Friday, August 11, 2006

George Bush and the F Word

EUR/USD 1.2778 Hi 1.2800 Low 1.2740
USD/JPY 115.92 Hi 116.02 Low 115.11
AUD/USD 0.7669 Hi 0.7705 Low 0.7664
EUR/JPY 148.15 Hi 148.33 Low 147.26

Well we live interesting times. The British have just uncovered a plot to blow up airlines over the Atlantic. Just in time, for Tony Blair's popularity. The plotters were reportedly all English nationals of Pakistani origin. Just like the London Tube Bombers. The recent Bomb attack on Mumbai was also (guess what) linked to Pakistan. Not that Pakistan ever comes up in the conversation over at the State Department. And why would it? After all, Pakistan already has the nuclear bomb and it is a member of the Coalition of the Willing. These guys are the good guys. These guys are our friends, they are HELPING. Yeah, right.

So let's stay ON MESSAGE. And the message is: Al-Qaeda. And any kind of tie-in with Iran and/or Syria is a bonus. So we have the recently appointed Secretary of Homeland Security saying things like the plans uncovered in Britain were "suggestive of an Al-Qaeda" plot. Well if you say-so sir. You gotta make the intelligence fit the plan. And the plan is to get that little sucker in Iran. And maybe we get our OIL industry executives back in there too. Who cares what's going on in Pakistan. We got that covered already. If there was a problem they would have told us.

Bush and Blair are hoping for a boost in the polls. They may have to wait. People aren't exactly going around hugging each other and saying: thank God for our Intelligence Services. Scepticism is sky high. It's kind of hard to recover your credibility when you have been caught lying. You know: Weapons of Mass Destruction and stuff like that. No-one knows what to believe any more and they certainly don't believe Bush. But hey guys, you never know, stay ON MESSAGE and maybe you will get somewhere.

George Bush used the F-Word yesterday. So let's fight this war on Islamo-Fascists (they are gonna have to come up with a more user friendly word if they want THAT concept to take off). It doesn't even make a nifty headline.

Meanwhile the paranoid Israelis are asking for bigger and better bombs from Uncle Sam so they can fight off those rinky-dink fire crackers that the Hezbollah are working with. They want to escalate the conflict and remain the centre of attention here. Look guys when you invade a country because they have two of your soldiers hidden somewhere, you're on your own. Your international standing is shot to hell.

On second thoughts maybe the Bush Administration doesn't see the contradiction in trying to work on a U.N. resolution and supplying one of the warring parties with more arms AT THE SAME TIME. There is muttering about turf wars in Washington. Condoleezza versus Cheney versus Rumsfeld versus... Oh who cares. How ON MESSAGE can you get? Fits in with the leadership of the Bush Administration. We have a MESSAGE we just haven't worked out what it is yet.

But back to the markets. Not a lot going on out there. Consumer Confidence in the States was released and doesn't look good. Well how could it? Everyone in any position of power over there just looks CONFUSED. Policy is all over the place. We don't know what's happening with interest rates, the Middle East, the next election. We don't know where Cheney is most of the time. No-one can decide what should happen to the currency. They want a strong dollar and a stronger Chinese Yuan (which would mean a weaker USD) and anyway none of that works, so let's just forget about the USD for the time being. So much for being ON MESSAGE.

Weak economic data out of Japan has seen the USD/JPY rally, and further gains look possible as short USD positions are unwound. With so much confusion out there, range trading is the order of the day. We aren't breaking ranges anywhere. And until we have some kind of leadership from somewhere, we aren't likely to.

Oil 74.77
Gold 652.30

OIL and GOLD are holding. No satisfaction for the bulls or the bears. We need to get GEOPOLITICS sorted out and we don't have the right people in place to do it. Uncertainty will underpin both markets for the time being. Prudence suggests that staying out until we have a better idea of what is going on would be the best policy.

Thursday, August 10, 2006

Lost in Limbo Land

EUR/USD 1.2824 Hi 1.2916 Low 1.2819
USD/JPY 114.99 Hi 115.47 Low 114.67
AUD/USD 0.7693 Hi 0.7718 Low 0.7644
EUR/JPY 148.48 Hi 148.64 Low 147.34

June Trade data released in the States today came out pretty much as expected. That is, the numbers were bad. But then Trade Data that comes out of the States have been bad since the beginning of time, so today's numbers weren't exciting enough to move the FX markets. In order to close the trade gap the USD would have to devalue by about half. Only they already did that. Remember the PLAZA ACCORD? The USD/JPY has fallen by more than 50% since then, and the U.S. still runs a deficit with Japan. Nowadays the target is China - where a lot of Japanese production has been shifted. The new idea being that a currency revaluation will fix everything. Yeah, right. So pressure is being brought to bear on China. Same old, same old. Ten years from now we will be reporting about the massive U.S. Trade Deficit.

