US Dollars, On the edge of a Knife,Capital Flight emergingInflation, Runaway Freight Train
20 April 2007
Ty Andros Managed Futures & Alternative Investment Specialist
US Dollars, On the edge of a Knife: Capital Flight emerging!
As US politician's angle towards the protectionist policies guaranteed to blow up in their faces, dollar holders around the world are voting with their feet. The emerging picture from the economic, monetary and trade flow numbers in the first quarter are unmistakable, and the "VERDICT" is one of "CAPITAL FLIGHT". The noises coming from the salons of Washington DC and the presidential campaign trail make it clear that the United States has no intention of honoring its promises to dollar holders. Those dollar holders are going to be stiffed. So, it's unanimous, everyone is selling at the margin, except the Japanese. The dollar is holding its own versus the Japanese currency, but this could reflect dollar dumping as well, as dollar holders sell Yen and use the money to buy assets denominated in anything but dollars on the buy side. The US is about to undergo a fire sale of epic proportions, destined to go down in history as one of the most flagrant examples of political and monetary moral breakdown ever seen.
As I outlined in the previous edition of Tedbits (see archives for "The Bomb, er, Bond market at http://www.traderview.com/ ) we outlined the critical nature the US bond markets current price points are. It represents a breakdown point which represents a critical long term point which investment decisions are made by the biggest money in the world. For these investors price is everything from which they their long term decisions (monthly, quarterly, and yearly), a breakdown here will signal a spiraling higher of US interest rates, and massive capital losses for dollar denominated fixed income paper. Pushing them to take negative positions into the markets to protect the values of their massive fixed income holdings. Meanwhile, Washington widened the attacks of the Chinese exporters in several areas. Sparking outrage from our largest lenders. Exacerbating the problem was the revelation of the exploding of the size of the Dollar reserves they hold.
In the first quarter their Dollar reserves exploded over 135.6 billion dollars, more than half the increase from all of 2006. Taking their reserves from slightly over 800 billion at the start of 2006 to over 1.2 trillion in March. Take a look at these Charts from a recent Wall Street Journal:
And this is not an isolated instance, India, Russia, Western and eastern Europe are all seeing explosive "DOLLAR DENOMINATED" inflows of Foreign direct investment, inflows from their citizens living abroad and trade surpluses. Look at India and Russia in the first quarter, They saw a similar jump in reserves that China did. I am sure it occurred in all the capital markets worldwide, London, Moscow, Hong Kong, etc. Adding to this rush to get money outside the US capital markets is the "smart money" US investors buying record amounts of foreign securities of all types, stocks, bonds and Real estate in foreign countries. To insulate themselves from the foolish US politicians living in bygone days of American hegemony of capital markets. More than 50% of all treasury issuance is usually taken down by foreign buyers, aka central banks, institutions and "miscalculating" hedge funds. Mostly to defend the values of their reserves and park the enormous inflows of dollars as they flee the US. As people rush to get their money outside the grasp of the US government. This is AKA (also known as) as Capital flight!!!
Now that flow of foreign dollars into the US is collapsing, Exasperating the explosive growth in Reserve holdings of foreign central banks, is the emerging trend of declining foreign direct investment into the United States (see the "Clock is "Tic"king on the US dollar in Tedbits archives at http://www.traderview.com/ ). In February net foreign buying of securities with maturities of more than a year plummeted to $43.2 billion from $83.7 billion in January, net buying of long term US securities would have totaled $58.1 billion in February, down from $98.8 billion in January. A subset of these numbers is the total collapse in net foreign purchases of debt issued by US government sponsored companies Fannie Mae and Freddie Mac which plummets to $2 billion in February down from $35.8 Billion in January. Those dollars are now staying at home or seeking opportunities in markets with more growth potential. And the prospects in the US are just declining on a daily basis as the Congress sets to strangle the US economy with their tax and spending plans.
The elephant in the room is known as the US dollar and it is in general disrepute, and the "smart money" such as the people who read this newsletter are moving towards the exits and the wave is enormous. And it's only begun a little bit, at the margin: it is only the first several percent of the wave to come. It doesn't matter which currency you view versus the Greenback: Russian ruble, Indian Rupee, Malaysian Ringgit, Aussie dollar, Kiwi dollar, Philippine Peso, Euros, Swiss Francs, Thai Baht, Chinese Yuan, Canadian Dollar, these currencies and their foreign currency brethren are unanimous in their strength and appreciation. Oh, and What a chorus of opinion we are seeing!
