Money and Metals

The economic forum published today by MS left this reader with the impression that the dollar is safe, if only temporarily. The independent Stephen Roach feels that this is the year the Fed moves rates up significantly, and that the average investor is unprepared for it. His peer, Stephen L. Jen agrees, and points out that the Bank of Japan will be unable to follow suit due to a "soft patch" in their economy. So the US rates go up while the others do not: meaning dollar support at 100 Yen and above.

One can't help but sense these guys are hedging their bets. Mr. Roach worries about unravelling "carry trades" and Mr. Jen sees the Chinese revaluation as inevitable but not pending. If the Fed follows up on their December FOMC worries with serious rate hikes, the "rebalancing" Mr. Roach has been calling for will be a wildcard for the US dollar in 2005. Hang on to your hats.

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The credit ratings group Moodys issued a report on January 28th entitled "Global Credit Trends" which concluded that narrowing the trade deficit is "all but impossible". The trade gap widened in the final quarter of 2004, as US exports fell and imports rose. "The US' position in international trade has also suffered from a widening of the deficit in the global trade of advanced technology products. As recently as 1998, the US showed a +$29.7 billion surplus for the international trade of advanced technology products. As of the year-ended November 2004, that surplus had been supplanted by a -$36.9 billion deficit".

The dollar can expect to be under continued pressure as a result of this deficit combined with the massive borrowing in the public and private sector of the US economy. The report pins a slim hope for the US on advanced technology. "Only through the introduction of substantially advanced technologies can the US offset the outflow of high-tech production". Even so, those new technologies will "ultimately" move offshore.

"The US may be locked in a Sisyphean task where continuous innovation is needed just to prevent a widening of the trade deficit. To maintain its high standard of living relative to the rest of the world, US businesses must be leaders in the areas of product development and innovation".

Microsoft mogul Bill Gates is quoted in an AP story today from the globalist meeting in Davos, Switzerland "The dollar is going to go down, there's no question," Gates said.

Why is the multi-billionaire again openly attacking the currency of his own country? I am beginning to suspect this move and suggest we follow the story closely.

A guest editorial in the Asia Times by Antal E Fekete discusses the possibility of BOJ/Fed collusion to prop up the dollar. " The (BOJ) is buying US Treasury paper through the good offices of the (Fed) over and above the deficit America is running in its trade accounts with Japan". Though not the first to suggest this arrangement, the author voices a now-rare opinion that lower interest rates may be ahead, as a result of the scheme. " (Will)the attempt to save the dollar will be through the shock therapy of ultra-low interest rates, clandestinely administered by Greenspan?"

The BOJ would no doubt prefer such a route as it would produce a windfall in its US Treasury bond position. But as the author points out, the resulting deflation would put the US in a serious economic depression.

Bill Gates said today "I'm short the dollar,'' Gates, chairman of Microsoft Corp., told Charlie Rose in an interview late yesterday at the World Economic Forum in Davos, Switzerland. ``The ol' dollar, it's gonna go down".

Fellow Berkshire Hathaway boardmember Warren Buffett agrees, "Unless we have a major change in trade policies, I don't see how the dollar avoids going down".

Gates, who invests in China, also expressed his admiration for the economics of the communist giant. "It's phenomenal,'' Gates said. ``It's a brand new form of capitalism".

The Economic Cycle Research Institute has put out their economic index for the week ending January 21, 2005. Here is the Reuters report and here is the site that includes the chart at the bottom of the page. Note that the index has been heading downward since early in 2004. This pay service is more objective than similar government reports.

Reuters reports a producer price decrease for the last month of 2004.

Elliott Wave International has this feature on a big drop in credit card debt overall. A must read.