The USD is still pretty much dead in the water. No new news, too much uncertainty and too many established positions. The FED PAUSE didn't give USD bears enough momentum to break out of established ranges. So we are back to buy the rumour, sell the fact. Only don't get too excited about anything because right now even the Central Bankers don't know what is going on. Just read their policy statements.

In London reports that British Intelligence had foiled a massive terrorist attack was enough to give Stock Markets a scare. Though the ugly performance of the U.S. Stock Market following the BIG PAUSE, certainly isn't doing a lot for the BULLISH stock market case. It's hard to say if this is BUY THE RUMOUR SELL THE FACT yet again, but it could be. I don't think the Stock Market correction is over quite yet, but the speed and extent of the correction could disappoint the die-hard BEARS.

Oil 75.77
Gold 655.30

Somewhere out there there is a U.N. Resolution lost and looking for a way home. All the big honchos are in on this. Only not really. In Europe it's Summer and OLD EUROPE still does Summer. Bombs are falling, the Israeli invasion of Lebanon is picking up speed and there are ugly rumours about the next target, which of course is IRAN. This is just the way things are. The guys who believe that there is a bomb for every problem are in charge in the USA and Israel. I guess that's where DEMOCRACY gets you. That must be the whole point of bringing DEMOCRACY to the Middle East: bombs for everyone. The Iraqis certainly seem to have found that out.

The Middle East is being turned into a battleground and OIL is pretty much flat. Which is remarkable. It should also worry the OIL bulls, particularly if market focus is going to shift away from GEOPOLITICS to recession. Not that OIL is going to hit a long term bear trend any time soon, but we could see some decent profit taking.

If OIL can't rally now, then maybe we have seen a top for the time being. The thing worth watching is the concerns about recession. We may not have a recession on our hands. It doesn't matter. What matters is that the concern spreads in the market enough for funds to start exiting positions. Everyone is long commodities, so exiting means selling pressure. The failure of OIL to break out to the upside could be a harbinger for profit taking in commodities, right across the board.

Now that would be good for inflation. Maybe Ben Bernanke is onto something after all.

Wednesday, August 09, 2006

It Tolls for Thee Rupert

EUR/USD 1.2892 Hi 1.2902 Low 1.2763
USD/JPY 114.86 Hi 115.77 Low 114.79
AUD/USD 0.7651 Hi 0.7658 Low 0.7563
EUR/JPY 148.04 Hi 148.31 Low 147.61

Everything is going to plan and yet, and yet there is disorder in the house. Joe Lieberman just got tossed out. No matter, they don't use voting machines in Connecticut. And anyway he was a Democrat. Ok, he was the closest thing the Democrats have to a Republican, but a Democrat nevertheless. The next U.S. election is not at risk. The good old boys have it all tied up. And yet, and yet. There is talk that Condoleezza Rice is furious at being forced to toe the Bush line instead of calling for an immediate cease fire in Lebanon. Rice's thinking is (reportedly) that the U.S. failure to call for a cease fire has left the U.S. isolated in the Arab world and in the world in general. She is right. Whatever happens now it's too late. The U.S. has lost its foreign policy credibility in the wider world.

Ben Bernanke, the mild, kept rates steady yesterday. For now the USD reaction has been muted. But the Stock Market saw no relief. The market is not looking at interest rate relief any more, it is looking at recession: heading our way and fast. And stocks don't like it. The longer term risks for the market are substantial. In a slow down (which Bernanke implicitly confirmed) could it be any other way?

The USD is holding. Not rallying, holding. But for how long? Bernanke took a big risk yesterday at a crucial time in history. This isn't just any old slow down underway in the States. Right now the U.S. has wars to finance, an enormous external funding requirement and a fairly hostile Global Environment to deal with. The USD never looked more vulnerable.

Back in Britain, there is open revolt in some quarters. Tommy Sheridan just fought and won a libel case against News Corp (in his words "the most reactionary scab outfit in the world"). The mood is changing. Anger with News Corp's decades long interference in the British political process is beginning to rear its ugly head. And that anger runs deep and cuts across all social classes. News Corp is now under police investigation for illegal activities involving 'phone tapping at the Royal Household. The Windsors never were a News Corp favourite, after all what deals could Murdoch possibly offer the Queen? And you can't play "King Maker" with an established royal household in situ. Much better back room deals with ambitious politicians. And now the Windsors fight back. 'Bout time.

