It's Party Time

[Hiding Bear]

A currency crisis is a rare thing: arguably even more rare than a stock market crash.? Therefore, those who hold expectations for them should do so only with awareness that they are trying to anticipate an extremely unlikely event.? I think the setup for a fullblown global dollar crisis exists--but that doesn't mean it's likely or necessarily going to happen. Volker puts the odds for one at 75% in the next 5 years.? Sounds about right to me.? 

 

I would totally disagree that "everyone" is loaded up dollar short now.? For example, all those ARM mortgages and refis etablished in the last several years are leveraged dollar long:? the increase in interest rates that would accompany a further substantial slide in the dollar are going to punish these folks, both on a monthly cashflow basis, and on an primary-asset-value basis.?

 

Now, if smart money tends to dispossess dumb money of their wealth, how would you assign those titles to forex traders and homeborrowers who chose a 40 year low in rates to go adjustable?

 

Additionally, I wonder what those surveys of forex traders might have revealed on the eve of the Asia crisis?? Sometimes, a crowd can be right.? Sometimes, they can fullfill the prophecy, and forcefully declare themselves the winner.? And they are being ably assisted by an administration that babbles periodically about a "strong dollar" that inspires absolutely zero confidence.

 

Perhaps the short-dollar trade appears to be becoming crowded... but if you consider the vast global masses who are still yet in a position to join it, by dumping their dollar-denominated assets, I'd say there's still plenty of room.

 

Doesn't necessarily begin tomorrow.? Given fundamentals, I confess that I will be suprised by a substantial rally in the dollar.? And since a crisis is a rare event, I think the high probability event is consolidation within a trading range before the next move down.

 

But I think there's little doubt that ultimately, the dollar goes lower over the next 5 years, so any rally presents an extremely attractive opportunity.

<{POST_SNAPBACK}>

 

Well done Jimi.

 

I have been dollar bearish on this like Rayok from day one. Of course there will be dollar rallies, and in an over sold type market we could get one anytime. For some reason, the fight to safety via purchasing US dollars may still exist in the event of a world crisis - although I don't know why most would think the US is more safe and less vunerable than most economies lately.

 

The posts made by Mark concering the G-20 meeting imply that the Europeans still think that the dollar has some type of fixed 'value'. If US inflation is running higher than in Euroland, why should there even be a fixed level over which the US$ could not rise? I have not traded currencies for a long time, but I observe it's best not to fight long term trends.

 

 

On another subject, concerning the ETFs for gold I have a correction/update to make for US investors.

 

I have found out within the last day important information concerning the eligibility of ETFs for gold in IRA accounts. Internal Revenue Service issued on November 12, 2004, Private Letter Ruling # 200446032, which allows exchange traded gold funds into IRA accounts as investments (as long as the ETF is not distributed to the IRA owner). This ruling does not appear to apply to public retirement plans (state plans) in general. It also does not change the tax status of gold ETFs held in taxable accounts - long term gains on gold ETFs will be taxed at a maximum 28% rate instead of the maximum 15% rate for normal long term capital gains.

 

Therefore the way is cleared to buy gold ETFs within IRA and similar type accounts (for example 401(k) plans) for individual investors. I am sorry I did not know about this earlier, as the premium on the Central Fund of Canada has shrunk more than I expected (only a little above 2% on Friday?s close). Being it?s my largest holding that is not good for me either.

 

However CEF still has only a 15% maximum long term capital gain rate for US investors, and its silver bullion holdings make it a unique investment. In addition, it appears to have lower operating expenses than the gold ETFs (the later are all expected to be 0.4% per year). While it is possible we will also see a silver ETF one day, I don?t think know that any are currently being registered with the SEC.

[lineup32]

fx;  I appreciate the charts...tanks.

