Wednesday, November 07, 2007

Dollar Slumps to Record on China's Plans to Diversify Reserves

After Rogers, Faber, Gross, Buffet & Giselle now China. Don´t know what will get the most press in the US....... I assume that they will soon find a CPI formula to back out the increased costs that will come sooner or later from the weakening $ . Maybe Bernanke shouldn´t run the Fed via the applause meter ( Fleckenstein ) from Wall Street ........ It will be interesting to see how the "vilgilant" (LOL!) bond market will react to the news... And i expect at least one speech from Paulson & Co that the "strong $ policy is still in place" LOL!

Nach Rogers , Faber, Gross, Buffet & Giselle nun China. Bin mir nicht sicher was in den USA mehr Presse bekommen wird..... Höchste Zeit für die Verantwortichen eine CPI Formel zu finden die getsiegene Importpriese aus den Inflationszahlen herausrechnen...... Evtl. wäre es eine gute Idee wenn Bernanke sich mal nicht von Wall Street diktieren läßt was er zu tun hat...... Bin gespannt wie der angeblich so wachsame Bondmarkt (LOL) auf die Neuigkeiten reagiert. Ich erwarte mindestens eine Rede von Paulson & CO das die "Politik des starken $ " weiter bestand hat.... Slapstick pur!

This cover seems to be timeless..... Dieses Titelbild scheint Zeitlos zu sein........

Introducing the Xera:

Thanks to the suggestion put forth by a reader of my daily column, I have come up with the new name for our currency. Henceforth, it shall be called the xera. That's a combination of Xerox, for the piece of Xerox paper that it is; lira, which in the past was one of the world's chronically weak currencies; and, most importantly, the fact that it sounds like zero. That is ultimately where the xera is headed.

via Fleckenstein ( see Blogroll )

Dollar Slumps to Record on China's Plans to Diversify Reserves
Nov. 7 (Bloomberg) -- The dollar slumped to a record low against the euro after a Chinese official said the government will buy better-performing currencies as it diversifies $1.43 trillion of foreign-exchange reserves.

``We will favor stronger currencies over weaker ones, and will readjust accordingly,'' Cheng Siwei, vice chairman of China's National People's Congress, told a conference in Beijing. The dollar is losing its status among the world's currencies, Xu Jian, a central bank vice director, said at the same meeting.

The dollar fell against 14 of the 16 most-active currencies, declining to the weakest versus the Canadian dollar since the end of fixed exchange rates in 1950, a 26-year low against the pound and a 23-year low to the Australian dollar.

China's Reserves
Chinese investors have reduced their holdings of U.S. Treasuries by 5 percent to $400 billion in the five months to August. China Investment Corp., which manages the nation's $200 billion sovereign wealth fund, said last month it may get more of the nation's reserves to invest to improve returns.

``The world's currency structure has changed,'' Xu from the People's Bank of China said at the conference. ``The dollar has been depreciating.'' Cheng, speaking to reporters after his speech, said his comments don't mean China will buy more euros.

The dollar’s slide: 1/3 down and falling faster / FT

  • The US dollar has now lost more than a third of its value (-35%) against a basket of major currencies since Feb 2002.
  • The decline is accelerating. The USD has shed -12.5% of its value in the last year, -3.5% in the last month, and -1.5% in the last week alone.


``Cheng has a history of speaking out on a range of financial market and economic developments, and his comments are not always accurate,'' said Glenn Maguire, chief Asia economist at Societe Generale SA in Hong Kong.

Cheng's remarks on Jan. 30 that China's stock rally was a ``bubble'' caused the benchmark index to fall the most in almost two years on Jan. 31. The Shanghai and Shenzhen 300 Index, then over 2,500 points, has since climbed above 5,300.

The dollar's decline helped drive the price of crude oil to a record and gold to a 27-year high, encouraging investors to buy assets in commodity-producing nations. The dollar's 9.8 percent drop against the euro this year boosted the competitiveness of U.S. exports, helping shrink the nation's trade deficit to $57.6 billion in August, the smallest since January.

`Asset Story'
Against the pound, the dollar declined to $2.0955, the lowest since May 1981. It fell to $1.1010 per Canadian dollar. The currency slid against the Australian dollar to 93.89 U.S. cents, the lowest since April 1984 from 92.87 U.S. cents. The U.S. currency also fell to as low as 1.1347 against the Swiss franc, the lowest since December 2004.

``This is an asset story and shows sentiment for the dollar continues to be quite negative,'' said David Forrester, currency economist at Barclays Capital in Singapore.

The Australian dollar gained after the country's central bank raised its benchmark borrowing cost to 6.75 percent today. Governor Glenn Stevens, announcing today's quarter-point rate increase, said inflation will exceed his target.

> Gold is up over 15 bucks to 835$!

Janszen from iTulip on Gold

Thanks Eric!

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Anonymous Anonymous said...

