Star Wars. the dollar and gold have more in common than one might think. The UN is the Star Wars bar scene, threatening the world’s security while the dollar heads down in flames making gold positions more valuable going forward. Oddly enough, Star Wars, the dollar and gold have a lot in common!
Before I get started I wanted to make a quick comment on the the lack of relevance of the UN. The rogue’s gallery of characters and their positions on the various councils underscores the complete irrelevancy of the UN.
The UN is a total waste of time and U.S. taxpayer’s money!
Who would ever have thought that a U.S. President would have dignified this circus with his comments between these two goons? What an embarrassment these three are to any rational thinking individuals and a major threat to world peace to boot! It’s a pity that Netanyahu does not have U.S. citizenship. OK. enough time wasted on irrelevancy!
I am disappointed that gold did not hold the $1,000 level this week, but I am not surprised, nor am I discouraged by this event. This is all part of the game that is being played with the U.S. dollar. Do not misunderstand me, the dollar is going to .62 and below! I am not questioning that. The game has always been about when it would get there, not if it would get there.
It is all about the dollar, make no mistake about that. Gold is like a spring that has been compressed under the weight of the slowly crumbling dollar. Once the purveyors of the fiat currency lose control, gold will spring forward in leaps and bounds in order to truly reflect the debasement that has and is continuing to occur in the dollar.
Is The Dollar The New Carry Trade Poster Child?
Investopedia defines the carry trade as: “A strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase a different currency yielding a higher interest rate. A trader using this strategy attempts to capture the difference between the rates, which can often be substantial, depending on the amount of leverage used.”
Investopedia offers this example of the Yen carry trade: “A trader borrows 1,000 Japanese yen from a Japanese bank, converts the funds into U.S. dollars and buys a bond for the equivalent amount. Let’s assume that the bond pays 4.5% and the Japanese interest rate is set at 0%. The trader stands to make a profit of 4.5% as long as the exchange rate between the countries does not change. Many professional traders use this trade because the gains can become very large when leverage is taken into consideration. If the trader in our example uses a common leverage factor of 10:1, then she can stand to make a profit of 45%.”
“The big risk in a carry trade is the uncertainty of exchange rates. Using the example above, if the U.S. dollar were to fall in value relative to the Japanese yen, then the trader would run the risk of losing money. Also, these transactions are generally done with a lot of leverage, so a small movement in exchange rates can result in huge losses unless the position is hedged appropriately.”
For many years the Yen was the currency of choice for the carry trade. Interest rate charges for Yen borrowing were the lowest for a major currency in the world and as a currency it was weak on balance.
The US dollar has replaced the Yen on both counts and is providing a vested interest for the shorts to keep hammering the dollar. There is a lot of money in the carry trade and they will not let up on the dollar until the dollar is put on a path towards stability and strength. There is no sign that the current U.S. Administration has any intention of doing anything that would help the dollar on either front!
Please don’t make the mistake of allowing your political affiliation to cloud your judgments. The truth is the truth and your hope for change will not alter what is going on with the dollar under this administration.Â The dollar is going down and the only question is what will be the bottom and when will it get there?
There will be sharp upside rallies in the dollar, but they are natural in a decent of this nature, because nothing goes straight up or straight down. The long term trend for the dollar is down, make no mistake about it.
The current bump up in the dollar will be short lived and as soon as the dollar resumes its slide toward .72, gold will resume its upward march. The following gold chart shows how closely gold has been tied to the dollar.
All of the sign posts are aligning in two general directions: down for the dollar and up for gold. Keep that in mind as you look at the big picture. Take profits when you reach your target points and add to your positions on the corrections. The major move in gold is yet to come, but rest assured that it will be violently upward.
SIGN POSTS ON THE ROAD AHEAD!
FDIC May Borrow from Treasury: Sheila Bair
By DIANA GOLOBAYÂ HousingWire.com
September 18, 2009 4:18 PM CST
A wave of bank failures in 2009 has pressured the Federal Deposit Insurance Corp.’s (FDIC) deposit insurance fund, with regulators shutting down another three banks just one week ago, bringing the running total to 92 failures so far in 2009.
Last week’s failures will cost the federal deposit insurance fund an estimated $2.02bn. It’s only the latest round of costly failures that have brought industry players to question the overall impact to the FDIC’s insurance fund.
FDIC chairman Sheila Bair on Friday answered some of those calls, indicating in a post-speech question-and-answer session the agency may consider borrowing from the US Treasury Department to help replenish its insurance fund.
In the speech, Bair noted the need for a way of closing large financial companies without inflicting collateral damage on the economy, although she acknowledged the importance of allowing certain financial firms to shut down.
When firms, through their own mismanagement and excessive risk-taking, are no longer viable, they ought to fail, Bair said. Preventing companies from failing ultimately distorts market discipline, including the incentive to monitor competing firms and to allocate resources to the most efficient ones.
Bair warned on the systemic significance of firms that grow to the point of being seen as too big to fail.
We need an orderly and highly credible mechanism that’s akin to the process we use to resolve FDIC-insured banks, she said. When the FDIC closes a bank, what typically happens is shareholders are wiped out creditors take a substantial haircut, management is replaced, and the remaining assets of the failed institution are sold off.
She called for a new resolution regime that would focus on maintaining a failed institution’s liquidity and key activities so it can be resolved without the near panic seen year ago after the collapse of Lehman Brothers. Losses should be borne by the stockholders and bondholders of the holding company, and senior managers should be replaced.
