Thursday, February 22, 2007

It's Starting to Fall Apart

EUR/USD 1.3103 Hi 1.3146 Low 1.3081
121.35 Hi 121.43 Low 120.81
AUD/USD 0.7893 Hi 0.7920 Low 0.7874
EUR/JPY 159.04 Hi 159.14 Low 158.54

So how are we doing? Well let's see. Dick Cheney made a trip to Japan. What was the official reason for that visit? No idea. Now he's in Australia, where the Australian public are cheering and waving flags. Well no, not exactly. But the Australian Prime Minister, John Howard, does a good grovel. And Dick Cheney loves being grovelled to, so that's all going well. Unfortunately, in the meantime, the BoJ hiked rates. (Bad news for the Carry Trade and U.S. Treasuries but for now the PPT is holding the fort.)

Oh and Tony Blair just announced that because the Anglo-American WAR on Iraq was in such great shape (see Cheney was right) and so obviously POPULAR that the British are withdrawing troops. The Danish are also withdrawing troops. The U.S. is still going with the SURGE because, well, what else would they do with all their billion dollar bases which they purpose built in the middle of the GREEN ZONE in Baghdad and in strategic points all over the country? Seems a shame to waste them.

In Italy the Italian Prime Minister was forced to stand down because he lost a crucial vote in Parliament. On what? Oh nothing really, just foreign relations. Specifically though on keeping Italian troops in Afghanistan and increasing American Military Bases in Northern Italy. The Italian public was not impressed. It seems a pity to lose a guy who knows how to use a Ouija Board in a pinch and who helpfully released a whole lot of dangerous prisoners as one of his first acts of Government, resulting in a Crime Wave. Didn't Saddam Hussein do something similar just before the U.S. invasion? What is going on? Anyway now Italy has lost two sterling public figures: Berlusconi, the well-known member of the P-2 Masonic Lodge, and Prodi, the guy who knows how to work a Ouija Board. If you ever wondered why Italians feel justified in NOT paying taxes EVER, unless it is completely unavoidable, wonder no more. Perhaps they could persuade Cicciolina to run for Parliament again? You never know it just might improve the tone of the place.

So there in a nutshell is why Italians are religiously devoted to withholding their hard earned cash from their Government. Tax Avoidance is a nationally accepted sport which Italians play at a professional level. And that is why the Italian Government has accumulated such a massive level of debt. Otherwise the country is doing just fine. In fact Italy seems to work better when there is no discernible Government. Perhaps Britain should try that. After all Tony Blair hasn't exactly covered himself in glory these past 10 years.

Otherwise everything is going to plan. Well, apart from the U.S. economy which keeps producing bad headlines and worse statistics. But that doesn't matter. Every time some bad data comes out, some bad company report (and they have been pretty bad lately), we get our boys to step in. Which accounts for the bizarre way the market is trading. First the bad number then the sharp sell off and then the rally on the back of nothing at all. How long can they keep this up??? Well the FED prints the money, derivatives are unregulated and Hedge Funds can do whatever they want. The answer then is: probably not much longer.

But then they got a lot on their plate: the USD, Treasuries, Stocks, Gold (which is the only one they really want to see fall). So far the USD is holding. Could be tricky going forward because, unfortunately, the FX MARKET is not a DOMESTIC market. Stocks they are doing better with. (Hedge Funds buying). Treasuries, well, they haven't recovered from the slump but there is no panic selling. YET. And GOLD, well never mind.

OIL 60.06
GOLD 682.00

The PPT gave GOLD its best shot this week. The huge slide in GOLD didn't last long though. And that's even with the timely press and the judicious use of the derivatives market. So here we are and GOLD appears to have broken through its recent high. It's still a long way from making a multi-year high but GOLD bugs can count on a number of favourable factors: Helicopter Ben is in charge at the FED, the U.S. Government is currently planning an attack on Iran and no-one is really comfortable holding the USD any more.

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Monday, February 19, 2007

Cheney in Japan. Serendipitous Coincidence?

