Friday, July 14, 2006

While FX Ponders Stock Markets Panic

EUR/USD 1.2673 / 76 Hi 1.2699 Low 1.2648
USD/JPY 115.75 / 79 Hi 116.20 Low 115.32
EUR/JPY 146.70 / 74 Hi 147.21 Low 146.35

While Stock markets stumble the world of FX is strangely quiet. The much-anticipated BoJ move had no impact. What a surprise, not. And while all hell breaks loose in the Middle East the FX markets remain range bound. The quiet before the storm? Nostalgia fans have bid the USD mildly higher. Well it was the Global Reserve Currency after all. But the USD up move lacks conviction. I guess we have to wait for the G8 to announce it would like to see a lower USD (they could disguise the statement as a call for stronger Asian currencies - but it's the same deal) before we see any real USD selling.

Meanwhile the Israeli attempt to start WWIII seems to be working. Only the unstated assumption that they have an American "blank cheque" (now where have I heard that expression before?) is allowing this to continue. And the U.S. (where the crazies are in charge) has been making all the right noises to reassure Israel that in fact it does have its full and unqualified support. The whole world is on the edge of its seat and America is making goo goo noises to Israel?

And I love the way the American press is on board on this one. An article in The Washington Post today talked about Israel being "attacked". Last time I looked a couple of Israeli soldiers had been kidnapped and were being held hostage in attempt to force Israel to release prisoners it has been holding since the beginning of time. Does the expression "disproportionate response" mean anything to you, Mr Oren? No, I guess not, so lets just prepare for war.

The guys with the big guns are already looking for ways to extend this conflict by openly suggesting that the kidnappings were sponsored by Iran. I guess we'll just have to take their word for it. Hey maybe these guys also have WMDs. And if our fighters for democracy don't find any when they invade the country, no matter, at least they'll have brought democracy. What's that? They already have democracy. Yeah maybe but it's not the kind of democracy we want so it doesn't count. Plus these guys have oil.

All those songs about no more war and here we are. (The Russians may very well love their children too but do the Israelis?)

Makes you wonder what's gonna happen with 'Make Poverty History', doesn't it? Let just hope they don't suddenly start a campaign to wipe out disease too. Next thing you know we'll all be struck down by plague.

But no matter there is a G8 scheduled this weekend so our fearless leaders will get it sorted. Ha. Ha. Right. So maybe we all better panic. At least that would be realistic. What's the expression? Oh yeah, don't panic but if you do panic, panic first. And we have all the right ingredients for panic: leverage, lots of it, cheap money, a geopolitical mess, speculators on every corner, derivatives from outer space, and now - NOW!! - EU leaders (you gotta love their timing) are making noises about easing up regulations on Hedge Funds. I'd like them to explain that little policy back flip to their constituents when this is all over. (Oh they funded your campaign? I see. Well that's all right then.)

There is, of course, something that the rest of the world can do about this mess. But it would take balls, co-ordination and the conviction that the U.S. (and by extension Israel) has to be brought to heel fast. The U.S.'s Achille's Heel is its external funding requirement. All it would take is the Central Banks of the world to announce their intention to sell USDs in concerto (remember what happened to GOLD when the CBs were unloading?). These guys may be crazy but they understand money. Of course there would be a cost. The question is which strategy would cost more: Blah, blah, blah and hope for the best or shoot first and ask questions later? The world has a choice either it keeps financing the U.S. war machine or it doesn't.

Either way stocks are still in trouble.

Next week we have Bernanke's testimony to look forward to. And with his current track record (and the beard doesn't help) that should be good for the fans of volatility.

OIL 77.28
GOLD 661.80

Geopolitics means the USD 80 is just a couple of weeks away for OIL. Interesting how Mr. Rupert Murdoch suggested that the Iraqi war would be good for the world economy because the oil price would go to USD 20. The world waits with bated breath for Mr. Murdoch's next forecast. I guess USD 100 is now not out of the question.

GOLD may be subject to volatility but the trend is your friend. And the trend is pointing up. It may take a while to test recent highs, but that's where we are heading. Buy on dips. Or just buy.

In closing I would just like to point out that Iran has a population of nearly 70 million people, a quarter of whom are under the age of 15. All the 'Christian' right-to-lifers might just like to ponder those numbers (and the Iranians right-to-life) before they give the OK for an attack on another sovereign nation.

Oh and if that doesn't clinch it then join the dots on what more conflict will do for the oil price.

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