Please someone show me a currency which the dollar is strong against? You may be looking quite a while, (in fact I couldn't find one) and when you do find it compare the perceived image of the government that stands behind it and compare it to Washington DC, at that point you will know where the perception of the US government, US economic prospects, and financial authorities lies in the eyes of the world. Can you imagine the US government held in lower esteem then the military "Junta" in Bangkok? "IT IS A DISASTER", but also a big, big investment opportunity so don't be scared. Move swiftly and "smartly" into carefully considered and "structured" alternative investments of all types, a "finger of instability" is flashing a profit opportunity. (Let me show you how: http://www.traderview.com/ ).
Adding to the interesting first quarter picture is that of "GOLD". Little noticed by the world was the fact that gold finished at three consecutive monthly closing highs in excess of the closing monthly high we witnessed in May of last year. It turns this whole chart into a great big technical formation flashing an immediate move $190 dollars higher. Then in addition take a look at Gold on a quarterly chart, as it finished at "all time highs", including the June 1980 peak. Take a look at this quarterly chart of Gold stretching from then to now.
WOW, what a picture it tells, any technical analyst will tell you as of the March gold close, it is flashing a buy signal and a 650 dollar move higher "RIGHT NOW"! Gold is also moving higher against "EVERY" asset class and currency I could find. The European sold over 45 tons of gold recently and couldn't dent the gold prices as they always could in the past: they are running out of ammo quickly. At what point do they finally decide to hold onto their highest quality reserve holding? Gold is emerging as a far higher quality asset then the dollars and US treasuries they hold. My guess is soon. Gordon Browns presumed and assumed ascension to Prime Minister of the UK will not survive his decision to sell the Gold Reserves of the Bank of England at the lows of the gold market in 2001-2003. European bankers, politicians and finance officials will see this soon and stop their gold sales. To try and preserve their future job security.
Normally when the dollar has been at his Juncture in the last 30 years it has represented a "HUGE" buying opportunity as anyone that purchased US denominated investments from abroad were generously rewarded with the double bonus of currency appreciation along with the returns on the whatever asset they purchased. Take a look at this chart going back to pre 1970:
(Chart courtesy of John Mauldin, John can be reached at John@FrontLineThoughts.com)
Based on history this is a time to buy US assets and dollars, and from the looks of this chart, now could be one such time. Will these investors make a bet on recent (last 37 years) history? Normally these foreign buyers come out of the woodwork at times like these, gobbling up US assets, will they change their behavior this time? We will see, as it is now or never for the dollar, because a break below those lows spells "TROUBLE" with a capital T. The IMF and World Bank held their annual meetings this last weekend. It is the biggest and greatest assembly of financial mandarins on the planet, as the coterie of governments who have membership in these behemoths meet, plan and discuss the economic and monetary future of the world. It is interesting to note here that China refused to participate! And the bureaucrats at the World Bank continue to set their sites on the President Paul Wolfowitz, trying to destroy his position because his girlfriend worked there, as she did BEFORE he started there, the real reason he is under attack is he installed "Paul Volker" to clean up the place and he has found a lot of "RATS" among the bureaucrats. Paul is one of the few "GOOD GUYS" in the world that will take on governmental, and institutional corruption at all levels and "succeed" against the forces of darkness and corruption, both at the bank and the recent UN food for Oil corruption.
(Authors note; looking for assistance in creating portfolio diversification that can survive and thrive in what I am outlining? In fingers of instability? If so contact me through http://www.traderview.com/. Subscriptions to this newsletter are also free at this address; send it to a friend, Thank you)
Along with their discussions of the US bond market (the 10 year Euro bund market broke down hard this week, see Tedbits archives: The bomb, er, bond Market at http://www.traderview.com/ ), I am sure this was also a major topic of conversation in the smoke filled rooms where these government finance officials and central bankers plot the future of these markets which they believe they can control through their market manipulations and PLUNGE PROTECTION TEAMS. It is them versus every private dollar holder in the world and we will see who wins. I am sure the printing presses around the world are all well oiled and the computers are all humming in preparation for the epic battle unfolding before our eyes. Government Market Manipulators, Demi gods, and would be "masters of the universe" versus Private Capital. If the dollar slips below those THIRTY FIVE YEAR
20 April 2007
Ty Andros Managed Futures & Alternative Investment Specialist
US Dollars, On the edge of a Knife: Capital Flight emerging!