It looks like the good old boys didn't count on the impact of the Blogosphere. Rupert Murdoch may own MySpace, but who cares? A few geeks can have another MySpace up and running in days. Barriers to entry have tumbled and it is no longer possible to monopolize news information. Makes things just a bit tricky, doesn't it? Don't send to know for whom the bell tolls Rupert for surely it tolls for thee. Elizabeth has gone, Lachlan has taken off, leaving James, but for how long? Your new Chinese wife didn't get News Corp anywhere in China. Now, of course, News Corp is publishing all sorts of nasty stories on China (sore losers at News Corp). When Rupert was courting China, HarperCollins (yeah, don't ask: another Murdoch acquisition) went as far as to refuse the publication of Chris Patten's memoir for fear of upsetting the Chinese Government. But then there were deals to be made, media to be acquired. Now the News Corp venture in China is over and the gloves have come off.

That would really be something, wouldn't it? Dragging the Chinese into the hostilities in the Middle East. And Russia? Where is News Corp on Russia? Actually I don't want to know. As Rupert Murdoch stares his own mortality in the face perhaps there would be nothing he would find more satisfying than taking the world with him in a blaze of destruction. A send off, to end all send offs. The News Corp crowd have obviously never heard of the risks of arrogant overreach.

Suddenly the colossus looks vulnerable.

Oil 76.58
Gold 652.50

OIL continues to stay bid, but no more. GOLD has seen profit taking. The world is waiting. A lot hinges on what happens with the current U.N. negotiations regarding the Israeli war on Lebanon. The Arab League is holding out for a withdrawal of all Israeli troops from Lebanese soil as a necessary precondition for peace. The U.S. (or rather the Bush Administration) and the Israelis fear that any type of concession will be seen as weakness. Arrogant overreach is suddenly EVERYWHERE.

We could see profit taking in the short term in both OIL and GOLD (let's give the shadowy forces intent on manipulating the market their due). The longer term outlook, though, remains bullish for both.

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Tuesday, August 08, 2006

Waiting for Ben

EUR/USD 1.2829 / 32 Hi 1.2856 Low 1.2805
USD/JPY 115.09 / 13 Hi 115.30 Low 114.90
AUD/USD 0.7595 / 99 Hi 0.7643 Low 0.7585
EUR/JPY 147.66 / 70 Hi 147.97 Low 147.36

Well the whole world is lining up to watch the next big non-event: the FED PAUSE. And today's the day. Or at least that's what the market is hoping for. Though you wouldn't know from watching the USD. There was no real USD follow-through selling after the weak NFP numbers release Friday. Everyone is sitting on the side-lines wiating for the next big trend. It could go either way.

In one corner we have the massive U.S. external funding requirement, weak U.S. economic fundamentals and an unpopular U.S. Foreign Policy. In the other corner we have the mysterious PPT, the reluctance of the U.S.'s trading partners to accept a weaker USD (which means propping up the BUCK with Central Bank USD buying) and the off-chance that Bernanke's FED may pull a rabbit out of the hat today and hike. To say that the stand-off has become excruciating is an understatement. The feeling is that we are at some kind of turning point, it's just that nobody knows quite what that means for the FX market.

So, for the time being, range trading is the only thing that's happening out there. Nobody knows what to do with interest rate differentials. Do we trade economic growth rates here? Inflation? Employment? Do Housing numbers count? If the FED stands pat then the USD might see some more selling pressure but with so many questions still unresolved in the wider world (including where we are going with the various wars that are raging and will global economic growth hold) we are unlikely to see a new trend on the back of a PAUSE. Same deal, unfortunately, with a HIKE. Because a HIKE today just might be the LAST ONE for a while. Which would leave us pretty much where we are today: with not all that much new information to go on.

A HIKE today - largely because it's not really what the market is expecting - could provide the market with a bit more SHOCK VALUE and lead to a short term spike in the value of the USD. A NEW TREND though is unlikely. Sigh.

Stocks in Asia recovered over night, European stocks haven't done as well. In Europe all eyes will be on the U.S. as the market looks for direction. The real new concern in the markets is that inflationary pressure will force Central Banks to keep hiking (even as growth slows). And that new concern is what is keeping a lid on stocks. This new view is BAD NEWS FOR STOCK MARKETS and that could be only new trend we have in Financial Markets for a while.