<{POST_SNAPBACK}>

 

thanks-

[beardrech]

Feed Fool

If those charts witht the ex[lanatory boxes are yours I thank you from the bottom of my brainpan--you see my earliest introduction to literature was sthrough Classic Comics where, for example,all the illustrated Biblical Texts were united in one cell with the commentary:I call them "word bubbles", and so indelibly stamped in my mind were these baloonish compendia,the lyrical accompinements that to this day whenever I see a man with the color red I look for the word "Shazam"

 

But jesting aside Thank you

 

beardrech Sometimes a few dozen words makes a single picture worthwhile

 

And now for a Sunday pigskin interlude wherin I'll enjoy a rest from those absolutely barbaric roundball players--

[martialcomp]

I have been trying to find a correlation between consumer spending, mortgage re-financing, personal savings rates and stock market tankings.

 

Unfortunately, everything I find seems to be a bit of a reach. But, it is still interesting.

 

http://research.stlouisfed.org/fred2/series/PSAVERT/112

 

The last time the personal savings rate went above 4%, it immediately tanked and so did the stock market. However, this was 9/11/01 approx, the time of a catastrophic 10 sigma event.

 

The next time the personal savings rate started climbing again was mid 2002, the time of yet another stock market tanking.

 

In 2003, the personal savings rate increased again, but this time the market went up instead of down.

 

The only reason cause I can find was the enormous stimulus created by mortgage re-financings at approximately the same time.

 

http://www.prudentbear.com/Bear%20Case%20L...ry/mtgrefi.html

 

As another Stoolie here pointed out, the government added 47 billion in expected insurance claims from hurricane Ivan to the personal savings rate to fool everyone in to thinking that the savings rate was positive.

 

http://www.bea.doc.gov/bea/newsrel/pinewsrelease.htm

 

So, the real personal savings rate is negative. IMHO, this is not sustailable and there will be a rush to sell assets to get a hold of real cash to pay down debts and increase retirement savings.

 

Also, the housing bubble is starting to deflate, this will pressure Baby Boomers to actually start thinking about saving as they will not be able to rely on housing price profits to retire on. (not to mention the fact that they have gone back to the re-fi trough over and over again to pay down credit cards and buy new SUV's).

 

I think the personal savings rate will enjoy a steady climb back to 4% over the next 6 months. This will KILL consumer spending.

 

I would also expect the market to suffer from a liquidity hangover.This may have already started.

 

Just stirring the pot here on a Sunday...

 

Also, I want to point out that the dollar has gone down for 3 straight years.

 

http://stockcharts.com/def/servlet/SC.web?c=$USD,uu[m,a]daclyyay[df][pb50][vc60]

[iUb14!La12,26,9]&pref=G

 

At some point, wouldn't there be a bounce?

[dozer]

A currency crisis is a rare thing: arguably even more rare than a stock market crash.  Therefore, those who hold expectations for them should do so only with awareness that they are trying to anticipate an extremely unlikely event.  I think the setup for a fullblown global dollar crisis exists--but that doesn't mean it's likely or necessarily going to happen. Volker puts the odds for one at 75% in the next 5 years.  Sounds about right to me. 

 

I would totally disagree that "everyone" is loaded up dollar short now.  For example, all those ARM mortgages and refis etablished in the last several years are leveraged dollar long:  the increase in interest rates that would accompany a further substantial slide in the dollar are going to punish these folks, both on a monthly cashflow basis, and on an primary-asset-value basis. 

 

Now, if smart money tends to dispossess dumb money of their wealth, how would you assign those titles to forex traders and homeborrowers who chose a 40 year low in rates to go adjustable?

 

Additionally, I wonder what those surveys of forex traders might have revealed on the eve of the Asia crisis?  Sometimes, a crowd can be right.  Sometimes, they can fullfill the prophecy, and forcefully declare themselves the winner.  And they are being ably assisted by an administration that babbles periodically about a "strong dollar" that inspires absolutely zero confidence.

 

Perhaps the short-dollar trade appears to be becoming crowded... but if you consider the vast global masses who are still yet in a position to join it, by dumping their dollar-denominated assets, I'd say there's still plenty of room.

