Wednesday, December 31, 2008

US Dollar Fears Could Drive More Investors to Gold

Concerns about the US economy look set to ensure the dollar remains relatively weak, paving the way for further investment in gold.

In an interview with Bloomberg, Shaun Osborne, chief currency strategist at TD Securities in Toronto, said that the chances of the dollar gaining strength were slim given the current position of the US Federal Reserve.

This could prompt more people to buy gold as a weak dollar increases the appeal of bullion as an alternative investment vehicle.

"With the Fed reverting to non-conventional monetary policy, the whole notion of a strong dollar goes out the window," Mr. Osbourne confirmed to the news provider.

"The risks are skewed to dollar weakness."

Prior to the Fed's latest rate cut, Afshin Nabavi, head of trading for MKS Finance, noted that any fall in the value of the dollar would naturally have a positive impact on the price of gold.

"Everyone is banking on a lower interest rate in the US," he told Reuters.

"If the dollar continues to lose value, of course it will benefit gold."

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Goldbug, 31 Dec '08

Thursday, December 18, 2008

Jim Rogers "America is out of control" demise of the dollar

Jim Rogers: 'Get out of U.S. dollars' (12.15.08)

Wednesday, December 17, 2008

Is the Party Over for U.S. Dollar? Probably!

Earlier this month I asked the question of when the artificial strength of the U.S. dollar was coming to an end. We may be seeing the initial move toward that happening, as it seems deleveraging, which propped the dollar up, may be winding down.

The only question for the dollar, has been how long the deleveraging would take to unwind, as the complexity of the funds involved made it impossible to know. It seems the majority of that has happened now, and the dollar is responding in a predictable manner.

With U.S. obligations now in the trillions of dollars, the absolute necessity of a strong U.S. dollar is crucial to the successful implementation of the misguided bailouts and simulus package, but that isn't going to happen any time soon.

Some were hoping the deleveraging would last longer, giving the dollar a longer period to remain strong, but that isn't going to be the case. Most analysts believe that not only is downward pressure coming short term, but it should last for some time as well.

Today the greenback dropped to a 13-year low against the yen, and fell to its largest one-day loss against the euro, as currencies responded to the slashing of the benchmark interest rates to a range of zero to 0.25 percent, which is the lowest among major economies in the world.

While there are those looking to what Japan did as a blueprint for the U.S., that's a huge mistake for a couple of reasons.

First, the Japanese economy hasn't come near to recovering from its performance when they instituted a similar strategy as set forth by president-elect Obama. He wants to build up the infrastructure of the nation to create jobs.

Just that alone is an unfortunate idea, as it in reality crushed the Japanese economy.

But that's not the only reason it's foolish and misguided. The second reason is the difference between Japanese and American investors.

In Japan, people were willing to invest in the bonds issued by the government because of the huge savings available, as well as the willingness of local investors to fund the debt. Americans can't do that, as they basically have no savings, which makes that a mute point.

So who will fund U.S. debt with the low interest rate and the government talking pursuing quantitative easing (buying Treasuries), that will put more downward pressure on the U.S. dollar.

In the end, the government should have listened to the many voices saying they should let the market sort out the mess, as it's the best mechanism available to do that.

Now that they've decided to enter fully into the fray, they've done far more harm to the U.S. dollar, the economy, as well as the American people.

Essentially everything they've done has backfired and been impotent. It will continue to remain that way no matter how much money they throw at the problem. We're all going to suffer because of their inability to leave things alone and resist intervening.

We're going to be in for a significant bear market concerning the dollar for some time to come. It's only just beginning.

Friday, December 12, 2008

Jim Rogers: Most Large U.S. Banks Totally Bankrupt

Commenting on the health of U.S. banks, billionaire investor Jim Rogers said that most large banks in the U.S. are "totally bankrupt," and the attempt to fix them by the government is completely misguided.

Rogers said that the implementation of the $700 billion bailout does nothing to really fix the problem, it only rewards the poorly managed firms and keeps them in business while they should be allowed to fail.

For example, the bailout doesn't do anything to tackle the problem of how banks take care of their balance sheets; one of the key negative behaviors that poorly run banks practice.