Morgen J-M,

It has always seemed to me that, at the most basic level, a currency is worth what you can get for it, meaning that a strong manufacturing nation will, or should, have a strong currency because of the (presumably desirable) products you can buy with it (for this reason I thought it a bad idea for, e.g., Germany to tie the value of its currency to that of, say, Greece, via the euro -- as manufacturing powers the nations are just not comparable). So in addition to the financial malfeasance, including Fed actions, that have undermined the dollar, I think also the steady decline of the US as a strong manufacturing nation is also a big part of the problem. The status of the dollar as the 'world's reserve currency', i.e. a safe store of value/liquidity, has more to do recently with US political and military hegemony than with fundamental economic strength.

And I don't think most Americans realize this, or the risks associated with this move to a 'service economy'. They might want to ask themselves: How is China rising to a world economic power?


1:21 AM  
Anonymous shtove said...

Looks like China sold a shitload of dollars to coincide with this announcement. Are they trying to squash the Yen carry trade as well?

1:22 AM  
Blogger jmf said...

Moin Eh,

i agree.

On top of this i think another big part is the the recource base that is tied to the country ( as seen in Norway, Canada etc)

I have little faith in any fiat currency. You always have to choose between bad and ugly.

Somewhat historic has happened just a few minutes before.

I have sold 50% of the HUI/goldminers today and a part of my goldposition.

On top of this i will sell my entire long time position in Suncor (Canadian oilsands)

The recent spike seems a little bit streched and i try not to be too greedy.

And i´m even considering a small long position in the $.

The sentiment is so depressed and with the ECB and the BOE tomorrow not hiking and maybe easing (BOE) i (maybe) will make my first bet ever on the $....

1:38 AM  
Blogger jmf said...

Moin Shtove

it is enough for them not to buy new ones.... :-)

1:45 AM  
Anonymous Anonymous said...

The recent spike seems a little bit streched and i try not to be too greedy.

'Bulls make money, bears make money, but pigs get slaughtered.'

It is never a bad thing to take a profit. Although recently I have closed several positions painfully early...



1:55 AM  
Blogger jmf said...

"It is never a bad thing to take a profit. Although recently I have closed several positions painfully early..."

I know what you are talking about.....

It is very difficult especially when you are on the short side to stay the curse....

I have viewed the miners and Suncor always as a hedge for some of my short positions.

Otherwise i would have pulled the trigger probably way earlier.

2:09 AM  
Blogger jmf said...

Goldman Pay Tops Bear Stearns's Slumping Market Value

2:22 AM  
Blogger jmf said...

Barry Ritholtz
Crude Oil = $98; Gold = $845

The Fed recklessly abandons their price stability mandate, and this is what it has wrought: Dollar at record lows, oil and gold near all time highs.

It is the first rule of economics, yet so many idiots pundits cannot seem to to remember it: THERE IS NO FREE LUNCH.

In physics, the corollary is that "every action has an equal and opposite reaction." Why this is too complex for their little frontal lobes is beyond me. It is simple. It is basic. It is easily understood by even supply siders.

Think about all of the brainiacs who have been begging for rate cuts -- and from historically moderate rates -- over the past 2 years. Be sure to thank them for the reckless disregard for your wallet.

Hey, how's your core inflation doin' these days?

4:14 AM  
Blogger jmf said...

Greenspan on Housing, Central Bank, Gold

Greenspan on the Central Bank and Gold

Fox News: "So why do we need a central bank?"

Greenspan: "Well the question is a very interesting one. We have at this particular stage a fiat money which is essentially money printed by a government and it's usually the central bank which is authorized to do so. Some mechanism has got to be in place that restricts the amount of money which is produced, either a gold standard or currency board or something of that nature because unless you do that, all of history suggests that inflation will take hold with very deleterious effects on economic activity. ... There are numbers of us, myself included, who strongly believe that we did very well in the 1870-1914 period with an international gold standard".

Fox News: "We did well without the Federal Reserve. People forget that."

Yes they do. And that last paragraph was one of the few things Greenspan ever said that makes any sense.

Thanks Mish!

5:03 AM  
Blogger jmf said...

UK BRC Shop prices index posts large increase in October on food prices (Barcelona) - Inflation at consumer level has posted the biggest increase of 2007 so far in October in the United Kingdom pushed by the rising costs of fresh food which filtered to overall prices index, according to the latest shop prices report published by the British Retail Consortium.

Prices have increased 1.1% in October compared to the same month last year, this is the highest year-on –year increase seen so far in 2007, sharply larger than the 0.4% rise seen in September. Food prices, the major contributor for the increase, have risen 3.7% on the year.

On the month, shop prices have increased 0.5% after the 0.2% increase posted in September, caused mainly for the 1.4% monthly rise in food prices the highest increase in food since records were collected in December 2005. Excluding food prices, prices of all other products remained unchanged on the month.

6:17 AM  
Anonymous Xerox Solid Ink for Phaser said...

I now see exactly whats going with this world. If you say yes, the others say no, its a tough world out there in order to get ahead..
But, as long you stay up, keep your head up right, do your homework like the Mister that wrote this well written piece did.
Sooner or later, you'll have a plan and succeed, so its never too late to begin, start now! Don't procrastinate, get to organizing your life and you too will make it in the business world! :)

2:35 PM  

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