Dollar bears will be crushed

aPismoClam · May 16, 2005

blah,blah,blah,blah,blah,blah freaking blah.

aPismoClam · May 16, 2005

Quote from ORM:

Some things have to give to bring it down no doubt about that. The most likely factor is of course a fall in dollar or interest rate.

But it seems like most people forget. The US are privileged in that most countries accept dollar as a currency. Meaning that they can buy goods for dollars and not necessarily the home currency. US central bank could also wipe out all loans with just printing money. Of course this would ruin the world economy, but I mean it is a possibility.

ORM
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privilege? yeah, our position of strength, leadership and respect just dropped into our lap, like the rice burner and college degree your daddy bought you.

privilege, indeed.

Haylavshik · May 16, 2005

Destroyer

Doctor, Doctor help me please, I know you'll understand
There's a time device inside of me, I'm a self-destructin' man
There's a red, under my bed
And there's a little green man in my head
And he said, "you're not goin' crazy, you're just a bit sad
'Cause there's a man in ya, gnawin' ya, tearin' ya into two."

Silly boy ya' self-destroyer.
Paranoia, the destroyer

Self-destroyer, wreck your health
Destroy friends, destroy yourself
The time device of self-destruction
Light the fuse and start eruption

(Yea, it goes like this, here it goes)
Paranoia, the destroyer
(Here's to paranoia)
Paranoia, the destroyer
(Hey hey, here it goes)
Paranoia, the destroyer
(And it goes like this)

Paranoia, the destroyer

mtzianos · May 20, 2005

From WSE:

Forensic Evidence
by Russ Winter, Thursday May 19 2005

The light Treasury borrowing, which has extended far longer than anticipated, finally kicked in a massive spec and fund short covering episode in rate futures, which lapped over into the stock market. Judging from the retreat in bond prices Thursday, the climax was Wednesday.

The FCBs (foreign central banks) have shown up in force in two of the last three weeks, buying $8,213 billion per week ending May 5, only $420 million per week ending May 12, and $4,724 billion per week ending May 19. Taking the three weeks combined this is about average for the last year. However, with the Treasury actually paying down debt, this is abundant. Since the Treasury didn't need it, the FCBs bought a whopping $15,319 billion in agencies further supporting that market. FCBs were actually able to reduce their Treasury holdings by $2,052 billion during the same period. Additionally, the Fed felt compelled to monetize $3,670 billion in the last three weeks, 50% above their pace of the last year.

The Treasury has been out in force as well, providing excess tax receipts back to the dealers via TIOs (Term Investment Options which are short term loans). Those are coming off now, but it's been much more gradual than expected. As of May 19th, there are still $14 billion TIOs outstanding, very unusual in late May. Most come off between now and Wednesday. Obviously this is seasonal, but it's been a longer season than we thought.

I think the forensics point to several operations. First, the US has used the Treasury hiatus to get a chunk of the GSEs' portfolio into FCBs hands. Alan Greenspan, in his recent remarks, would like us to believe that the banks can do handle the absorption GSE paper coming from the forced liquidation of their portfolios. In reality that would take forever, and that's why we've seen large agency purchases by the FCBs since the beginning of this year. Rather incredibly, year to date, FCBs' custodial purchases totalled $75.3 billion, and $57.7 billion have been agencies which include Fannie and Freddie.

Second, I think there is a realization that FCBs aren't going to finance $300 billion plus (has slowed to $204 billion) of the US twin deficits anymore, and that the US Dollar needs to be defended to keep them in the game at all. This means a slowdown of the printing presses, well illustrated in Lee Adler's "Fed liquid assets chart." And the second part of the operation is a backdoor tax on the American citizenry. This can be accomplished simply enough, by delaying the reform of the Alternative Minimum Tax. Additionally, inflation causes bracket creep, and that starts to add up. And that's why tax receipts are running high and the federal deficit is coming down.