Oil 76.61
Gold 655.00

OIL hasn't really done anything too spectacular either. And considering that we have a Civil War in Iraq (although Rumsfeld is still mulling over that one), a fairly major war underway between Lebanon and Israel which has the potential to spread, that the "Iranian Nuclear Question" is still unresolved and that a B.P. Pipeline just busted and won't be repaired any time soon, the fact that OIL is just sitting there is a fairly remarkable market phenomenon. So maybe all the bullish news is already in the market.

The chorus of voices calling USD 100 on OIL has been deafening lately. And still the price goes nowhere. Either we see OIL break out to the upside in fairly short order or profit taking is likely to emerge as disappointed bulls exit the market.

An Open Letter to Hezbollah

Guys, guys you are doing this all wrong. More fighting will just mean more casualties and more damage to Lebanese infrastructure. You don't need that. Accept the peace now. Even if the terms are awful. Retreat and regroup. The first law of Guerilla Warfare is: attack where the enemy is weak, disperse when the enemy is strong. Your enemy can win on the battlefield: they are strong there.

Their weakness is their near total dependence on the U.S. for support. So you need to focus on undermining that U.S. support for Israel. The weapon of choice here isn't bombs it's P.R., which is why the Israelis spend so much time and money on building links with the Western media. The Israeli P.R. campaign is relentless and working. They do press releases and get 'their' facts out to the mainstream Western media every single day. Where are you guy on this one? Nowhere that's where.

Your P.R. stinks. Sorry, but it does. What you don't need is guys in Turbans speaking in Arabic with voice-over translations. The Iranian guy with the bad haircut and second-hand clothes is not helping. Stop giving him press. It's damaging your cause. Idem with Bin-Laden et al. And stop recruiting sad sack morons to blow themselves up. That's not going to work. Recruit in the West if you have to but recruit smart, educated, well-spoken journalists. You need spokesmen who can read, write and speak English convincingly. Because your target audience (the American taxpayers who are funding Israel) only speaks English. You haven't even got to first base with these guys.

If you don't know how to do this: hire people who do. You need press releases, you need balanced, factual articles in the mainstream Western Press, you need acceptable spokesmen, you need to use the Internet, E-mail, You Tube, whatever it takes. No visiting journalist should ever be turned away. Take them to lunch, show them around. Be nice. It's the last thing the Israelis want. They want to keep you busy on the battlefield. Don't go there. Don't fight this on their terms. Fight fire with fire. This war won't be won on the battlefield it will be won in the hearts and minds of the Western voters. Some of the work is already done for you, all you have to do is use it.

The Israelis aren't scared by your bombs they are scared by Al-Jazeera, by Robert Fisk, by George Galloway, by Amy Goodman.

Do you really think that Middle America is happy to spend trillions of dollars on weapons for the Israelis while the U.S. Government tells them they can't afford Health Care, Welfare and Education for Americans? If it becomes known in the West that cutting off funds and arms to Israel will make a just peace inevitable then those funds will be cut off. I guarantee it. Western voters don't like this carnage and this war. And they don't like wasting their precious resources to keep the whole charade going.

It's up to you guys. Either you decide that all you really want to be is martyrs or you decide that you want to WIN this war. The choice is yours. Your present strategy isn't working: so change it.

Monday, August 07, 2006

The USD Devaluation Policy Option

EUR/USD 1.2865 / 68 Hi 1.2895 Low 1.2850
USD/JPY 114.85 / 89 Hi 115.07 Low 114.15
AUD/USD 0.7636 / 40 Hi 0.7671 Low 0.7626
EUR/JPY 147.79 / 83 Hi 147.90 Low 147.03

Well the U.N. has managed to come up with a document which pleases no-one. Given that there is a war under way, that is hardly surprising. The next couple of days will be interesting: we have the U.N. vote on the draft resolution which calls for a cease-fire (sort of) in Lebanon and the FED will meet to decide whether they should start planning for the up-coming U.S. recession. And the talk of a likely recession in the U.S. is starting to become more insistent. The data certainly isn't inspiring. More economic weakness is expected as the slowdown in the U.S. housing market starts to impact growth right across the board. Employment numbers released Friday helped complete the picture, but the prognosis remains the same: economic growth in the States is under strain. The cost of financing a huge military campaign in Iraq and Afghanistan, the burden of higher OIL and commodity prices, and the rising cost of financing the massive level of accumulated household debt are all weighing on economic activity. And no improvement is likely in the short to medium term.

