Intraday Market Observations - All Dollar Hope Abandon Ye Who Enter

Tyler Durden's picture

The carry trade in full force as the dollar keeps hitting new lows (DXY at 75.31), the VIX breaking below 21 and the S&P moving over 1,100 as limit orders are engaged on yet another low volume day. The USD has moved from purgatory and is about to enter the first circle of Bernanke hell.

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Gilgamesh's picture

To be fair, DXY hit 75.21 last Thursday.  But, is there any point on not riding this down to 71-72ish?

QevolveQ's picture

Just another "buy every asset class" day for US markets.

All of these are within about .1% of their respective highs of the day at the same time:


Long Bonds



ghostfaceinvestah's picture

In other words, if you are a deflationist who believes in holding dollars, you are getting poorer day after day.

Bernanke made it so simple even a child could understand.

(Note too the hidden message on gold in this speech)


The conclusion that deflation is always reversible under a fiat money system follows from basic economic reasoning. A little parable may prove useful: Today an ounce of gold sells for $300, more or less. Now suppose that a modern alchemist solves his subject's oldest problem by finding a way to produce unlimited amounts of new gold at essentially no cost. Moreover, his invention is widely publicized and scientifically verified, and he announces his intention to begin massive production of gold within days. What would happen to the price of gold? Presumably, the potentially unlimited supply of cheap gold would cause the market price of gold to plummet. Indeed, if the market for gold is to any degree efficient, the price of gold would collapse immediately after the announcement of the invention, before the alchemist had produced and marketed a single ounce of yellow metal.

What has this got to do with monetary policy? Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation."



Hephasteus's picture

Don't make me start a liquidation up in here to keep the deflation myth alive. Cause I will!!! LOL


tip e. canoe's picture

watch the debt ceiling...that may be the turn?

tip e. canoe's picture

hey cheeky, article that elaborates on the headline you linked to:

not yet set in stone.  could be an opp for certain congresscritters to feign concern for the "financial health" of the US, while getting tiny tim worked up in a tizzy.

Cheeky Bastard's picture

thank you tip e. canoe, and could you please tell me where is the exact location of that ziggurat you have as your avatar.

Cheeky Bastard's picture

my bad, the continent is good, the purpose of the structure on the picture does not qualify it as a ziggurat ....


Cognitive Dissonance's picture

Fatwah on Cheeky. Everyone else, you should have seen Cheeky on #radioZH chat Sunday morning. Hilarious.

tip e. canoe's picture

0head wins the golden trinket.

to be exact, temple of jaguar, tikal.

but speaking of ziggurats, follow the yellow brick road...


Gilgamesh's picture

Yes, actually Ben being appointed is the reason I greatly increased my gold holdings back then.  I had read about his history, and how his lesson from the Great Depression is to avoid deflation at all costs.

While I believe we are still due for an event shock (and my hedges in place for that are evaporating daily), there has been no mystery as to Ben Anti-Franklin's trend/endgame.  I do have to thank WND for being so early in calling this out and exposing me to the real Fed - basically offering the red pill to a naive investor.

Steak's picture

My personal favorite theory is that we're in a practice run for the inflation to come.  Where 08 was practice without pads or hitting, and this go round will be a full scrimmage.  Chinese overproduciton allows this to be something of a self sustaining cycle.  Note in M.Pettis' latest missive the Chinese govt and big 4 have pulled back on lending and increasing stockpiles, but smaller players are more than picking up the slack.  But ultimately Chinese overproduction is deflationary.

So IMHO this round of dollar sell-off and asset inflation is going to look and feel like the real deal, but will ultimately be short circuited before a full blown collapse in the dollar (or Treasuries for that matter).

jm's picture

Educate me.  The Fed buys $x trillion of MBS from banks.  Banks have excess reserves.  Good credits don't want loans, bad credits desperate for them.  Banks don't loan and sit on excess reserves.  Sure, there will be inflation if credit growth kicked in, but we have credit destruction.

The dollar is in the toilet not because of inflation, but because the marginal buyers in free markets don't like the Fed felching rotten paper out of banks.

Anonymous's picture

No f'ing kidding. With all this money printing the price of sea water rising!

Sancho Ponzi's picture

There's an interesting development at the Fed as the latest Term Auction Facility offering amount has increased for the first time this year. Is the end of QE1 affecting liquidity, or do the banks just want another $25 billion to pump equities?  

ghostfaceinvestah's picture

Interesting observation, thanks.

Further proof that the end of UST buying is a non-event.  Bernanke has plenty ways to print dollars, and can find more if needed.

Oh, but I know, the "dollar is going to bounce back" because shorting it is a "crowded trade".  Keep believing that BS.

Sancho Ponzi's picture

This was not expected.

