largest bank. "`The inflationary threat is still relatively high.''
Since the release of the Fed Open Market Committee statement yesterday, much has been said about the
Fed's newfound commitment to contain inflation. However, currency traders have apparently confused the Fed's mere mention
of the word "inflation" with an actual intention to do something about it.
The U.S. dollar has fallen about 15 per cent on a broad trade-weighted basis since peaking three
years ago, driven by growing concern about the United States' massive and growing current account and trade deficits, and
helping to push up the Canadian dollar, the euro and the yen in the process. If the decline remains orderly, Mr. Zandi expects
the greenback to fall another 10 per cent or so over the next three years.
Today, we don't make men gods. Instead society has made our financial system into a false god.
On March 15th, 2005, (the ides of March) we may have just witnessed the beginning of the death of our
financial system as General Motors stock took a nosedive from $34/share down to $30.
We began our analysis with a simple 20% swing line chart of our daily CRB price data back to 1956.
Upon examination of that chart, we were struck with the similarities of the price patterns of the CRB in the late 1970's/early
1980's and the current pattern that has been unfolding since 1999. We ran the chart past our good friend Don, and he suggested
going back one more pattern to the late 1960's/early 1970's.
"The market is a little bit wary we might see inflation coming through and that has caused
the back-up in yields,'' said Derek Doody, head of dollar fixed income in Dublin at Bank of Ireland Plc. "I see the risk on
inflation increasing from here, rather than diminishing.''
There is a whiff of Soviet-style economics in the air today in America. The U.S. government's
CPI data is cooked. CNBC and Larry Kudlow's "buy stocks" propaganda machine makes Pravda look amateur. Alan Greenspan has
excelled in his role as Big Brother such that whatever perpetually bullish nonsense he spews is treated as gospel. The widespread
faith in a "Greenspan put" by the world's financial market participants has never been stronger. And now we have politicians
interested in taking your social security tax money and injecting it into the stock market with the hope of keeping the party
going (at least for a while). In fact, some skeptics out there believe that the government has been propping up the equity
markets for years through its so-called "plunge protection team".
OPEC's Mar. 16 decision to raise its production ceiling by 2%, or 500,000 barrels per day, has done
little to calm the overwrought oil market. Hedge funds and other traders, the key players in today's speculation-driven market,
just don't believe that OPEC can do much about prices in the near term.
“Treasury holdings in the Caribbean jumped $23bn in January following a decline of $7.9bn in December.
Those flows are presumably associated with the large number of investment funds domiciled in the region, and suggests hedge
funds participated in the Treasury market rally during the period,” said Robert Lynch, currency analyst at BNP Paribas.
If crude prices double as they did from September 2003 to October 2004 — to $55 a barrel from $26 — gasoline and heating
oil figure to follow the same path they took in that 13-month period. That could drive gasoline beyond $3 a gallon, and double
the average household cost for a winter of oil heat to $1,800 from $900 in 2003-04.
The US dollar was struggling near a two-month low against the euro on Friday as the market
braced for fresh trade data that were likely to show a further widening of the trade gap. As if this weren't trouble enough
for the besieged greenback, US Federal Reserve chairman Alan Greenspan stirred up the market Thursday night saying foreign
investors would reduce their US asset holdings at some point, while new findings came to light that China is indeed doing
so.
They may be telling a different story to money markets, but Asian central banks have
been quietly switching their dollar holdings to regional currencies for at least three years, confirm global banking data.
In a further, and so far the biggest, setback for the greenback's status as the undisputed reserve currency, Japan on Thursday
said it might diversify its holdings, though monetary chiefs later sought to play down the prospect.
The International Monetary Fund has recommended that the Organisation of the Petroleum Exporting
Countries needs to more than double its spare capacity to cushion the market against shocks, warning that it considers the
current level of about 1.5m barrels a day insufficient.
The International Energy Agency forecasts global oil demand will reach a record 84 million barrels
a day this year, up 1.8 percent from a year ago. That amounts to the content of 42 supertankers being burnt every day. The
Paris-based IEA has raised its use forecasts in all but three months since November 2003. It's scheduled to publish new estimates
in two days.
When confronted with complaints about the falling value of the dollar, the U.S. official is
said to have responded to his European visitors: "The dollar is our currency, but it's your problem." That was in 1971. The
politician to whom this statement is attributed was John Connally, who at that time served as the secretary of the U.S. Treasury.
His boss was Richard Nixon, the same President who used a word for the Italian lira which politeness prohibits repeating.
Nevertheless, Connally and Nixon made clear how matters were.
The bottom line of the world US dollar situation is this: as soon as the US consumer cannot
fulfill a real rate of return on the US dollar investments for all parties concerned, the end of the US dollar standard has
come. That time is upon us now, but has yet to fully show itself.
The dollar dropped against the euro Friday after data showed overall U.S. unemployment rising in
February even as employers added a better-than-expected 262,000 jobs.
Crude-oil futures held onto most of the overnight gains Thursday in electronic trade, underpinned
by a report that the head of OPEC thinks oil prices rising to $80 a barrel is a possibility.
Asia's economies are rolling the dice with an enterprise that may alter the complexion
of the global financial system, affecting powerful central bankers like Alan Greenspan on the other side of the world.
It's called "The Asian Bellagio Group,'' a name that is borrowed from the European Bellagio
Group, a gathering of academics started in the 1960s. Asia's group includes officials from Japan, China, South Korea and Southeast
Asian nations who met in Bangkok last week to discuss the dollar's slide.
If you are parking life savings or investments in United States dollars it is time to worry, says
American billionaire George Soros, grand daddy of currency trading.
If you ask me to name the proudest distinction
of Americans, I would choose- because it contains all the others . . . the fact that they were the people who created
the phrase "to make money." No other language or nation had ever used these words before; men had always thought of
wealth as a static quantity . . . to be seized, begged, inherited, shared, looted or obtained as a favor. Americans were
the first to understand that wealth has to be created.
