Wednesday, December 13, 2006


Markets "Focused On US$'s Structural Risks"

Reuters reports on the US dollar. "The dollar firmed on Wednesday after U.S. consumer spending in November exceeded expectations, but sentiment on the currency remained predominantly bearish given expectations of a slowdown in 2007. A stronger-than-expected U.S. retail sales report in November spurred hefty dollar bids early in the session, although afternoon buying of the greenback was more technically driven."

"'We still seem to get some upside surprise to some of the data like the retail sales data today and the employment report last Friday,' said Steven Butler, director of foreign exchange trading at Scotia Capital in Toronto."

"'There's still some renewed optimism that things are not as bad as they seem on the outside in the U.S., so we're seeing some rally in the dollar. But overall sentiment is still negative and the rally would be hard to sustain,' he added."

"The euro was down 0.5 percent from Tuesday against the dollar at $1.3214, having hit a session low of $1.3196. But this was well off the $1.3129 trough established on Monday in the wake of last week's strong U.S. employment data for November."

"Yields on benchmark 10-year notes, which rose to 4.57 percent from 4.49 percent late on Tuesday after the strong retail sales data, also lifted the dollar, some analysts said. 'The rally in bond yields in the wake of the retail sales suggest the bond market is undergoing a sea-change in expectations and this is going to spill over into the dollar eventually,' said Brian Dolan, director of FX research at"

"'Looking through all the noise, it's notable that the dollar hasn't been able to strengthen more,' said Daniel Katzive, foreign exchange strategist at UBS Securities. 'This suggests people still remain focused on the dollar's structural risks,' he said."

"Against the yen, the dollar rose to a three-week high at 117.65 yen, according to electronic trading platform EBS. The pair last traded at 117.51, up 0.6 percent. Sterling was down 0.3 percent at $1.9660, well off a session high at $1.9729 hit after robust UK employment data."

"The worst performer of the day against the dollar was the Norwegian crown, which shed 0.7 percent of its value a day after the Norges Bank raised interest rates but suggested subsequent increases would be only gradual. The crown was last quoted at 6.1697 to the dollar."

From MarketWatch. "Gold futures gained Wednesday, finishing above $630 an ounce, as strength in the U.S. dollar following upbeat retail-sales data was offset by higher prices for crude oil, which raised concerns over higher energy prices and fueled some investment demand for gold."

"Cuts in oil production that may materialize from Thursday's meeting of the Organization of the Petroleum Exporting Countries would be 'gold-positive,' said Julian Phillips, an analyst at Members of the oil cartel are preparing to meet in Nigeria."

"Gold for February delivery closed up 70 cents at $632.40 an ounce on the New York Mercantile Exchange, recovering from a low of $627.50."

"There are 'two camps of investors,' said Ned Schmidt, editor of the Value View Gold Report. One large camp outside the U.S. is bearish on the dollar, while a small camp in New York is bullish on the dollar and 'buys [Federal Reserve Chief Ben] Bernanke's blarney,' he said."

"Small sell-offs similar to the one seen earlier Wednesday should be used to buy gold, he said, adding that 'gold should be bought at today's prices' because it's 'oversold.'"

"Overall, 'thin market conditions are aggregating moves both on the up and downside and can even increase in the last two weeks of the year,' said Peter Grandich, editor of the Grandich Letter. 'Gold's fundamentals remain strongly bullish,' he said, forecasting that 'a run to $700 appears in the cards for early 2007.'"

"Other metals ended lower, but they traded off the day's weakest levels.
March silver futures closed down 6.5 cents, or 0.5%, at $13.915 an ounce, after a low of $13.725. January platinum fell $7.20 to end at $1,107.80, while March palladium closed down $1.20 at $329.70 an ounce."

If anyone has Wall Street Journal Access, I highly recommend today's editorial "The Worth of the Dollar".

I certainly don't agree with any of it, but I do take it as a very positive sign that today's lead editorial is once again focusing on inflation and dollar-valuation. It means things are heating up.

Excerpts for your entertainment:

"Given these caveats, what can be done about the now-huge U.S. current account deficit? The "problem" is not new and there need be no crisis unless the never-ending Greek chorus of editorial writers in the Financial Times, The Economist, the New York Times, and so on, praising every (random) decline in the dollar as a welcome step in helping correct global imbalances, somehow foment a run on the dollar. However, this need not happen if Treasury Secretary Hank Paulson sticks firmly to the strong dollar policy bequeathed from former Secretary Robert Rubin -- and Fed Chairman Ben Bernanke continues to squeeze U.S. inflation downwards."


And when Bernanke *does* reduce the value of the dollar -- now we "know" whose fault that'll be.

"The U.S. current account deficit simply reflects the excess of expenditures in the U.S. relative to income, or, equivalently, the amount by which America's moderate level of investment exceeds its very low saving rate -- both by households and the federal government. So the first order of business in correcting the trade deficit is to reduce the structural fiscal deficit of the U.S. and possibly run with surpluses. The second order of business is to provide incentives -- possibly tax incentives -- for American households to increase their saving."

Riiight, because what got us into this mess was those damn high taxes?

Like President Bush's approval rating, and the Housing Bubble -- the fault here yoo, lies with those pesky un-American rags like the Economis who shred our precious propaganda into unsightly bits of truth.
One large camp outside the U.S. is bearish on the dollar, while a small camp in New York is bullish on the dollar and 'buys [Federal Reserve Chief Ben] Bernanke's blarney,' he said."

So how is the Fed holding things together? Not with the support of the foreign investors (they can see the end) but with foreign government help. Foreigners should ask their governments why their future wealth is being risked to artificially inflate the USD. Remember the UK selling a large gold position at the recent bottom, costing the citizens a billion dollars?
"One large camp outside the U.S. is bearish on the dollar, while a small camp in New York is bullish on the dollar and 'buys [Federal Reserve Chief Ben] Bernanke's blarney,' he said."

and unfortunately, a large part of the american populous is ignorant of the problem or believe the wall street hype.

there is probably only one way to lessen the deficit- a recession. the problem is our deficit may be more structural than we realize.
Here is one approach for protecting the dollar:

Mint: Don’t melt money
Government threatens prison for violators; at current prices the metal value of the coins may exceed their face values.

December 14 2006: 11:53 AM EST

NEW YORK ( — The U.S. Mint has implemented a law against melting down pennies and nickels which, at current metal prices, could be worth more as metal than as currency.

Inflation anyone?
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