As US politician's angle towards the protectionist policies guaranteed to blow up in their faces, dollar holders around the world are voting with their feet. The emerging picture from the economic, monetary and trade flow numbers in the first quarter are unmistakable, and the "VERDICT" is one of "CAPITAL FLIGHT". The noises coming from the salons of Washington DC and the presidential campaign trail make it clear that the United States has no intention of honoring its promises to dollar holders. Those dollar holders are going to be stiffed. So, it's unanimous, everyone is selling at the margin, except the Japanese. The dollar is holding its own versus the Japanese currency, but this could reflect dollar dumping as well, as dollar holders sell Yen and use the money to buy assets denominated in anything but dollars on the buy side. The US is about to undergo a fire sale of epic proportions, destined to go down in history as one of the most flagrant examples of political and monetary moral breakdown ever seen.
As I outlined in the previous edition of Tedbits (see archives for "The Bomb, er, Bond market at http://www.traderview.com/ ) we outlined the critical nature the US bond markets current price points are. It represents a breakdown point which represents a critical long term point which investment decisions are made by the biggest money in the world. For these investors price is everything from which they their long term decisions (monthly, quarterly, and yearly), a breakdown here will signal a spiraling higher of US interest rates, and massive capital losses for dollar denominated fixed income paper. Pushing them to take negative positions into the markets to protect the values of their massive fixed income holdings. Meanwhile, Washington widened the attacks of the Chinese exporters in several areas. Sparking outrage from our largest lenders. Exacerbating the problem was the revelation of the exploding of the size of the Dollar reserves they hold.
In the first quarter their Dollar reserves exploded over 135.6 billion dollars, more than half the increase from all of 2006. Taking their reserves from slightly over 800 billion at the start of 2006 to over 1.2 trillion in March. Take a look at these Charts from a recent Wall Street Journal:
And this is not an isolated instance, India, Russia, Western and eastern Europe are all seeing explosive "DOLLAR DENOMINATED" inflows of Foreign direct investment, inflows from their citizens living abroad and trade surpluses. Look at India and Russia in the first quarter, They saw a similar jump in reserves that China did. I am sure it occurred in all the capital markets worldwide, London, Moscow, Hong Kong, etc. Adding to this rush to get money outside the US capital markets is the "smart money" US investors buying record amounts of foreign securities of all types, stocks, bonds and Real estate in foreign countries. To insulate themselves from the foolish US politicians living in bygone days of American hegemony of capital markets. More than 50% of all treasury issuance is usually taken down by foreign buyers, aka central banks, institutions and "miscalculating" hedge funds. Mostly to defend the values of their reserves and park the enormous inflows of dollars as they flee the US. As people rush to get their money outside the grasp of the US government. This is AKA (also known as) as Capital flight!!!
Now that flow of foreign dollars into the US is collapsing, Exasperating the explosive growth in Reserve holdings of foreign central banks, is the emerging trend of declining foreign direct investment into the United States (see the "Clock is "Tic"king on the US dollar in Tedbits archives at http://www.traderview.com/ ). In February net foreign buying of securities with maturities of more than a year plummeted to $43.2 billion from $83.7 billion in January, net buying of long term US securities would have totaled $58.1 billion in February, down from $98.8 billion in January. A subset of these numbers is the total collapse in net foreign purchases of debt issued by US government sponsored companies Fannie Mae and Freddie Mac which plummets to $2 billion in February down from $35.8 Billion in January. Those dollars are now staying at home or seeking opportunities in markets with more growth potential. And the prospects in the US are just declining on a daily basis as the Congress sets to strangle the US economy with their tax and spending plans.
The elephant in the room is known as the US dollar and it is in general disrepute, and the "smart money" such as the people who read this newsletter are moving towards the exits and the wave is enormous. And it's only begun a little bit, at the margin: it is only the first several percent of the wave to come. It doesn't matter which currency you view versus the Greenback: Russian ruble, Indian Rupee, Malaysian Ringgit, Aussie dollar, Kiwi dollar, Philippine Peso, Euros, Swiss Francs, Thai Baht, Chinese Yuan, Canadian Dollar, these currencies and their foreign currency brethren are unanimous in their strength and appreciation. Oh, and What a chorus of opinion we are seeing!
