Monday, September 11, 2006

Nixon Redux

EUR/USD 1.2715 Hi 1.2743 Low 1.2648
USD/JPY 117.30 Hi 117.42 Low 116.61
AUD/USD 0.7531 Hi 0.7548 Low 0.7507
EUR/JPY 149.17 Hi 148.36 Low 147.75

Well it's September 11 and Bush and his cronies are making the most of it. Vice President Cheney is saying "if we had it to do over again, we'd do exactly the same thing." These guys are big on repeats. This is the Nixon Administration Redux. And while it may be a slightly surreal repeat of the 1970s they're doing their darndest. We have another OIL crisis, a war in IRAQ which may or may not turn out to be another VIETNAM, gloomy talk about a U.S. recession, STAGFLATION lies in wait, President Bush has made plans for another trip to the moon, there is talk of conspiracy which may or may not involve Government officials, there have been leaks and skullduggery. And that's just what we know so far.

Nixon ended up disgraced and impeached. And the unsavoury details surrounding Nixon Redux suggests that particular line of endeavour could prove even more interesting the second time round. So far Karl Rove has kept his job and Rumsfeld and Cheney are digging in. President Bush's Poll ratings may be in the dog house but there are ways and means of ensuring election results and they seem to be working. Years of practice at rigging elections, intimidating the opposition, subverting democracy and channeling funds to your business buddies in third world nations around the globe are NOW being put to good use in the United States of America. When you got that kind of KNOW-HOW on tap what do you expect??

Meanwhile Bush's best friend, Tony Blair, is making a whistle-stop tour of the Middle East. Not that the Lebanese are particularly keen on the visit. But Tony is a dab hand at facing down criticism, digging in and obfuscating while he flashes his famous smile. Maybe it will play well with the voters back home: war on terror, international statesman and all that guff. He hasn't got a hell of a lot else going for him right now so, if they can keep the protestors at bay, he may come home with a couple of nice snap shots and all the nasty stuff about him being complicit in the destruction of Lebanon can be forgotten.

Meanwhile the associates of the Cheese-Eating Surrender Monkeys seem to be making progress with Iran. It's not the kind of progress the United States and it's ally Britain are making in Iraq and Afghanistan, but then when you don't use bombs as your primary negotiating tool what can you expect?? Washington's Neo-Cons are unlikely to be pleased. The Neo-Cons thrive on war: an expensive war, a few restrictions on national freedom of speech, lots of money poured into your favourite industries and a HEY PRESTO suddenly you are sitting on a retirement fund which would normally be beyond the wildest dreams of your average Yale dropout. Tony Blair obviously hasn't been paying attention.

This week is CPI week in the U.S., the market is looking for CPI to rise 0.2% (both the headline rate and the core rate). A higher rate will see all the USD bulls come out of hiding as they factor in another rate hike before the end of the year. FED SPEAK at the moment, though, suggests otherwise. Should the CPI rate be worse than expected the FED will suggest that: a) previous rate hikes have yet to work their way through the system and b) that the current slow down in economic activity will bring inflation down in coming months. The FED can not and will not suggest that they are not CONCERNED with inflation, BECAUSE THEY CAN'T SAY THAT. What they will do if inflation comes out higher than expected is make soothing noises and continue TO PAUSE. USD bulls should be cautious.

The JPY took a hit this morning following the release of extremely poor Machinery Orders data for July. This volatility has encouraged some USD/JPY bulls but should not be confused with a new trend. The global slow down has U.S.A. stamped all over it. While currency markets try and work out the conflicting signals for the majors, one currency stands out as a sell: the AUD. The AUD will suffer as global growth slows and commodity prices take a hit. The Australian economy is already showing signs of weakness and Australia is running a fairly hefty trade deficit. 0.7600 is expected to hold the upside. The short term target for the AUD on the downside is 0.7450. EUR/AUD is within striking distance of 1.6900, with 1.7000 likely to be seen in the medium term.

OIL 65.28
GOLD 600.50

Signs of progress in Iran have helped the OIL bears press their case. For now the "Neo-Cons" are on the back foot. There are few chances of widening the present conflict in the Middle East or opening a new front in the War on Terror somewhere else in the world. So the WAR PREMIUM in OIL is tumbling and, with a global recession looming, the bullish outlook for commodities has taken a big hit. As speculators rush to unwind one of the favourite plays of the past 12 months further downside for OIL looks likely. The fall out on the commodities market is likely to continue for a while yet.

GOLD has also taken a hit on the back of the rush out of commodities. The U.S. has no interest in GOLD becoming a substitute for the USD as a global reserve currency and the Plunge Protection Team is likely to push this down move for all it's worth. USD 580 on GOLD seems possible from here. Longer term players, however, should be looking for an opportunity to buy. The USD's status as a reserve currency has been undermined by the Bush Administration's poor Economic Policy Management AND by its globally unfriendly you are either with us or against us Foreign Policy. It will be hard for the U.S. and the USD to recover quickly from such mastodontic policy errors. GOLD remains THE global reserve by default.

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