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FX on Edge

Submitted by Bruce Krasting on 10/12/2010 18:52 -0400

David Rosenberg had this to say in his piece today:

Right
now, the foreign exchange market is in a state of disarray and, as I
said above, problems here inevitably work their way through the arteries
to the equity market.

As is often the case, I am in agreement with David. The FX market is in a state of disarray.

Zero Hedge
clarified the picture with a heat map of the action. My observation is
that both the dollar and the Euro are weak. The net money flows went to
the Swiss Franc and the Yen. The volume for the USD was heavy again and
the two way trading in the key crosses was very big.

The bad news story for the EU is heating up. France has gone on strike.
Ireland is increasingly looking like an IMF deal is close. After a decent
few months the numbers are turning south again. And if you wanted to
throw a wild card into the picture consider what is going on in Brussels.
I don’t know where this goes. I am certain that it runs against “Pan EU
Solidarity”. Watch for this type of thinking to evolve in Germany.

The USD side is dominated by QE2. After the Fed minutes the dollar dropped a bit. Right on cue as it were. What a joke.

Consider the day chart for the EURCHF cross. The drop at time 11 is
pure old-fashioned supply and demand. Someone dumped a ton of Euros
against the Swissie. The backup in the EURCHF cross in the last 24 hours
is a red flag. I see this is evidence that the fast money is again
leaving the Euro. Note the pop in the cross at hour 18. That is the Fed
minutes. The market reads this as a sell signal for the dollar. This
creates demand for the Euro. That demand spills over to the crosses.
This can be explained, but as Rosenberg pointed out, there is disarray.

The USDCHF chart completes the story. The people who actually make
prices change in the FX market are of the mind that the dollar is a
piece of crap and at the same time they are scared to death of the Euro.
More disarray.

The USDJPY story will be headlines in the next 28 hours. Yes,
that is a long-shot call by me. Note that I gave myself tonight and the
first few hours of trading on Thursday. I have said previously that I
thought the BoJ would be out until one big figure below the last
intervention of 82.80. We are there and I am sticking to my view. Should
that happen it would have a short-term effect of lifting the USDJPY. It
would also hit the EUR on the cross, that means the EURUSD will catch a
bid and move back toward 1.40. This would be a “risk on” development.
Stocks might catch a bid in Asia on the news. But this is a “shit in your hat” story too. If by
noon in NY (on the day of intervention) the USDJPY is trading below the
invention, the risk on trade turns to a “risk off” one and a fast
reversal will follow. Beyond disarray into chaos.

If the BoJ is a no show we will have another busy day tomorrow. That
scenario means money flow to JPY from all directions. My guess this
would translate into demand for dollars versus Euro. That would imply a
weak EURCHF cross. It took nearly a month for USDJPY to fall 1 big
figure. If we have no intervention the next big figure will happen in
days. Disarray (squared).

Okay, I’m half kidding you with this gibberish. I was
actually thinking it through and ended up writing it down to make a
point. The range of outcomes and the various risks associated with what
may come are substantial. Use whatever adjective you like. Unstable,
disarray, unpredictable, or chaotic. I recently warned that the money
flows would heat up. They have. Where this goes is by definition
uncertain. For me the status in FX land is at a point where the only
conclusion can be that it is a “risk off” market. I’ll repeat
Rosenberg’s wise words:

problems here (fx) inevitably work their way through the arteries to the equity market.

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Wed, 10/13/2010 - 09:52 | 645622 fallst

Dear World:

Somebody's Kid Stole Dad's Country in 2000, and went on a Joyride. Dismantled all institutions, now buying land in Paraguay.

So, after 7 years with his regulatory capture and strategic global initiatives(PNAC), there was some mischief, and wall st got drunk.

Oh, and the national debt doubled from 6.3 to 13 Trillion. Which was Obama's fault. Right.

So now we are inflating our way out of this. We were hoping you wouldn't notice.