This is also very contractionary for the economy. It will cool the consumer off enough to slightly reduce imports, and shrink the trade deficit some, and take a little pressure off FCB money printing (also a problem, too expansionary). I also feel the Chinese repeg or partial float enters in here. A repeg will cause even more US inflation, even more bracket creep and thus raise more taxes, and will raise prices on Chinese and Asian goods so as discourage consumption of those particular items. At the margin it might encourage more consumption of US made goods- that is, if we had any. That's the hole in this approach, at least shorter term. The theory of the rocket scientists who run this chicken farm outfit: US firms are well capitalized, and it might start a capital spending effort stateside in things that are actually productive, like tradable goods. Might be worth the gamble actually.

The authorities also seem to be turning their attention (way too late) to lax lending standards and the housing Bubble, which of course in turn just feeds more consumption of Asian imports. First this week came the Comptroller's report from the Fed.

My final clue was CNBC's considerable devotion of time today to this issue. They brought in analysts and economists of all stripes to highlight it. The discussion was surprisingly frank, something I've never seen on that network before. It almost seems as if Maria had reviewed Epic Bubble or Wall Steet Examiner, with some of her remarks like, "condo flipping can't be a good thing, duh." CNBC is an important media apparatchik, and if the powers that be suggest it's time to talk the silly season condo flipping crowd down off their ledges, by golly CNBC (GE) will help with the cause. Taking the bloom off the consumer and housing mania will free up credit to finance the government "cheaper," with less crowding out. This is necessary since a blank check for a trillion a year just isn't available right now.

All this is a day late and a dollar short. It's also contractionary and far from bullish. As a focused Bubble watcher I must give them their due- it's pretty close to what I might try myself right now. The challenge will be with the execution. Contraction, with fragile debt-ridden consumers, and a bloated financial, retailing, and housing sector will be dicey stuff. Stay tuned, because the next phase will be financing the post-Treasury hiatus, the barely dented trade deficit, and risking the next rate hike. All part of the Bubble management agenda.
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mtzianos · May 20, 2005

Latest TIC data

<img src="http://www.elitetrader.com/vb/attachment.php?s=&postid=752737">

mtzianos · May 20, 2005

Notice that since Nov-2004, Japan and China have stopped increasing their US bond positions (they're just buying enough to roll-over their previous positions).

If we believe that the hedge funds (from tax heavens like Carribean and UK Isle of Man etc) are for real (and not some covert operation of US Gov itself, as many speculate), is it really believable that it's actually funds doing carry trade, given the rate diffs (borrow 3%, lend at 4%-4.5%)?

What other strategies could explain this buying? (+94bn since Nov04)

Only other thing I can thing about would be a bet on a stronger USD (about which they'd have been "tipped" by bureaucrats as Turtle founder Richard Dennis said in recent TASC article ???)

Since FCBs policy change (unless it's changed again), can we think that the leveraged hedge funds from tax heavens can actually take over the funding of the 55-70bn PER MONTH which is needed to keep USD afloat?

Actually the amount of new debt which needed to be absorbed (from 3rd parties, as FCBs stepped down) happened to be much lower than usual during last few months, due to very strong tax receipts from US Treasury as explained in previous article. But those strong tax-receipts of Apr2005 apparently were a one-time phenomenon.

Can we really expect to see US gov start paying down its debt from increased tax revenues AND with STRONGER (more VALUABLE) dollars ???

Well, the lenders wouldn't mind obviously, but how likely is it?

I mean isn;t it a little bit unfair to Americans? Afterall, those capital gains taxes on profits from stocks from the 2003-2004 "bull-market" were mostly due to dollar depreciation, rather than a real bull - see next chart.

Similarly with "appreciation" of other assets, like real estate

SethArb · May 20, 2005

carribean banks ? I read somewhere thats from

either the PPT or hedge fund hot money !

mtzianos · May 20, 2005

Btw you have to love (monetary) inflation. US Taxpayers are paying capital gains taxes on their stockmarket profits, whereas their gains in REAL terms have been almost zero.

Here is chart of SP500 in DollarIndex (basket of currencies). If I charted it in just EuroFX, or commodities it'd be at all time lows right now.

<img src="http://www.elitetrader.com/vb/attachment.php?s=&postid=752748">

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Dollar bears will be crushed

aPismoClam

aPismoClam

Haylavshik

mtzianos

mtzianos

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mtzianos

SethArb

mtzianos

sp500-in-dx.png