Monday, December 11, 2006


"A Few Years Of Dollar Weakness": Greenspan

Reuters reports on what's moving currencies. "The dollar weakened against European currencies and trimmed gains versus the yen on Monday after former Federal Reserve Chairman Alan Greenspan warned investors to expect 'a few years of dollar weakness.'"

"The remarks from Greenspan accelerated the dollar's slide against the euro. Investors bought euros after his remarks, unwinding short positions built on Friday when new U.S. jobs data proved robust enough to trigger a dollar rally. 'Mr. Greenspan's comments on the dollar definitely had an effect,' said Brian Dolan, director of FX research at"

"'But the effect was one of triggering short-term stop orders. The fact is Mr. G is a very learned ex-Fed president. The onus is on the word 'ex-,' he added."

"The euro hit a session high of $1.3263, according to EBS data, after Greenspan's comments, and was last up 0.4 percent at $1.3250, having broken a three-day losing streak against the dollar."

"Greenspan added that he believed it was 'imprudent to hold everything in one currency,' a nod to the trend of central bank reserve diversification into other currencies and which traders took as a clear sell signal."

"Earlier in the session, the greenback had gained as investors prepared for another warning on inflation from the Federal Reserve, which meets on Tuesday for its last policy meeting of the year."

From Irwin Stelzer. "'YANKEE, STAY HOME' is what the world's currency markets are trying to tell us, as the dollar sinks to a level where it takes $2 to buy one British pound, and over $1.30 to buy a euro. And if you're thinking about a major purchase of a made-somewhere-other-than-the-U.S. product, think again."

"The flip side of that bad news is that America's exporters are cheering, while countries that have been counting on the United States to be the world's consumer of last resort are no longer so sure that they want us to cut our trade deficit. And Europeans with their newly powerful pounds and euros are finding that shopping here is so cheap that they can fly over, do their Christmas shopping in New York, and more than cover the cost of their airplane tickets."

The "Gold drifted higher in thin trade Monday. The limited action centered on investors locking in profits ahead of the holidays. Contracts for February delivery of bullion were recently gaining $3 at $634 an ounce on the Comex division of the New York Mercantile Exchange."

"A dearth of liquidity looks set to be a market fixture from now through year-end. As a result, investors should be prepared for choppy conditions. 'A lot of people with 20%-plus returns are quite happy to call it a day and fix their gains for the year right now,' says Jon Nadler, an analyst at Kitco. 'Book-squaring among traders is much the feature of the day's session.'"

"Next year, investor demand will be needed in conjunction with a continuing weak dollar before the price for the yellow metal can be expected to breach major resistance at around $680 an ounce, Nadler explains."

"The greenback, which has provided much of the stimulus for the recent rally in bullion prices, was mixed in early trading. One dollar was buying 116.77 yen, up from 116.35 yen, late Friday."

I'd say we've already had a few years of dollar weakness, AG.
We havent even seen anything yet, just wait till one of these huge MBS hedge fund peddled monsters pukes up more risk than their little models had anticipated. That miscalcualtion could rapidly spread throught the system causing tremendous volitility with and ever steepening downward yield curve.

Than those holding dollars will be moving to the door fast, not just talking of it and inching there.

Isn't it something like half the silver is shorted! I see a lot of these private equity funds moving hard into the miners.

In the miners chat rooms people seem to thing that $3billion is an insane ammount of money. I believe that they could take a substantial number of small and mid tier miners private and have some important benefits:
1. Use US$ to purchase assets working in currancies other than US$.
2. Secure returns of 8-15% in revenues that rise as the dollar falls.
3. Most interesting to me will be the expertise that these hedge fund/private equity guys gain in hard asset aquisition outside the US border. Will this open the flood gates for wealthy US investors to escape the US markets and all its problems in favor of foreign commodities?
Whoops, AG! Didn't anyone tell you the strong dollar is official policy? Haha, just kidding. We know you funny guys are selling USD down the river to inflate your struggling asset bubble. What you don't realize is that you can't stop the slide when you want. You don't control the future of the USD, because foreignrs hold half of all dollars. The joke is on you, and us, AG.
It really looks like the USD is going to test the 80 level of the index until it cracks. Some think the next stop will be 70 or 75, but why? Wouldn't a rush out of the USD make more sense? Wouldn't we drop into the 50s of the index?
It all depends on Saudi Arabia, China and the big 5 foreign central banks.

In political science/game theory this is called "The Burning Theater Scenario": If a theater is burning and the entire audience cooperates and doesn't panic, everyone makes it out alive, but shaken. If any single person panics and runs, panic will ensue. The first few out will live but those in the back, will pile up and die. Game theory is pretty clear on this: Someone always panics. Why? Because no one wants to be the sucker left behind. The question is: who's going to panic first, and when?
The notion that an orderly decline in the dollar can be "managed" through economic diplomacy is just one more example of how diplomats drink their own koolaid.

Fear trumps all. It always does.
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