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Every One Wants Dollars (Again)
A new phase in the markets began this month. The Federal Reserve ended its QE3+ purchases. The Bank of Japan unexpectedly and dramatically stepped up its asset purchases under its QQE operations. The government's largest pension fund announced aggressive portfolio diversification plan.
Contrary to some press reports, the ECB remained unanimous in favor of additional measures to arrest the deflationary headwinds, if needed. The staff was instructed to accelerate work on other assets that can be purchases to expand the ECB's balance sheet back toward the 2012 peak.
The softening of the flash PMI, and expectations that next week's flash HICP inflation estimate shows softer prices, underscored the likelihood that more measures will be needed, and before the weekend, Draghi expressed some urgency. This raises the prospects of more action at the ECB meeting in early December. Previously, it appeared more likely that the ECB would wait until next year, to see the participation in the next month's TLTRO and the beginning of the ABS purchase plan.
In the UK, official guidance, including the Quarterly Inflation Report validated the investors deferring the first hike from next spring until the end of the year. An increasing number of economists are pushing it out until 2016. Whereas the BOJ and ECB are providing more monetary support, the BOE indicates it will not make conditions less accommodative for longer.
The People's Bank of China joined the party before the weekend. It announced the first cut in the benchmark one-year deposit rate. The 25 bp cut took many by surprise, as the PBOC was seen continuing to target liquidity injections, in part, ostensibly to minimize stimulating shadow banking activities.
The divergence has driven the dollar higher. There are two notable exceptions among the major currencies. The New Zealand dollar has been the strongest this month, gaining 1.6% against the US dollar. This is most a function of favorable economic news, leaving aside the decline in milk prices, for the domestic economy. The other exception is the Canadian dollar. As we have noted, it is common for the Canadian dollar to do well on the crosses in a strong US dollar environment. In addition, firmer than expected inflation data ahead of the weekend helped spur a short-squeeze, helping lift the Loonie to its best level since October 31.
The yen has been the weakest of the majors this month, losing about 4.7% against the dollar. The swing in interest rate expectations for the BOE has seen sterling slip 2.0%, more than twice the euro's 0.9% decline, thus far, in November. The Australian dollar is still off about 1% this month, even after recovering about 0.8% in response to the Chinese rate cut.
The prospects of the ECB taking more action as early as December will likely continue to weigh on the euro. In the middle of last week, the euro rose to a 3-week high near $1.2600. This corresponds to a downtrend line drawn off three highs in the second half of October, beginning with the October 15 high near $1.2885. Being turned back from the trend likely signals the resumption of the downtrend, even though market positioning (in the futures market) and sentiment seem nearly as extreme as ever. A break of the $1.2360 area would target $1.2230, on the way to $1.20 in the coming weeks.
The dollar was trading below JPY110 on before the October 31 surprise moves from Japan. There were very little official comments about the currency market until the dollar approached JPY119. Then Finance Minister Aso expressed concern about the pace of the move, spurring a modest pullback. However, economic adviser Hamada comments suggest two things. One, if the pace is a bit troublesome, the direction is desirable. Two, official jawboning, as we anticipated, is likely to raise as the JPY120 level is approached. Dollar support is pegged around JPY117.30, which also corresponds to the 5-day moving average, which it has not closed below since October 16.
Sterling is trading sideways in a box. The $1.5600 area has repeatedly been tested in recent sessions. The $1.5740 area marks the top of the box. Above there is what may prove to be a more formidable resistance near $1.58. While we expect sterling to outperform the euro on a trend basis, it is still likely to decline against the dollar.
The dollar-bloc looks to be in a superior technical position compared with the euro, yen, and sterling. The RSI and MACDs are consistent with follow through gains in the Canadian dollar after the strong advance before the weekend.
There are some important caveats though. First, the Canadian dollar has had several short-lived bounces during this five-month downtrend. This one is already getting large in terms of the magnitude of past corrections. Second, the US dollar found bids near the 50-day moving average (~CAD1.1215), which has generally acted as support for the greenback in trek from around CAD1.06 in July to CAD1.1470 earlier this month. Below CAD1.1200 nearby support is seen around CAD1.1160 and then CAD1.11.
The Australian dollar bounced strongly in response to the surprise rate cut by the PBOC. It does look like it is trying to carve out a bottom. However, the key level is $0.8800, and the Aussie first needs to close above its 20-day moving average which comes just below $0.8710. The technical indicators are constructive, but it is a counter-trend move.
The dollar edged higher against the Mexican peso over the past week but showed little momentum as it approached the multi-month high set on November 4 near MXN13.68. It requires a break of MXN13.50 to signal something of interest. The political backlash against the government may endanger its larger reform efforts.
Turning to the US 10-year Treasury yield, technical indicators are not given strong signals of the direction of the breakout from the 2.30%-2.40% range. Next week is holiday-shortened, and it very well may mean that the ranges are largely respected, perhaps until the run-up to the employment data.