Wed, 10/13/2010 - 07:08 | 645601 Gloomy

Tim Duy had a fabulous post the other day. The US is intentionally destroying Breton Woods. Everyone knew it would happen, but didn't think the US would be the one destroying it.

http://economistsview.typepad.com/timduy/2010/10/the-final-end-of-bretton-woods-2.html

Wed, 10/13/2010 - 07:10 | 645603 Gloomy

Conclusion:

"Bottom Line: The time may finally be at hand when the imbalances created by Bretton Woods 2 now tear the system asunder. The collapse is coming via an unexpected channel; rather than originating from abroad, the shock that sets it in motion comes from the inside, a blast of stimulus from the US Federal Reserve. And at the moment, the collapse looks likely to turn disorderly quickly. If the Federal Reserve is committed to quantitative easing, there is no way for the rest of the world to stop to flow of dollars that is already emanating from the US. Yet much of the world does not want to accept the inevitable, and there appears to be no agreement on what comes next. Call me pessimistic, but right now I don't see how this situation gets anything but more ugly"

Wed, 10/13/2010 - 06:56 | 645593 Hephasteus

Euro and Yen are looking like they are being ground up by a salad shooter this morning.

Wed, 10/13/2010 - 03:43 | 645503 Oh regional Indian

Funny, every time I see such action, I'm reminded how weak and essentially a vassal state India is. The rupee has been on an upside tear to the dollar (can't post charts, but look it up). And being export dependent slaves, our industry is hit hard.

But the whole India shining story was built on false premises (Y2K) and a kleptocracy.

So, while we get a UN Sec council seat, our CB sits like a cornered rat as the rupee appreciates and the common man suffers.

Such a Gob darned joke.

ORI

http://aadivaahan.wordpress.com

Wed, 10/13/2010 - 08:06 | 645634 kkam

ORI: The Indian economy is not export dependent. Exports are a relatively small % of the total economy.

Wed, 10/13/2010 - 09:28 | 645748 Oh regional Indian

kkam, surely you jest. From a plain common sense perspective, see how much "quality" workforce works directly for dollars in the IT world. Middle class bloat is all dollar/Euro fed.

From garments to auto spares to aerospace, we are an export dependent nation.

From a tangential perspective, look at FDI as a direct multiplier in the last nine years or so...

Slave nation, no running away from that...stuck in the suk mentality...

ORI

http://aadivaahan.wordpress.com

Wed, 10/13/2010 - 03:05 | 645486 ThreeTrees

Extremely enlightening as always, Mr. Krasting.

Wed, 10/13/2010 - 01:02 | 645404 vainamoinen

Hey, my wife "Bubbles" just loves FX markets! - They're sooo exciting!

Wed, 10/13/2010 - 00:48 | 645391 Orly

"For me the status in FX land is at a point where the only conclusion can be that it is a “risk off” market." -BK

Exactly. This is the inflection. The question is, does the US Dollar regain its safe-haven status, or is the world more willing to switch their confidence to another regime?

I have to believe that this particular game of Chicken will be won by the greenback.

Tue, 10/12/2010 - 23:16 | 645229 crzyhun

10/12/10, 22:12-east coast, dollar clocked, euro up, gold up, uds/jpy=81.85....gettin there.

Tue, 10/12/2010 - 23:08 | 645209 dot_bust

Well, I'd put this all in perspective by saying that tomorrow's announcement by 40 state attorneys general regarding the U.S. banks is the catalyst for currency chaos. For me, the announcement is an indication that the U.S. banks -- and, by extension, the U.S. Dollar -- will collapse from the shear weight of their corruption.

Tue, 10/12/2010 - 23:00 | 645193 gwar5

Economic wars are tilting and battle for world domination continues.

East and West is the big war: gold standard vs one world fiat currency system. PM as a hedge.

Other battles are over rates of exchanges and conversions. Lot of posturing and manuevering going on but USD going to get hammered in any currency exchange or revaluation result.