Please someone show me a currency which the dollar is strong against? You may be looking quite a while, (in fact I couldn't find one) and when you do find it compare the perceived image of the government that stands behind it and compare it to Washington DC, at that point you will know where the perception of the US government, US economic prospects, and financial authorities lies in the eyes of the world. Can you imagine the US government held in lower esteem then the military "Junta" in Bangkok? "IT IS A DISASTER", but also a big, big investment opportunity so don't be scared. Move swiftly and "smartly" into carefully considered and "structured" alternative investments of all types, a "finger of instability" is flashing a profit opportunity. (Let me show you how: http://www.traderview.com/ ).
Adding to the interesting first quarter picture is that of "GOLD". Little noticed by the world was the fact that gold finished at three consecutive monthly closing highs in excess of the closing monthly high we witnessed in May of last year. It turns this whole chart into a great big technical formation flashing an immediate move $190 dollars higher. Then in addition take a look at Gold on a quarterly chart, as it finished at "all time highs", including the June 1980 peak. Take a look at this quarterly chart of Gold stretching from then to now.
WOW, what a picture it tells, any technical analyst will tell you as of the March gold close, it is flashing a buy signal and a 650 dollar move higher "RIGHT NOW"! Gold is also moving higher against "EVERY" asset class and currency I could find. The European sold over 45 tons of gold recently and couldn't dent the gold prices as they always could in the past: they are running out of ammo quickly. At what point do they finally decide to hold onto their highest quality reserve holding? Gold is emerging as a far higher quality asset then the dollars and US treasuries they hold. My guess is soon. Gordon Browns presumed and assumed ascension to Prime Minister of the UK will not survive his decision to sell the Gold Reserves of the Bank of England at the lows of the gold market in 2001-2003. European bankers, politicians and finance officials will see this soon and stop their gold sales. To try and preserve their future job security.
Normally when the dollar has been at his Juncture in the last 30 years it has represented a "HUGE" buying opportunity as anyone that purchased US denominated investments from abroad were generously rewarded with the double bonus of currency appreciation along with the returns on the whatever asset they purchased. Take a look at this chart going back to pre 1970:
(Chart courtesy of John Mauldin, John can be reached at John@FrontLineThoughts.com)
Based on history this is a time to buy US assets and dollars, and from the looks of this chart, now could be one such time. Will these investors make a bet on recent (last 37 years) history? Normally these foreign buyers come out of the woodwork at times like these, gobbling up US assets, will they change their behavior this time? We will see, as it is now or never for the dollar, because a break below those lows spells "TROUBLE" with a capital T. The IMF and World Bank held their annual meetings this last weekend. It is the biggest and greatest assembly of financial mandarins on the planet, as the coterie of governments who have membership in these behemoths meet, plan and discuss the economic and monetary future of the world. It is interesting to note here that China refused to participate! And the bureaucrats at the World Bank continue to set their sites on the President Paul Wolfowitz, trying to destroy his position because his girlfriend worked there, as she did BEFORE he started there, the real reason he is under attack is he installed "Paul Volker" to clean up the place and he has found a lot of "RATS" among the bureaucrats. Paul is one of the few "GOOD GUYS" in the world that will take on governmental, and institutional corruption at all levels and "succeed" against the forces of darkness and corruption, both at the bank and the recent UN food for Oil corruption.
(Authors note; looking for assistance in creating portfolio diversification that can survive and thrive in what I am outlining? In fingers of instability? If so contact me through http://www.traderview.com/. Subscriptions to this newsletter are also free at this address; send it to a friend, Thank you)
Along with their discussions of the US bond market (the 10 year Euro bund market broke down hard this week, see Tedbits archives: The bomb, er, bond Market at http://www.traderview.com/ ), I am sure this was also a major topic of conversation in the smoke filled rooms where these government finance officials and central bankers plot the future of these markets which they believe they can control through their market manipulations and PLUNGE PROTECTION TEAMS. It is them versus every private dollar holder in the world and we will see who wins. I am sure the printing presses around the world are all well oiled and the computers are all humming in preparation for the epic battle unfolding before our eyes. Government Market Manipulators, Demi gods, and would be "masters of the universe" versus Private Capital. If the dollar slips below those THIRTY FIVE YEAR
1 comment:
.The dollar will go into a freefall once central bankers no longer accept the dollar as legal tender.
China wants to use their dollar holding to buy assets, oil and other types of resources. And China is not the only foreign entity that wants to dispose of their dollar holdings by buying assets in countries other than the USA.
I suspect that central bankers will fight back by not recognizing the dollar as legal tender; this is when dollar holders will panic and the rush to unload will occur.
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