The USD has seen some fall-out from Friday's poor NFP figures, but nothing spectacular. Established ranges are pretty much holding. The focus is on the August 8 FED decision. Should the FED hit the PAUSE button, the thinking is that this will be the nail in the USD coffin. Maybe, maybe not. There aren't a lot of countries out there which are keen to see the USD fall through the floor. Beggar-thy-neighbour currency devaluations are not exactly welcome. And even the U.S. has a lot riding on its "Strong Dollar" policy, which Treasury Secretary Paulson just took out off the shelf and dusted down. (Hey it worked for Rubin). The U.S. needs foreign capital inflows to keep coming, and a policy of devaluation wouldn't really inspire a lot of foreign investors to buy DOLLARS. So any devaluation will have to be managed with the utmost stealth, if a devaluation can be managed at all.

Without a USD devaluation (which would effectively export the U.S. economic slowdown to the rest of the world) the U.S. will just have to wear the economic pain. This would mean range trading on FOREX MARKETS would continue as the U.S. acts to hold its currency as steady as is possible. The real action would be on Stock Markets. So far the USD is holding. The risks are huge. It is not a given that the U.S. will be able to hold the dollar, but clearly that is their intention. Which will make this week's FED POLICY MEETING even more interesting.

Global Stock Markets don't like any of this. The Japanese Nikkei closed down 2.23 % and is now down nearly 6 % for 2006 as a whole. Europe is down on the day, up marginally YTD and worrying about more rate hikes and the U.S. economic slowdown. In the U.S. the outlook for Stocks isn't good. Bernanke may be able to save the day Tuesday, but it doesn't look likely that he will be able to save the economy over the medium term. The debt-financed consumer-fest which drove the U.S. expansion is over and there are no other likely sources of growth out there, if you scratch a major USD devaluation off your list of possible policy strategies. So the outlook for profits and stocks is dim, at best.

Oil 76.66
Gold 660.00

GEOPOLITICS and the failing international confidence in the USD has lit a fire under GOLD, which doesn't look like it will go away any time soon. There are, though, forces at work. Oh yeah. So let's welcome the next shadowy, behind-the-scenes team working to keep markets orderly: Goldman Sachs. I doubt there is anyone in the market who doesn't think Goldman is part of the Plunge Protection Team. But the PPT sure has a lot of balls in the air right now: propping up the USD, working to STOP GOLD re-emerging as the Global Reserve of choice, trying to contain the rally in OIL (or maybe not - after all the Neo-Cons have well-established links with the OIL industry). At any rate there is a new story about market manipulation making the rounds and this time the target is GOLD . Having an ex-Goldman Sachs executive as your Treasury Secretary obviously has all kinds of advantages. Provided, of course, that the market buys your spin. So, depending on who you listen to, GOLD could be in for a (manipulated) multi-week correction in the short term or it is on track for USD 900 in the medium term. Or both.

If you join all the dots: a likely sustained devaluation of the USD over the medium to longer term (that is if we don't actually see a major rout in the currency in the short term), rising inflationary pressure linked to excessively loose monetary policy pretty much around the globe and ugly GEOPOLITICS then you would have to take any downward move in the price of GOLD (manipulated or not) as an opportunity to buy. We are not so much talking an opportunity to make speculative gains but an opportunity to preserve wealth in what looks likely to be a major readjustment in Global Financial Markets. PPT or no PPT.

And now for the good news: BP Plc has been forced to close its Alaskan pipe line. And, guess what, OIL is up some more. So far there have been no credible rumours about the price of OIL being manipulated (but hey watch this space). And the overwhelming consensus now appears to be that the target for OIL is USD 100. Look on the bright side, that is an increase of only 30 percent and we have already seen the price of CRUDE more than triple, so we are talking pretty small bananas.

That said: how much would the Bush Administration benefit from this timely combination:

  • a positive resolution of the conflict of Lebanon
  • the reopening of the Alaskan OIL Pipeline and subsequent fall in the price of CRUDE and
  • a FED PAUSE.

  • I don't know how likely it is that they can pull off that kind of hat trick. But if you were out to manipulate the market, that would certainly be the time to act. Remember there are elections due November 7 in the States and the Bush Administration badly needs to score some goals before then. It's a dicey game to play, but if the people behind the PPT are really as arrogant as some commentators suggest, then maybe they figure that Manipulating the Market will be a slam dunk their favour.

    If the GOLD market defies market manipulation, then be careful if you are holding USDs.

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