Tue, 10/12/2010 - 22:47 | 645173 Mitchman

Disappearing Stores Of Value

http://www.prudentbear.com/templates/NewPrudentBear/images/border-666.gi...); background-attachment: initial; background-origin: initial; background-clip: initial; background-color: initial; display: inline; color: #666666; background-position: 100% 50%; background-repeat: no-repeat no-repeat; margin: 0px; border: 0px initial initial;">by Martin Hutchinson

October 12, 2010

Brazilian minister of finance Guido Mantega last week accused the major economies of starting “currency wars.” To a large extent he was trying to divert attention from his own overspending misdeeds. However this week’s decision by the Bank of Japan to enter more “quantitative easing” and Chinese premier Wen Jiabao’s aggressive response to the EU/US campaign to force up the renminbi suggest that he’s right. Such a currency war will produce two problems. It will reproduce one of the more damaging features of the 1930s’ global depression. Even more important, it will leave the thrifty without an adequate source of value.

Competitive currency devaluation has traditionally been thought by economic historians to have been a major cause of the 1930s’ exceptional unpleasantness, yet another major policy error. Actually most of the policies involved were relatively forgivable compared with the rest of that decade’s appalling blunders. In 1925 the British had returned to gold at an overvalued parity, having in 1923 bottled out of introducing a modest Imperial Preference tariff, which would have removed Britain’s long-standing but in post-war circumstances economically suicidal unilateral free trade policy. After this, transatlantic payments balances were structurally out of kilter. Germany’s balance of payments was also destabilized by reparations payments, so its economy was only kept afloat by U.S. loans. Meanwhile France, seeing Britain’s mistake, returned to gold in 1928 at an undervalued parity.

Then after U.S. banks started going bust in late 1930, the Fed kept money too tight, sucking gold across the Atlantic and putting an intolerable strain on the British balance of payments and the German banking system. Britain solved its problem in 1931 by going off the Gold Standard, devaluing by about 25% and sorting its economy out by anti-Keynesian means. Germany failed to solve its problem, after which its electorate chose Nazism over the apparently failed free market. In the U.S. the incoming Roosevelt administration worsened the world’s imbalance problem by devaluing the dollar against gold, invalidating existing property rights by banning Gold Clauses, and refusing to participate usefully in the 1933 London Conference, called to sort out the mess. Finally in 1936 France, whose currency had now become overvalued, went off the Gold Standard and devalued.

Most of the “beggar thy neighbor” currency devaluations of the 1930s were thus reasonable reactions to difficult circumstances; only FDR and the German electorate took actions motivated by primitive nationalism. Thus the chances of a repeat performance of this unpleasant farce, which proved hugely damaging to the nascent 1930s economic recovery, seem pretty high – one need not suspect more than normal malice on the part of any of the actors concerned.

The nexus of the current problem is China. Between 2005 and 2008 China played a constructive role in world economic arrangements, revaluing its currency by about 20% against the dollar and thereby shrinking its balance of payments surplus. Then at the end of 2008, the Chinese government (one of very few which could properly afford it) undertook a massive “fiscal stimulus” program. This was corruptly managed as always but on the whole sensibly directed towards infrastructure, including the Wuhan-Guangzhou rail line, begun only in 2005 and completed in December 2009, on which trains cover 601 miles in only 3 hours. China’s rapid growth in 2009 brought down its balance of payments surplus, indeed the balance swung briefly into deficit in April 2010. However as U.S. consumer and government spending, artificially stimulated by an excessive budget deficit and over-expansionary monetary policy, sucked in Chinese imports once more, the U.S. payments deficit with China widened again.

The case for a massive revaluation of the renminbi is thus a weak one. Premier Wen is further justified in resisting it because China’s rapid growth has brought an explosion of wage rises of 20% or in some cases even 60%. Thus, while the Chinese consumer market is an engine of growth, domestic costs are rising rapidly and its exporters are being horribly squeezed. Wen is happy to reorient Chinese growth towards the domestic market, but naturally doesn’t want his major export industries to go belly-up. He thus wants only a gentle upward path for the renminbi, avoiding extra strain on exporters.