EUR/USD 1.3131 Hi 1.3165 Low 1.3127
119.55 Hi 119.75 Low 119.21
AUD/USD 0.7855 Hi 0.7889 Low 0.7855
EUR/JPY 157.02 Hi 157.38 Low 156.85

Well how about that? The BoJ has to make a decision about monetary policy this week and Dick Cheney is in Japan!! There have been all sorts of noises made about the Japanese economic recovery (which technically suggests that a rate hike is possible), the Carry Trade (which depends on favourable interest rate differentials) and the risks to Japan of a precipitous decline in the USD/JPY (exporting may become more difficult). Remember this is the country which continued to run a favourable trade account with the U.S.A. BEFORE, DURING and AFTER the Plaza Accord, which saw the USD/JPY depreciate by 50%. So the potential risks may lie elsewhere. Japanese exporters can obviously handle a stronger currency.

So what are the risks for the U.S.A.? Well, as it happens, there are quite a few. The U.S. is in the middle of number of wars of conquest at the moment. And, it appears, an attack on Iran is currently being planned. Deviants at the Pentagon just can't wait to try out their new weapons arsenal. There is only one small problem: the U.S. doesn't really have the money for all these exciting new plans for world domination and the USD isn't exactly performing well on international markets, the one exception being the USD/JPY, which is holding up largely because of the Carry Trade.

And the Carry Trade depends on favourable interest rate differentials. Now the interest rate differential between the U.S. and Japan is currently 5.00%, which is quite a lot. But it seems that the powers-that-be are concerned that should that differential shrink by a mere 25 basis points then the game will be lost. What does this say about the DOLLAR? Well pretty basic really: the USD is in big trouble.

The Saudis might be helping to support the currency but, despite the little fillip in the price of the OIL which the Iraqi invasion and the Israeli attack on Lebanon provided, the price of OIL has languished since. The Saudis have cash but the Japanese and the Chinese and the Russians have more. Hence Cheney's little trip to Japan. Which is quite unusual. Cheney doesn't make foreign trips often. Not surprising really. He might smile at someone and scare them half to death. Best he's kept in his bunker to plot in private. The last trip he made was to Saudi Arabia where he was summoned on Thanksgiving 2006. But here he is suddenly turning up in Japan trying to drum up support for his Wars and for the USD. Obviously the situation for the U.S. is quite dicey, otherwise he wouldn't bother.

With a WAR in Afghanistan, a WAR in Iraq and a WAR planned for Iran, the U.S. needs to keep those foreign capital inflows coming. That task might be just a little difficult if the USD really starts to show signs of wear and tear on international foreign exchange markets. No-one likes to lose money. U.S. Treasuries might look like a great bargain, given the trouble the U.S. economy is in, but factor in Foreign Exchange risk and even the most naive foreign investor is likely to get the shakes. The U.S. Government's funding requirement isn't going to get any smaller any time soon and even if they concentrate all the Government Spending in the military sector that still won't be enough for the insane Military Plans of George W. and Company. Foreign investor support for the U.S. Government is therefore crucial to the success of their mission.

So who better to send off to "convince" people than that "people-person": Dick Cheney? Yes they may have the plan, but the execution isn't all that great. Arrogance, incompetence, years of inter-breeding? Who's to know? That's the trouble with being a deviant: the people on your side tend to be slightly repellent. How desperate do you have to be to send Cheney as your front man?

Asia is a place where saying NO is considered impolite. So they don't. Say it that is. But that doesn't mean they mean YES. If we all cross our fingers the Japanese won't say NO but they will withdraw funding for the obscene military adventurism of the current U.S. Administration regardless. What the BoJ does won't really impact anyone but the speculators. And speculative support for the USD is merely phantom. It is not real money. So the writing is on the wall. The USD decline continues.

We may see the USD/JPY appreciate mildly during the Cheney visit. That would be nothing more than a bit of forelock tugging for a tyrant. The longer term trend for the USD/JPY is down. And once Cheney leaves Asia that is likely to accelerate. Selling USDs on rallies is still the recommended strategy.

Stock Markets of the world continue on their upward trajectory, oblivious of existing conflicts and the potential for new and more disastrous Middle East wars. Well I suppose some people are making money out of these wars so perhaps Stock Markets are celebrating that. It could get interesting if the destruction spreads. Some people would have us believe that WAR is good for the economy but you don't have to live in Sudan to know that's a lie.

OIL 59.00
GOLD 674.40

GOLD remains bid. And with more war on our doorstep and no solution in sight, that is expected to continue.

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