The S&P 500 gapped higher before the weekend, arguably lifted by Draghi's sense of urgency and the PBOC's rate cut. That gap exists between 2053.84 (Thursday's high) and 2057.46 (Friday's low). This gap is technically significant, and short and medium-term traders will monitor it. Just as nature abhors a vacuum, so do prices, and if it is a "normal" gap it will be filled over the next few sessions. It could be a breakaway gap, suggesting an acceleration of the advance. It might turn out to be an exhaustion gap, typically at the end of an advance, a last hurrah, if you will, before a correction unfolds.
Another insight we'd like to share is about the relative performance. The S&P 500 has generally outperformed the European bourses, but this may be changing. Over the past week, the Dow Jones Stoxx 600 advanced twice as much as the S&P 500, and this brought the month-to-date gain into equilibrium. Of course, one week a trend does not make, and the outlook of the exchange rate should be integrated into the decision process. All we are saying is that it may be worth monitoring. If the global liquidity conditions are still ample post-QE3+, and one expects the business cycle to bottom, European equities seem to be a good risk-reward way to expect that view.
Observations based on the speculative positioning in the futures market:
1. Position adjustments were minor in the Commitment of Traders reporting week ending November 18. There were only two gross positions adjusted by more than 5k contracts. The gross short yen position grew 9.2k contracts to 139.1k. The gross short sterling position rose 12.1k contracts to 65.7k.
2. The net short position in the US 10-year Treasury futures rose to 127k contracts from 112k. This was the result of a small add by the longs (8.3k contracts to 398.9k) and a larger sale by the shorts (+23.2k contracts to 526.2k).
3. Given how closely the capital markets are watching oil, we note that the speculative long position in the futures market eased 21.5k contract to stands to 255.3k. The gross longs were culled by nearly 38.5k contracts to 403.7k. Almost 17k gross short contracts were covered to leave 148.4k.
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I won't say Peter Schiff is a god,
But to anyone who has less wealth than him, how can you say he's no good.
Are we expected to believe you the worthless mouth piece or some one who has made millions on his investments, with a record of predicting the crash of 07/08. meanwhile the MSM was LOL at him.
Put your money where your mouth is. show me your record/wealth.
That isn't a very good argument. Schiff's dad was rich, so he had a lot of opportunity and capital to start a business. If you have enough capital to start a business, you can then form a thesis and goad people into it (i.e. "It takes money to make money"). I grew up poor with very little opportunity and with a completely different set of skills, so it's not really fair.
I do not think Schiff is wrong. The dollar is certainly being debased. But he keeps it too simple and thinks dollar debasement = inflation. Even those of us with cursory knowledge know velocity matters most with regard to inflation, and it is a psychological phenmoninon, too. He just keeps is so simple and says printing must mean dollar to zero. Not really if other countries print more, or other CB shenanigans. Thus we see the rising dollar despite massive printing. Schiff will just say it can't last. He is right. But how long can it last? A long time. Again,when you are predicting a currency to zero timing is everything because every second you're wrong the money could have been appreciating in some other asset class. We have people buying gold, bunkers, and missing out on the best stock market run in our lifetime due to people like Faber and Schiff. Again, they are right long term because money doesn't grow on trees, no free lunch, etc. BUT, that goes back to my weatherman analogy. Nobody would say a weatherman is good at his job if he knows it's going to snow one day next winter...we want to know the day, if not the hour.
I have some wealth, btw.
Calling him the worst economist ever was a joke/hyperbole. He's bad but not the worst.
Anyone could have predicted the housing crash. It's hard to give anyone credit for that one. I'm more impressed with Schiff's call to buy gold in 2000 than housing...
What will happen is the crash won't happen, and he will write another book describing why it hasn't and then say it'll happen within x years. The doomsdayers have been doing this routine since the 1940s. Fear sells. Schiff is selling fear and then his broken clock is right here and there.
devo
I think Schiff is correct in his assessment of our current situation. The Fed has created an artificial economy of pouring money into the stock market while the real economy fails to grow. Real economic growth is required for a purely fiat system to survive. I expect one day suddenly Schiff and the doomsayers will be right.
The game we have to play is to grow fiat and convert the right amount to real wealth while keeping enough to pay the bills and 're-invest' in the ponzi. Everyone has their own risk tolerance and timeline. Those who see the end far off are all in the paper markets. Those who believe the end is nigh are guarding their golden hoards and foregoing further growth.
Then there are the obilvious masses.
"Those who believe the end is nigh are guarding their golden hoards and foregoing further growth."
Place me in this category.
The plan: get rich in the stawkmarket... buy gold together with one billion other folks when SHTF.
Schiff and the doomsdayers will be right one day, like they were for a few days in 2008. Then they were wrong again for 6 years and counting. Obviously nothing goes up forever. Obviously the market will crash some day. But when you have CBs around the world back stopping the declines it creates a psychology Schiff doesn't seem to understand. Or if he does understand it, he discounts it as something that will end soon. He doesn't seem to factor in the FED can buy stocks and pull of many shenanigans we haven't even thought of. Has Schiff even mentioned the Belgium scam? It's like he doesn't get how far and wide this can spread and how many tricks there are...he seems to mean well, but who knows, he might be controlled opposition for all we know. All I know is he was right for a few days in 2008 and that was a long time ago. Anyone sitting on the sidelines lost big time listening to him. The economy is phony, but that doesn't mean there aren't profits to be had. If you want, you could then convert those to gold. Schiff never suggests this.