China is therefore justified in resisting U.S. and EU demands on the currency front, however obnoxious its foreign policy may be in other respects. The United States and Japan have through exceptionally foolish fiscal and monetary policies tilted their economies into major imbalance, and it’s not clear why this should be regarded as China’s problem. Nevertheless, the rational U.S./Japanese responses, to raise interest rates and slash budget deficits, are unlikely to be forthcoming in the short term. Instead both countries seem determined to pursue the dangerous and counterproductive policies of further quantitative easing and competitive devaluation.

The interesting unknown is the reaction of the European Central Bank. Under heavy German influence, the ECB is less subject than other central banks to the sillier fashions in monetary policy. (It must remembered in this context that Bank of England Governor Mervyn King was one of the 364 economists who signed an angry letter to the Times in 1981 claiming that Margaret Thatcher’s successful deflationary policies were doomed – those people should never subsequently have been allowed near the levers of power.) Left to its own devices, the ECB would be moving gently in the direction of raising its short-term interest rate from the current 1% while attempting to enforce draconian fiscal discipline on the less self-controlled countries of southern Europe or those like Ireland with banking systems similarly lacking in self-control.

If the U.S., the Japan and Britain all go in for quantitative easing, the ECB will have a problem. Once the inevitable inflation (which the Fed now regards as a solution rather than a problem) has intensified in its trading partners, Europe’s comparative cost position will improve. However in the short term if its major trading partners all trash their currencies the ECB will find a mass of hot money flooding to the euro, forcing it up and pushing even the well-run but export-dependent Germany back into recession. Thus, however reluctantly, the ECB may be forced into some quantitative easing of its own.

The immediate economic effect of all this money sloshing around will be obvious: more inflation and higher gold and commodity prices, as beleaguered savers seek refuge from the mass currency debasement. It probably won’t surprise most people to see the flood of money create new and damaging bubbles, for example in junk bonds, as warned this week by ECB President Jean-Claude Trichet. However the long-term effect is more significant, and more pernicious.

Fiat currency was tried on a number of occasions before the twentieth century, most of which ended in hyperinflationary collapse – think of the Continental Congress’s “continentals” or the French Revolutionary “assignats.” Only in the exceptionally stable and well-run society of Song Dynasty China did it provide an adequate store of value for more than two centuries, although even there collapse followed once the Mongols, nearly as aggressive in monetary creation as they were militarily, got control of the printing presses. Through the eighteenth and nineteenth centuries, fiat money was regarded as an unfortunate but temporary expedient for poorly-run countries, to be replaced by a return to the Gold Standard as soon as financially possible.

The reversal came after the destruction of World War I, when in a world of rapidly increasing population the Gold Standard was found to be unacceptably deflationary (because gold supplies could not be increased fast enough to keep up.) Maynard Keynes provided spurious rationales for a fiat money system, which is always preferred by governments because they profit from the seignorage of creating money of no intrinsic value. In a world where governments were relied upon for unemployment insurance, old age pensions and increasingly healthcare, it seemed natural to trust them to maintain careful control over the money supply. While huge monetary mistakes were made – notably by the Fed in the Great Depression – the central confidence problem of a fiat money system was overcome. Only in regions such as Latin America where confidence in government remained weak did investor fear of fiat money produce its normal bouts of hyperinflation and dollarization. Even here it appeared by the 1990s that wise advice from the IMF would limit the problem except in countries whose economies were anyway unstable.

A global turn towards money creation would reverse this. It would quickly become obvious that none of the world’s major currencies now represented a stable store of value. Moreover, except for marginal exceptions like Switzerland and Canada, it would become clear that governments could no longer be trusted with a fiat currency system. This happened to a certain extent with the Anglo/U.S. inflation of the 1970s, but at that time the Deutschemark, managed by the admirable Bundesbank, remained substantial and available to investors.

This collapse of confidence would not restore the Gold Standard. While global population increase is declining, official opposition to a Gold Standard would undoubtedly remain too strong for it to be restored. Should hyperinflation arrive, the official response would probably be some equivalent of German chancellor Gustav Stresemann’s 1923 rentenmark scheme, following the Weimar hyperinflation, in which the currency was declared to be backed by the value of Germany’s land. With the smoke and mirrors stripped away, that was simply another fiat currency; the German government did not own the country’s land, and no conceivable mechanism existed for land to be delivered in exchange for monetary claims.