Fox Business 09/24/09

'The Federal Reserve Bank of New York said Thursday it would again reduce the amounts of credit offered under its Term Auction Facility and Term Securities Lending Facility, citing continued improvements in financial market conditions. The amount of some TAF loans will be reduced as low as $25 billion, down from $75 billion in the most recent operations and $150 billion offered during worse periods in the credit crisis. The 28-day operations scheduled through January will continue to be for $75 billion to account for possible year-end pressures. TSLF offerings will be reduced to $50 billion in October and $25 billion in the subsequent three months, after already reducing the frequency of operations and the type of securities accepted for exchange'.

mdtrader's picture

Lessons coming the way off the dollar bears soon I feel. These type of people always show up close to market turning points. It's a one way bet you cannot lose, sell dollars, you cannot lose honest! And then bam something happens and everybody is the wrong way and scrambling.

Steak's picture

If the MAX PAIN theme continues then we'd see a breakdown to 74 then a reversal up to almost 80 before heading back down.  Lately I've been very well served looking at these "key technical levels" through the lens of both sides getting hosed.

Gubbmint Cheese's picture

Ghost.. always appreciate your thoughts and comments. would be interested in hearing more about where you are seeing things six months out. Im in the deflationist camp but am always open to other theories.. and I respect your comments greatly. Just heading back from Las Vegas.. more people there compared to March but its still a million miles away from 'normal'.

ghostfaceinvestah's picture

I can only tell you what I am doing.

Watch what Bernanke does, not what he says.  Here are numbers he cannot lie about, because the market would call him out pretty quickly:

the longer these continue, the lower the dollar goes, and the higher everything priced in dollars.

Most on this board won't get it, because they don't understand the MBS market.

Mark Beck's picture

The total I have is around 1.45T for the MBS (agency) paper FED purchase, and we know that the Long T 300B purchase is about to end.

Do you know under what legislative authority the FED can purchase MBSs?

I know TARP had a provision to purchase, I think up to 700B of MBSs, but the FED seems to be at least 2X beyond this.

Will the FED MBS buy program end with TARP expiration? TARP could end at the end of this calender year.


ghostfaceinvestah's picture

Fed MBS buying is not related to TARP.  The Treasury is buying some MBS, I think the authority came from TARP (or from the Fannie/Freddie bailout - you know, when Paulson said if you have a bazooka in your pocket?).

Fed MBS buying is unauthorized and unrestricted.  It is scheduled for now at 1.25T, but it will not end there.  Not the minutes of the last Fed meeting, several members talked about upping the amount.

It will be increased, they have no choice.  There are no other buyers for Fannie/Freddie MBS.

The dollar will continue to fall as a result.

Sancho Ponzi's picture

Let's throw some more taxpayer money at Fannie and Freddie. Bernanke cannot drive mortgage rates down below 4%, so Geithner will backstop him. Denninger's going to have a coronary.


U.S. launches aid for state, local housing agencies

'The program, described as temporary by the Treasury, the Department of Housing and Urban Development and the Federal Housing Finance Agency, will use government-sponsored mortgage finance giants Fannie Mae and Freddie Mac to provide temporary financing for housing finance agencies hurt by gridlock in the credit markets'


docj's picture

Awesome - another band-aid for a sucking chest wound.

What was that about "having to cut the deficit" again Ben?  Timmay?  Bueller?

ghostfaceinvestah's picture

1.25T in Fed MBS buying.

300B in Fed agency debt buying.

400B in equity to Fannie/Freddie.

$8K FTHB tax credit (soon to be raised to 15K any home buyer tax credit).

Untold future losses being written today by the FHA.

9 month foreclosure moratoriums.

Etc, etc.

And yet, delinquencies continue to spike, and house prices have barely stabilized.

The govt has no choice but to continue deficit spending, and the Fed printing money, to support housing.

Anonymous's picture

Be reminded that we are about to open another war front in Iran. The demographic overload as boomers retire; unsupportable Medicaid, Medicare. Interest on past federal debt, state and municipal debt loads and the decimation of most industries, including demand satiation created by past two decades of rampant consumption.

Equation tally shows that monstrous debt load still must be assumed, monetary unit must be debauched, taxes must be raised.

Money must drain from equities. Interest must ramp up on Treasuries. Dollar must fall and then stabilize in order to entice investment with $ denomination.

Or, and this is the worry, there must be some social upheaval, revolution, war of scale, complete restructure globally of money system issuance. World CB and one unifying currency.

The refusal to reform, or to prosecute wrongdoers, or to allow the truth to be fully available leads me to believe it is desirable to TPTB that stress loads we built to intolerable levels in order to bring about that agenda.