What I find amazing is the level of USSA-centric thinking, what a tempest in a toilet bowl.....
Shiff/stackers right wrong really?? that's not even worth the time to think about, have a look around genius you are standing in the eye of an irrevocable shitticane!! NDAA, Forfeiture laws, Politicians insider trading legally, actually politicians at all for anything, NSA, CIA, FBI, jesus haven't you got enough to worry about??
Bottom to top the western countries are economic wasteland of lies and deception nothing more than the last vestiges of malignant vassal states of a grand corruption empire and their citizens hapless and mostly unwitting victims with nary a clue what is about to befall them.
I stack because I can, my girlfriend stacks because of a millennia old cultural predisposition of not trusting those who would be king. But for a more non-US centric view, the oldest cultures that coincidentally make up the largest demographic base in the world believe in PM's, it's engrained but we live in a time where the western criminals have succeeded in decimating the production machinery of these commodities demand increasing dramatically supply...... not so much so really who gives a rats ass what anybody purporting to be an expert says?? Anyway theres my 0.001g Au worth
Thanks for that, well said.
The insanity will have its come-uppance.
From the article/author:
"The S&P 500 gapped higher before the weekend, arguably lifted by Draghi's sense of urgency and the PBOC's rate cut."
Read desperation.
.
Schiff is a self-promoting huckster who pushes his viewpoints loudly, often, and as widely as he can in order to attract investors and $$$. Nevermind he never discloses what his results are, that he never discloses them, and there is no publicly available data to validate his claims.
what are the results of the NY Feds portfolio, Fed Reserves Portfolio ???
What a clown, your talking about rigged forex market and your think your writing is worth some investment advice lolololol. You must have been a tulip in your past life lolololol.
Peter Schiff might be the worst economist ever. haha
Krugman is your hero? Yellen?
Hell no. I have no heros. But Peter Schiff is terrible at economics. No doubt about that.
I don tknow what issue you have with Schiff but it isn't possible to be correct about "economics" when we are in a Fed rigged game. The Fed keeps trying to short circuit economics - supply and demand, etc. - by not letting the market run its course. Inflate away! Print, print, print...
Right, and he should acknowledge reality instead of live in theoretical worlds. He has lost people much money by refusing to accept FED rigging is endless and the new paradigm. "Printing money equals inflation, but I don't know when it's going to happen" is not a sound thesis, especially when there are huge returns to be made from the rigging. He has people paralyzed with fear on the sidelines who just missed a real opportunity to increase their wealth. Meanwhile they sat in gold and lost wealth. If I were a weather man and said, "It's going to snow one day this winter, but I don't know when" then I'd be fired on the spot. Timing is everything. Thesis means shit if you can't time it.
Economists are like a broken clock right about the time twice a day. Schiff is not an economist. He is an investor, educator, money manager and business owner all of which he has done successfully.
Predicting the future is always a best guess.
If you were a weatherman, you could be continually wrong, and still be employed.
To use "...there are huge returns to be made from the rigging" and "Timing is everything. Thesis means shit if you can't time it" as a criticism of Schiff is cheap PUFFERY.
OKAY, devo, TELL US WHEN we should pull out of the currently soaring ponzi market (redundancy intentional)...
...and I'll gladly throw everything I have into it, for those "huge returns."
OTHERWISE, you're just huffing and puffing, about yourself as well as about Schiff.
Okay here you go: when CBs appear near the end. The fuckers are just heating up.
So Schiff isn't wrong, just late.
After 5+ years and really having no understanding of what hit him, it is impossible not to conclude that Schiff is not all that and a bag of peanuts.
"Every One Wants Dollars (Again)"
Until QE4. Then they flee to some other currency that is not being printed like mad.
Maybe even... dare I say it...
Gold.
Awesome display of financial "imperialism" for lack of a better term.
The USA has been for all intents and purposes "bankrupted" due to 2008.
Any problem raising capital private or public? Nope.
Any problems making the sizes of those capital the biggest in history? Nope.
Stores full for Christmas? Yep.
Shoppers out shopping? Yep.
Enough to make a terrorist out of a large segment of even the American populace? Probably. It is more than a little aggravating actually.
All this and a soaring dollar has been done sans recovery I might add. Clearly someone smarter than me will have to explain. In the meantime I don't see spending restrained anytime soon and who knows...maybe after a hundred trillion these clowns might even create a single job.
The battle to be the least bad choice. The dollar is running on its reputation but that will only last so long and considering the holiday season is not shaping up very well the new year could be rough for the dollar and horrid for most of the rest of the currencies.
The dollar may be running on (empty) reputation in the rest of the world, but in the good 'ol U$A, the shopper herd is stampeding to the Mall - saw a half-mile line of cars clogging the off ramp to Big Shopping Center Mall on Friday and the freeways were totally clogged again today.
Must be the cheap gas; $2.87 at the local discount.