In some cases, Bair said, marking banking assets to market prices does not make sense. A bank that holds a loan or a similar banking asset for the long-term should not have to mark the asset to market values that may vary widely over time.
Extending [mark-to-market] accounting to all banking assets takes a good approach for market-based assets, like securities, but extends it to areas where it doesn’t accurately reflect the business of banking, Bair said.
The American Banker Association (ABA) also voiced its concern recently for the apparent encouragement of mark-to-market in both Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) accountancy changes. Marking assets to market, ABA argued, promotes procyclicality in pulling values down.
In other words, asset values are pulled down further by marking them to assets whose values have declined. As asset values declined and loan performance worsened, financial firms and banks exposed to heavy loan losses face the risk of being shuttered.
The FDIC has several options to consider as it looks to replenish the insurance fund after nearly 100 bank failures this year. There has been a general shift of mindset that the FDIC should consider taking government funds, Bair said at a question-and-answer session following the speech Friday.
â€œWe are considering all options, including borrowing from Treasury, Bair said, adding the board will meet before the end of the month and should soon issue some requests for comment on the subject.
Senator Carl Levin (D-Mich.) this week urged FDIC to take advantage of borrowing authority included a provision in the Helping Families Save Their Homes Act. He noted the Act authorizes the FDIC to borrow up to $100bn from the Treasury if additional funds are needed to replenish the insurance fund. He urged the FDIC to choose borrowing from the Treasury over increasing fees charged to all banking firms.
While most community lenders were not caught up in the exotic excesses of their larger peers, the ongoing economic crisis has still had a tremendous impact on them, he told Bair in a letter this week. Adding yet another major financial obligation during this crisis could further deplete the capital of these small financial institutions, making it difficult for them to extend the credit needed to turn our economy around.
I find the paragraph that I highlighted in bold to be most interesting, when you consider that the current administration has moved to keep so many mismanaged businesses from failing by labeling them “too big to fail”. It appears that one hand does not know what the other is up to, or even worse, knows full well, but is willing to play to all parties in order to keep the ruse going.
It is so obvious that none of the structural abnormalities and excesses within the global financial system have been addressed and rectified, because in so doing it would require the system be purged of parasites which includes, foremost, a majority of government regulations and most of the government itself. Instead, what we have is the same bunch who got us into this mess, have been left in charge and their solution to the problem is to add more money and debt which is what caused the financial crisis in the first place. This is a delaying tactic at best.
At least there are a few in Congress that understand what is going on, with Ron Paul having the clearest picture.
Trade Wars and Protectionism Are Not Free Trade
Posted by Ron Paul (09-21-2009, 02:21 PM)
Two weeks ago, both the administration and the Fed announced with straight faces that the recession was over and the signs of economic recovery were clear. Then last week, the president made a stunning decision that signals the administration’s determination to repeat the mistakes of the Great Depression. Much like the Smoot-Hawley Tariffs that set off a global trade war and effectively doomed us to ten more years of economic misery, Obama’s decision to enact steep tariffs on Chinese imported tires could spark a trade war with the single most important trading partner we have. Not only does China manufacture a whole host of products that end up on American store shelves, they are also still buying our Treasury debt.
One has to wonder why this course of action is being undertaken if the administration really believes its own statements about economic recovery. Why are they still trying to fix something they have supposedly already fixed? The most troubling thing is the rhetoric about free trade given to justify this. The administration claims it is merely enforcing trade policies and that this is necessary for free trade. This sort of double speak demonstrates a gross misunderstanding of free trade, economics and world history. Yet these are the same people the country trusts to solve our problems. This sort of thing should remove all doubt about the credibility of the decision makers in Washington.
The truth is this will hurt American consumers by driving up prices of tires and cars. This will also complicate matters for our already crippled manufacturing and agricultural industries, if and when China retaliates against US made products. Whatever jobs might be saved in the tire and steel industries here as a result of this protectionist measure will likely be lost in other American industries. It is even doubtful that those jobs will be saved, as cheap tires can be obtained from other places like Mexico instead. It is difficult to see any real winners among all the losers where trade wars are concerned. If Unions think this is beneficial to them, they are being penny-wise and pound foolish.
Free trade with all and entangling alliances with none has always been the best policy in dealing with other countries on the world stage. This is the policy of friendship, freedom and non-interventionism and yet people wrongly attack this philosophy as isolationist. Nothing could be further from the truth. Isolationism is putting up protectionist trade barriers, starting trade wars imposing provocative sanctions and one day finding out we have no one left to buy our products. Isolationism is arming both sides of a conflict, only to discover that you’ve made two enemies instead of keeping two friends. Isolationism is trying to police the world but creating more resentment than gratitude. Isolationism is not understanding economics, or other cultures, but clumsily intervening anyway and creating major disasters out of minor problems.
The government should not be in the business of giving out favors to special interests or picking winners and losers in the market, yet this has been most of what has consumed politicians attention in Washington. It has reached a fevered pitch lately and it needs to end if we are ever to regain a functional and prosperous economy.
No more need be said! We are embarked, as a nation, on a course which will destroy the dollar and the U.S. economy, despite all of the news bites and the rhetoric of ” government speak”. Use any pullbacks to increase both you physical gold and silver and your stocks. Things are coming to a head and these opportunities will not be around for long.
Till next time, good luck and good trading!