However the private sector does not necessarily need government in order to act. This week the first “Gold to go” gold-dispensing ATMs in the United States were announced, by which investors will be able to use cash or credit cards to buy gold bars of up to 8 ounces or krugerrands, with the prices updated electronically every 10 minutes. Initially, the market will be one-way; there will be no provision for gold to be sold back to the ATMs. However over the longer term, if inflation becomes a problem, it seems likely that the bugs will be ironed out and that investors will be able to hold their cash reserves directly in gold.

The next step would be for them to be able to hold gold denominated bank accounts, accessible primarily by debit card, operated presumably by banks run more conservatively than current U.S. banking regulations prescribe. Since the debit cards would be entirely conventional, a gold account holder would be able to operate in daily life just as does a current Internet-savvy consumer who has liberated himself from physical cash.

There is after all no need for a central bank in a free-market economy, but only for a means of storing and dispensing value. With modern electronic technology, a cash-free existence can be managed just as easily on the basis of gold as on the basis of dollars; the currency has no physical existence but is only a means of measuring value. If such a system spread, governments could find their money creation and management functions entirely dispensed with, as consumers and businesses increasingly relied on a private sector system operated by conservatively managed private sector banks. Unless governments physically prohibited the creation of such a system (which FDR did in 1933 but might not be possible in a democracy today) they would find themselves bereft of power or even influence in the monetary sphere.

Central bankers enthusiastic for more “quantitative easing” should beware. They may find the move institutionally suicidal.

Wed, 10/13/2010 - 00:11 | 645337 iconoclast63

This appears to assert that the people, could, en mass, opt out of the FRN and the government/financial authorities, would not be able to stop them.

The first thing that comes to mind is the name Bernard Von Nothaus, who has been indicted by the FEDs for attempting to create a privately circulated silver backed currency called the "Liberty Dollar".

On his, now defunct, website, merchants would simply include their names on the list of local businesses that accepted this money and anyone who possessed LD's could transact business without FRN's.

This created what was essentially a "black box" which the FED/IRS could not monitor or control.

I don't think the existing power structure would simply die with a whimper, as the author attempts to describe in the above piece. You would hear howls from regulators about money laundering, tax evation, etc.

PS. These gold ATMs allow you to buy up to 8 oz. with cash or credit, does that amount get lowered when the $10k rule gets changed, or will there be fingerprint/retina scanners at the point of sale? You don't really think the govt. will just "trust" us to report every transaction over the limit do you?

Tue, 10/12/2010 - 23:42 | 645283 Bruce Krasting

Thanks for this.

Tue, 10/12/2010 - 22:44 | 645170 RedPacket

Methinks it's time for the HKD to unpeg from the USD and do China's appreciation demanded by it by re-pegging to the Yuan (4:1). HK takes one-off massive hit on USD 'reserves' but establishes itself and Asia's Swissie. Remember China is One country: Two Currencies!

Tue, 10/12/2010 - 22:36 | 645147 Gunther

To predict the CAD/EUR direction I used my rules for the stock market; to make sense I had to assume that a bear market for currencies exists.

The concept of a bear market in currencies sounds strange but seems to describe what is going on right now.

You put that nicely: "Disarray (squared)"

Tue, 10/12/2010 - 21:57 | 645077 Oracle of Kypseli

I have just got the call from a BOJ secretary. The BOJ will intervene very violently. You have little time to short the Yen. Bet 1K to make 30K. Hurry!

Tue, 10/12/2010 - 22:51 | 645178 RoRoTrader

Pillow talk?

Wed, 10/13/2010 - 00:44 | 645387 RockyRacoon

From the Orifice of Kypseli

Wed, 10/13/2010 - 01:31 | 645427 RoRoTrader

That was nasty, but really, who knows, Rocky? The script may be being rewritten as we speak.

The big fucking bosses at Central are still in charge, after all.

I think it is not only possible, but also plausable in this upside down world which may begin to turn on its axis in the opposite direction.

Holly meets.........Wood........or, more to the point, gets it good.

