Tuesday, July 25, 2006


US Dollar Gains On Rate Expectations

MarketWatch has this report on the US dollar. "The dollar rose against major counterparts Tuesday after stronger-than-expected housing and consumer-confidence data fueled expectations that the Federal Reserve will increase interest rates in August. The greenback reversed early losses, which were triggered by renewed speculation that China may diversify its currency reserves. That, in turn, reignited concern about the U.S.'s long-term ability to finance its swelling deficits."

"'U.S. data [this week] as a whole will help determine expectations for the Fed meeting, which is coming up,' said researcher Ronald Simpson. The dollar rallied to the top of its recent range as the federal-funds-futures market is pricing in a slightly better chance of a rate rise in August, he said."

"Late in New York, the euro stood at $1.2578, compared with $1.2627 late Monday. The dollar changed hands at 117.19 yen, compared with 116.77 yen. The British pound traded at $1.8393, compared with $1.8502. The dollar was at 1.2529 Swiss francs, compared with 1.2461 francs. The euro was fetching 147.43 yen compared with 147.47 yen."

"China's National Bureau of Statistics, in a report Tuesday, said the country should speed up diversifying its $941 billion foreign-exchange reserves because of the risk that the U.S. dollar will continue to decline. The statistics agency is not responsible for managing the reserves."

"'The [statistics] bureau has no real say over currency policy, and hence the remarks do not carry that much weight. And besides, the government has said that it will not diversify existing reserves' but clearly can diversify new reserves, said Steve Barrow, chief currency strategist at Bear Stearns, in a note."

"Gold rose for the first session in four on speculation fuel costs will remain high through August, boosting the precious metal's appeal as a hedge against inflation. 'Higher energy prices tend to drive gold higher because of inflationary concerns,' said Mike Sander, a commodity broker. 'I'd rather be bullish on gold than bearish with more problems in the Middle East.'"

"Gold futures for August delivery rose $4.80, or 0.8 percent, to $618 an ounce on the Comex division of the New York Mercantile Exchange. The metal touched $602.50 yesterday, the lowest since June 30."

"'The oil-price outlook is still going to be quite firm,' said Stephen Platt, a commodities analyst. 'It's going to provide a firm tone to the inflation outlook. You're going to see buyers looking at gold as an asset with value.'"

"A stronger U.S. dollar helped limit gold's gains. Gold generally moves in the opposite direction of the dollar, which rallied today as a report showed U.S. consumer confidence unexpectedly rose in July."

"Silver added 2.50 cents at $10.945 an ounce and palladium edged up 95 cents at $317 an ounce. Platinum rose $20.20 at $1,229.50 an ounce."

"China's National Bureau of Statistics yesterday called on the country to 'speed up' the pace of diversification of its vast foreign exchange reserves away from the dollar to help reduce the risk of capital losses. 'The US dollar may continue to weaken, increasing the risk of foreign exchange losses in our currency reserves,' the bureau said."

"The comment was the latest from Chinese officials calling for a shake-up of Beijing's reserves, at $941bn the largest in the world and growing at $20bn a month. About 80 per cent are believed to be in dollars. 'The dollar is likely to continue to be a driver of gold prices,' said Michael Martin, a trader and analyst."

"Some analysts put greater onus on the statisticians' words. Simon Derrick, head of currency research at Bank of New York, said the sheer weight of such comments emanating from China indicated a desire to reduce the stock of dollars, rather than just continue to shift a greater slice of new reserves away from dollars, as most analysts believe is happening."

"'At the very least this suggests that there will continue to be an active demand for the euro against the dollar in the months ahead,' he added."

"Tony Norfield, global head of FX strategy at ABN Amro, said the statement, following mooted Middle Eastern reserve diversification and a move by the Asian Development Bank to develop a local currency bond market, could help reduce global overdependence on the dollar. In particular, he said the statisticians had gone further than many previous commentators in calling for a shift out of US assets per se, rather than just US Treasuries."

"'We can presume the Chinese will use periods of dollar strength to offload some dollars,' he said. 'This casts a shadow over the longer term picture for the dollar.'"

'China is growing so fast, using cheap money to build steel mills, highways and textile factories it doesn't need – that the coming crash grows uglier by the day.'

'In a train wreck, there comes the moment when it's no longer possible to avert disaster. I fear that China's economy passed that point of no return in the second quarter of 2006.'
Isn't that even more reason for them to diversify out of dollars? When it becomes salvage time, they'd certainly want those huge foreign reserves to be useful for something.
The storm isn't brewing, it's brewed. We're broke, and I mean dead broke as a country. The media is putting on the news that we're giving 30 million (or is it billion) to Lebanon while we're running deficits some can't believe. Foreigners have got to be saying "Hey, that is our money you're giving them, and we don't want them to have it".

We've got a massive debt collapse coming in the form of the housing bubble. I'm nervous, and I've only got about .0000000000001% of the money at stake compared to the trillions held around the world. I'm truly amazed the market hasn't crashed already. For professional analysts, they aren't good at predicting anything. How else could it possibly end when people realize (those buying 3,4,5 homes) appreciation is gone a now it's decreasing? That is going to be a lot of money rapidly disappearing off of balance sheets in the form of defaulted loans. I'd say October ought to be just about right for another crash. The only question is, what attempts will be made to fix it? You have to know at this point in our American situation, we'll expect the gov't to fix the very problem they created in the first place. People have become totally reliant on gov't having the answer. I'm sure they'll have a solution, but it'll be more promises that can't possibly be kept. It ought to be interesting. Maybe something along the lines of every American getting 100 shares of any company they choose. Yup, that sounds just about right.
I remember reading that each year the Chinese economy has to find work for 22 million people moving from the country side to cities. It the government does not find work, political unrest and possibly, a change in government could result. It seems the chinese government has to keep the economy expanding or else. I would think a significant recession in the US, one of their best customers, would be very serious. It seems we have somewhat of a shared destiny. Maybe why their goal of diversity of reserves will be gradual.

Some good charts found:




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