All that the government is doing is rewarding the terrible management of these banks with an extended life, when in reality they need to be left to fail so the banks that are run well can either take them over or win their customers.

"What is outrageous economically and is outrageous morally is that normally in times like this, people who are competent and who saw it coming and who kept their powder dry go and take over the assets from the incompetent," said Rogers. "What's happening this time is that the government is taking the assets from the competent people and giving them to the incompetent people and saying, now you can compete with the competent people. It is horrible economics."

With America now taking similar steps that led Japan to years of economic stagnation, Rogers also believes that will probably be the economic fate of America as well.

What happened with Japan is they also wouldn't allow their large financial institutions to fail, and now that President-elect Obama is asserting his economic idea is to focus on building up national infrastructure, it'll probably make it worse, as that's also the strategy Japan used to work itself out of a financial crisis they've never recovered from.

I remember Hillary Clinton mocking John McCain for saying at one time that he would do nothing to fix the economy. That is truly the role the government should play, yet that are in a stage of bailout addiction, and they can't keep away from attempting to gain political favor by passing around the taxpayers money.

As Rogers correctly asserts, the current actions will probably end up with America weakening for a long time into the future. All this because politicians can't admit there is nothing to do but ride this problem out.

History has shown that if what is called the Great Depression in America would have been left to itself, it only would have been a very short, temporary pain that would have been taken care of in a relatively short time, as previous recessions had proven.

That's the kind of courage we need today, to have polticians leave it alone and acknowledge they aren't a factor when it comes to the free market. Very few are willing to walk that wise path. The result will be Americans paying for it for years into the future.

Thursday, December 11, 2008

Ron Paul talks on the Root of the Problem of Financial Bubbles

Ron Paul gives a lesson in the root causes of financial bubbles and what we need to take care of it so we can have a sound U.S. dollar.

Wednesday, December 10, 2008

Increased Investor Risk Appetite Pummels U.S. Dollar

Although the bailout for the auto industry seems to have given some investors an increasing risk appetite, and thus has weakened the U.S. dollar, it is far from a done deal, and Republicans are rightly threatening to vote the corporate welfare bill down.

The fickleness of investors and the market makes this the type of story that can change from day to day, and has.

Both the euro and British pound were up against the U.S. dollar today, with the euro rising 0.7 percent against the dollar to $1.3016, and the pound gaining 0.2 percent to $1.4788.

In the afternoon, the dollar index (DXY) fell by 0.5 percent to 85.48.

With the yen also being considered valuable to wary traders, it also suffered today, even falling against the U.S. dollar to 92.59, a drop of 0.3 percent. The dollar isn't far off a 13-year low against the yen; if it goes below 90.90 yen it'll reach that level.

There is considerable risk the dollar will plunge further if the Federal Reserve cuts its benchmark fed funds rate next week from the current 1 percent. Many think it'll cut the rate to 0.5 percent at that time, putting downward pressure on the greenback.

Friday, December 5, 2008

Is Artificial Strength of U.S. Dollar Coming to an End?

The unusual circumstances surrounding the underpinning of the U.S. dollar has many analysts unsure of how long that shifting foundation can last.

Forced liquidation or deleveraging has been the key reason the dollar has performed so well lately, and it's now questionable how much longer that process will remain a factor.

Once that slows down, the dollar will have tremendous downward pressure on it. Think of how that will sit with American businesses already facing major challenges from China and its currency.

Bob Sinche, head of global FX and rate strategy at The Bank of America in New York said, "Foundations for the dollar's recent rally have not been solid. The result of repatriation, deleveraging, quantitative easing and a major scarcity of dollars. But now we are bound for a correction."

It's not a matter of if, it's only a matter of when. And that seems to be coming on us pretty fast.

Another factor recently introduced is the steep and fast cuts coming from across the ocean in interest rates. That should also have some impact on weakening the dollar.

Most arguments aren't for some type of long-term wait for the downturn in the dollar. It could start any time, and could be at most, several months out. I haven't heard much about anything longer than that.

Some do think if it takes several months to happen, investors will be willing to take on more risk as economic conditions settle down - assuming they do - and other currencies may not be as attractive at that time.

One thing is for sure, the forced liquidation can't go on forever, and that will definitely undercut the strength of the dollar and put downward pressure on it.