Tue, 10/12/2010 - 21:51 | 645061 themosmitsos

Interesting, but you overlook the MOST active FX the last 2-3-4 trading days, and that's £ which is getting slaughtered

Tue, 10/12/2010 - 23:51 | 645305 Bruce Krasting

This piece was already too confusing. So I did not comment on Cable. But if I did I would have said that this too is disarray. The money is moving, and it is picking up speed. It is happening with all currencies. Rubles, Reals,Sing $'s, K.Won.

I wonder what the turnover was yesterday? 10 Trillion?

Wed, 10/13/2010 - 04:00 | 645509 More Critical T...

Lots of money is moving to periphery, high-interest-rate (and potentially high-growth-rate) countries, and causing (self-reinforcing, for now) bubbles there.

QE2 is basically the US saying a roundabout 'f*ck you' to China - as an deficit/net-importer country the US can set product/currency prices. If China does not revalue the yuan then the US will do it for them via a much more unpleasant bubbles->inflation->interest-rate-hike cycle. (unpleasant for the chinese economy)

China has no economic recourse short of a world war.

The turbulences in the crosses are just that - turbulences off the main flows. If you revalue the FX rates graph a deficit country might become a surplus country and vice versa. Depending on how big players score individual currencies and how their graphs of economic connections look like (which they make a point of not showing to each other) we'll see the occasional opposite valuation and friction between those flows. IMO it might take until mid November for this to play out smoothly.

(The Cable dropping is a clear sign that the market consensus is that the UK is and stays a deficit country for quite some time to come. Switzerland is trying hard to avert the special (deflationary and destabilizing) role of being the currency/gold-standard of last resort.)

Tue, 10/12/2010 - 21:43 | 645044 Clint Liquor

When Chinese manufacturer sell their products in the US they receive US Dollars. They cannot pay their workers or their suppliers in US Dollars. They must exchange them for Yuan. Where does the central Bank get the Yuan to exchange? Them print them, of course. Therefore, the Us Dollars or UST held by China has a corresponding Yuan equivalent. The peg is a natural function of the China/US trade deficit.

Tue, 10/12/2010 - 22:04 | 645091 Goldmund

We have a trade deficit with Japan how come the Japanese can't peg their currency? Why do they have to resort to interventions that don't work?

Wed, 10/13/2010 - 02:44 | 645476 ThreeTrees

Cuz the CCP don't give a flying fuck what anybody has to say.

Tue, 10/12/2010 - 22:39 | 645154 stewie

Yeah I've always wonder that as well???

Tue, 10/12/2010 - 23:51 | 645306 GoinFawr

WWII?

Tue, 10/12/2010 - 21:43 | 645043 99er

Chart: DX

http://99ercharts.blogspot.com/2010/10/dollar_12.html

Tue, 10/12/2010 - 21:40 | 645039 zen0

Dying people exhibit a burst of energy before they die.

Maybe the dollar will as well. It is a natural phenomenon, after all.

Tue, 10/12/2010 - 22:21 | 645119 BobWatNorCal

Sure, but there are currencies as bad (or worse) than the dollar.
So that can be a factor too.

Tue, 10/12/2010 - 21:37 | 645029 john_connor

Bruce, this post will be prescient.

Tue, 10/12/2010 - 21:24 | 644994 RockyRacoon

To help you make all those tough FX decisions:

Cramer’s Soundboard

Just click on the button of choice!

Tue, 10/12/2010 - 21:10 | 644960 99er

Chart: USD/CHF

Orly's Ride.

http://99ercharts.blogspot.com/2010/10/usdchf.html

Tue, 10/12/2010 - 21:29 | 645006 Orly

Okay. Leave it to me to bite:

What the hell does that mean?

Tue, 10/12/2010 - 21:47 | 645049 99er

#644777

Tue, 10/12/2010 - 22:33 | 645143 Orly

All it means is that if there is indeed a reversal in the USDJPY pair relative to risk (i.e., "safety" is characterised by increases in the USD relative to the JPY when the SPX goes down...), expect the USDCHF pair to react exactly the same way. Right now, they are moving in universes dominated by their respective currency pair, both the franc and yen against the US dollar.

