Tuesday, August 22, 2006

The March to War Won't Save the USD

EUR/USD 1.2846 Hi 1.2900 Low 1.2831
USD/JPY 116.05 Hi 116.38 Low 115.80
AUD/USD 0.7635 Hi 0.7639 Low 0.7610
EUR/JPY 149.10 Hi 149.71 Low 149.05

Far as I can tell this is what is going on: the recent Israeli assault on Lebanon according to Hersh was aimed at degrading the capacity of the Hezbollah to attack Israel during the upcoming U.S. and/or Israeli attack on Iran. (Too bad about the damage and the dead). The media blatter about Iran bears watching in the march to war. And the current showdown with the Iranians over their nuclear programme is very important. The Iranians are being a bit naive here. They seem to believe that: a) the "Neo-Cons" are not that crazy and b) that an increasingly anti-war mood in the States will stop the rush to the next war. They miss the point. The Bush Administration doesn't mind massaging public opinion when it can. But if public opinion is unfavourable it's no big deal: they proceed anyway. Democracy is just not important to these people. They are not looking to get the chads out of the waste paper bins any time soon. What is important is maintaining the appearance of democracy. The reality on the ground is of no consequence. Which is why, I guess, it's OK to call Pakistan an ally and a democracy while you defend the occupation of Iraq by saying: "if we ever give up the desire to help people who live in freedom, we will have lost our soul as a nation". Well not lost exactly, more sold to the highest bidder.

The Iranians are playing a dangerous game with dangerous people. Trying to out-crazy the crazies is fraught with all kinds of pitfalls. On the other hand, even if the Iranians back down that doesn't mean the U.S. won't go ahead and attack. After all Saddam Hussein backed down on the eve of the U.S. invasion and that changed nothing. Pretty much the only thing that might stop these people is some kind of Bastille Day in the States. There have been rumbles about discontent in the Pentagon but so far no sign of an outright insurrection. The world waits.

The Investor Confidence Index released today in Germany disappointed the market and scared the Euro bulls a little. Although the current climate can be expected to take a toll on confidence, underlying economic data remains strong in Europe. Those who think that Europe is destined to go under if the American economy goes under, should re-examine their perspective. The world changes, the game moves on. Once-upon-a-time China and India were not economic forces to be reckoned with. OPEC nations were poor, under colonial domination and without a game plan. And the EEC was considerably smaller: six nations versus the current twenty-five. Yesterday Wolfgang Manchau commented in the Financial Times that: "The eurozone may not follow each US upturn, but it surely follows most downturns". Oh yeah? I know there are people out there who are prepared to bet their life on straight-line correlations. These were the guys betting that traffic congestion would see London neck-high in horse manure. Then the motor vehicle was invented.

It remains to be seen if the U.S.A. will be able to export its home-grown recession. A devaluation in the USD would go some way to achieving that, but it would likely only compound the U.S. economic crisis by forcing up the cost of financing the U.S. Government Debt. That is: Treasuries would take a hit. The effect on the U.S. economy would be simple: it's called crowding out. Government demand would crowd out growth in the rest of the economy. And when that happens domestic economic conditions turn ugly.

Tomorrow's U.S. data on Housing is expected to merely confirm what we know: the global rush to tighten monetary policy will squeeze those economies dependent on consumer driven debt finance THE HARDEST. That means: the U.S.A., the U.K., Australia and New Zealand. Confidence about the future may have taken a hit in Germany but the U.S.A. is already living that future. Take the opportunity to buy EUR/USD while you have it. The march to war has not increased USD bullishness and it is not likely to. All it has done is confirm the view internationally that the U.S. is currently being run (badly) by a bunch of crazies.

The USD downtrend is not over. The Stock Market correction is not over. You can buy bonds, but not USD denominated bonds, unless currency risk means nothing to you.

Meanwhile the British have made a breakthrough, or so they would have us believe. They have actually charged (I mean really charged) some of the people who were arrested for the alleged plot to blow-up airlines. The rest of the people who were arrested are still in limbo land. And the evidence: well they found hydrogen peroxide in these households. And bits of electrics. And quite a lot of internet bragging. Passports and plane tickets though seem to have been a bit thin on the ground. Now we know why we need to tighten up Civil Liberties. You can't have people running around willy-nilly with hydrogen peroxide. Anyway they got to these people, just in time. No, not really. Well before they bought their plane tickets anyway.

I guess I don't really mind the whole conspiracy to dominate the world thing: the tie-in between the mainstream media, big business and our fearless leaders. What really makes me gag is the slap-dash incompetence of the whole exercise. I mean guys, if you are going to go over to the dark side could you at least try and be professional about it. Right now your performance is just embarrassing.

Oil 72.56
Gold 633.60

The Middle East crisis marches on. And the case for being bearish GOLD or OIL is looking weaker every day.

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