Anonymous's picture

[quote="SP"]Denninger's going to have a coronary.[/quote]

Gubbmint Cheese's picture

thx ghost.. will add more when Im not on a pda

Mark Beck's picture

Thanks for the info ghost.

My research suggests that the GSEs are the primary MBS loss conduit for the big banks to the FED balance sheet. 

If true, how much debt does the FED think it can absorb? how much will it have to absorb to keep the economy afloat? and, what will become of the securities?

GSEs are shake and bake, and the tax payer is left holding the bag.


ghostfaceinvestah's picture

How much more can the Fed absorb?

There is about 5T of GSE MBS outstanding.  My guess is the Fed will own 2.5 - 3T by mid 2011.  After that it is hard to tell, because the GSEs might not exist much longer than that.  But while they do, the Fed has no choice but to continue buying.

dark pools of soros's picture

not to sound simple, but deflation happened last time since gold was still somewhat a part of the realm of our dollar..  none of the restrictions are in place now so why would the powers allow a deflation on the global scale on the dollar?  Most countries are tired of it anyway

forget watching gold, gas, oil, etc  -  just look at the price of bread at your grocery store to see where the dollar is going

Hephasteus's picture

Another day another dollar decline?

AN0NYM0US's picture

Breaking: Oct 19, 1:24 PM EDT

Bernanke urges US to cut budget deficit

Cheeky Bastard's picture

Breaking: Oct 19, 1:27 PM EDT

Bernanke says he was only kidding. The slow and painful death of the $ continues.

docj's picture

Didn't TurboTax Timmy say the same thing just a couple days ago?

Sounds like the White House has their new talking points - all the while cleverly failing to display anything remotely resembling a plan to accomplish this minor miracle.  Quite the opposite in fact, given their almost fettish-like insistence on nationalizing healthcare financing and the latest trial balloons regarding Spendulus II.

In other words, it's words.  Nothing more.

Bearish Spirits's picture

Notice he says "deficit," not "debt." 

We can absorb interest payments on an annual $1 trillion deficit, but $1.5 trillion?  Well, that's just too much.

How about we don't run deficits, period?  Too difficult, I suppose.

Mark Beck's picture

Ben should have voiced his opion before FY2010 budget release. At this time his opinion is moot and unactionable and he knows it.

From the ap article, quoting Ben,

"Congress and the White House must find ways to boost confidence in the U.S. economy and the dollar."

The deficits for FY2009 are in large part due to illhealth in the Banking system that Ben help perpetuate, and on the international front, falling USD confidence is largely his doing. The world knows the FED controls the currency, and of late, Treasury auctions. Who is he trying to fool?

Boost confidence in the US economy, well what about the economic stimulus program that passed this year. Ben what more do you want?

Also from Ben,

"In large part, such action should focus on boosting consumption,"

Well Ben once you destroy the last remnants of our economic base, not to mention the currency, who exactly will consume in the US?

I find the misdirection rhetoric form the FED play book, is really getting hard to stomach.

Ben's public spiel reminds me of the music from the string quartet onboard the sinking Titanic. The music stoped only after the players were in the icy grip of death.


Ivanovich's picture

Stocks AND Bonds (Dec T-bond) up today.  Dogs and cats, living together...mass hysteria.

Steak's picture

If they follow eachother on the way up you can bet your bottom US Peso they'll follow eachother on the way down.

peterr's picture
peterr (not verified) Steak Oct 19, 2009 7:04 PM

lol that's Kudlow's term..US peso

Goldman and Bank of Amerika run the markets along with Geithner, and beagle boy Ben. There is no free markets, only welfare capitalism and socialism for capitalism. good articles; good articles 4 slow news day ..http://www..
hat tip: finance news

Anonymous's picture

Bernanke hell.
I like the sound of that.


Anonymous's picture

Wanted to point out that when stocks crashed in 1987, the USD, although was already falling, like today, it kept crashing along with the market. Will history repeat?

AN0NYM0US's picture


Pimpco to move into equity space

NEW YORK (Dow Jones)--Leading bond-fund manager Pimco plans to expand its investment products into active equity management as well as some other asset classes.

Josey Wales's picture

Important safety tip, thanks ivanovich ;)

Anonymous's picture

You mean the dollar is getting crushed on a day that the stock market goes up like Superman? Who could have seen that coming?

BobPaulson's picture

I'd say DX grinds to 72 and looks for direction then. Looks like that will happen in November. If anybody is going to launch a black swan and save the buck it would be to stop it dropping below all support levels. No?

Of course, it could just continue sliding down its current razor blade semilog graph to asymptotic nothingness, but isn't it likely some external force will slow down the devaluation?

(my skill testing question is blank times eight equals eight, maybe I can send to some genius at the Fed to get an answer)