I just don't see how this is unsustainable.

What I am talking about here are long-term reversals in sentiment, as in many months. Many months have already passed without even a pause in the USDCHF whatsoever, according to your own chart. That is not a natural state of affairs and therefore will not last.

The USDJPY and the USDCHF are virtually identical pairs in terms of current risk profile, meaning that once the tide turns for the US Dollar, all the pairs against USD will move in tandem, much as the X/CHF and the X/JPY crosses have moved in tandem with the shift of risk profile away from the greenback.

Needless to say, all of this remains to be seen and you'll have to wait until you see legitimate interest in the USD. Diligence and observation, with patience and a little luck will see the USD bounce back against the CHF and the JPY. I suppose that you could call that, "my ride." If the USDJPY reverses, so will the USDCHF.

But remember, getting on the train two stops down the line will get you there just as quickly...

Tue, 10/12/2010 - 23:03 | 645197 RoRoTrader

Orly,

You are up there with Marc Faber.

Faber said this today......world heading for major inflection point. Instead of rates dropping rates may start to rise.

Instead of USD being weak the dollar may strengthen.

Faber tells investors to buy stocks and sell cash and bonds because governments are continuing to print too much money and may create a new credit bubble.

Quick question Orly; what % of times do Gartley patterns fail?........ps........don't know, just asking.

Wed, 10/13/2010 - 00:13 | 645339 Orly

Sorry, I'm sure Mr. Gartley was a fine human being but I don't do math. I do people. (And simpler Fibonacci retraces on a long-term (monthly...) basis.

Perhaps Dr. Faber meant his point in this way- and forgive me for putting words in Dr. Faber's mouth:

Assumption: the US takes QE2 to the bank.

"Wow! That means that the US is facing their problems; that they realise that they can fix their balance sheets by swallowing whole chunks of money." (Actually, I believe that Unca Ben and the boyz and girlz have something special up their sleeve for all you plebeian mortgage-payors out there...).

"They've shorn up the dollar," says 4X. "Hoorah! QE2!" And a cry of joy goes up around the world!

And the greenback ramps.

Yeah, I can definitely see that happening.

__________

As far as Dr. Faber's other ideas regarding too much money chasing Apple, Inc. and NetFlix, I just don't see it. A couple of cowboys I know bought new trucks, traded the old ones down to their kids. That's the only credit I've seen moving in a long time.

If money doesn't move, then money doesn't move. Nothing is being inflated or deflated and no one is chasing anything, much less stocks.

There is no way that if the US retail, "home-gamer" stock investor is pulling out in droves that the stock market can ramp like mad and crash bonds, simply because without money moving in a constantly increasing forward motion (monetary velocity...), there is no way that a few computers at publicly-held banks can carry the load. They can fake it for a long time but they can't really hang in the end.

Again, I speak to the untenability of the current set-up. Forgive me if I drone on...

Wed, 10/13/2010 - 00:48 | 645390 RoRoTrader

If everyone else joins the party then Faber has a large point........cannot beat it, then join it.

ECB seems to be there surreptitiously.

Sort of like finding new fibs........haha.

Wed, 10/13/2010 - 00:36 | 645380 merehuman

with all the derivatives on housing now at risk

with no jobs , huge debt, criminal market ,gulf 1/5 economy gone , unfunded pensions etc. the USD has no business being up.

J6P opinion

Wed, 10/13/2010 - 02:34 | 645469 Popo

...and the yen?

Tue, 10/12/2010 - 19:24 | 644746 Goldmund

What is the reason that China can peg their currency to the dollar but no one else can or does?

Look on the bright side, that could be red sludge.

Wed, 10/13/2010 - 06:51 | 645588 Gromit

Any country with a trade surplus can peg their currency to the dollar, just requires the will to punish their consumers for the benefit of exporters.

A lot of currnecies don't move mnuch against the dollar and maybe a dozen have bought dollars to depreciate their own currency in the last couple of weeks

FX on Edge

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