 

Doesn't necessarily begin tomorrow.  Given fundamentals, I confess that I will be suprised by a substantial rally in the dollar.  And since a crisis is a rare event, I think the high probability event is consolidation within a trading range before the next move down.

 

But I think there's little doubt that ultimately, the dollar goes lower over the next 5 years, so any rally presents an extremely attractive opportunity.

<{POST_SNAPBACK}>

 

 

nice stuff Jimi....tanks

 

One thing that caught my eye was the reference to a currency-crisis as a "rare event". Is that actually true? I'm just thinking that we've actually had quite a few of them in the past, say, 20 yrs, haven't we? Russia....Asian crisis....Brazil...Mexico....Argentina....

 

None of those, of course, were a "world reserve" currency....so I suppose we can't make direct comparisons. But that also means we -are- in uncharted territory here....so prior events might not be a good guide either. There could be some non-linearities in this situation...

 

In regards to the people you listed as being "long" the dollar, I'd think we could sure add the bond-buyer herd who took such a HUGE HUGE HUGE position in the past few years! Much of that debt seems to be low-interest, long-term, and junk-rated!

 

Those poor SOB's are way, WAYYY, long uncle-buck

[seamus]

Nickme not getting off to a good start

 

Down 193

 

Looks like $ little changed right now

[beardrech]

I have been trying to find a correlation between consumer spending, mortgage re-financing, personal savings rates and stock market tankings.

 

Unfortunately, everything I find seems to be a bit of a reach. But, it is still interesting.

 

http://research.stlouisfed.org/fred2/series/PSAVERT/112

 

The last time the personal savings rate went above 4%, it immediately tanked and so did the stock market. However, this was 9/11/01 approx, the time of a catastrophic 10 sigma event.

 

The next time the personal savings rate started climbing again was mid 2002, the time of yet another stock market tanking.

 

In 2003, the personal savings rate increased again, but this time the market went up instead of down.

 

The only reason cause I can find was the enormous stimulus created by mortgage re-financings at approximately the same time.

 

http://www.prudentbear.com/Bear%20Case%20L...ry/mtgrefi.html

 

As another Stoolie here pointed out, the government added 47 billion in expected insurance claims from hurricane Ivan to the personal savings rate to fool everyone in to thinking that the savings rate was positive.

 

http://www.bea.doc.gov/bea/newsrel/pinewsrelease.htm

 

So, the real personal savings rate is negative. IMHO, this is not sustailable and there will be a rush to sell assets to get a hold of real cash to pay down debts and increase retirement savings.

 

Also, the housing bubble is starting to deflate, this will pressure Baby Boomers to actually start thinking about saving as they will not be able to rely on housing price profits to retire on. (not to mention the fact that they have gone back to the re-fi trough over and over again to pay down credit cards and buy new SUV's).

 

I think the personal savings rate will enjoy a steady climb back to 4% over the next 6 months. This will KILL consumer spending.

 

I would also expect the market to suffer from a liquidity hangover.This may have already started.

 

Just stirring the pot here on a Sunday...

 

Also, I want to point out that the dollar has gone down for 3 straight years.

 

http://stockcharts.com/def/servlet/SC.web?c=$USD,uu[/url][m,a]daclyyay[df]

[pb50][vc60][iUb14!La12,26,9]&pref=G

 

At some point, wouldn't there be a bounce?

<{POST_SNAPBACK}>

 

But in this day of ocmplex numbers (i the imaginary)) and algebraic

summations which include negative numbers all over the place, may I submit the notion that currently our savings rate is increasing by hundreds of percent

 

For instance, I just gave up the idea of going to Miami, a savings of a few thousands;and along with my not purchasing a Hummer my total savings were elevated tens of thousands of dollars ;and this winter no new clothing along with the Cancellations of my Aspen reservations are attributes enabling me becoming a member of the Plutocracy--

And next Year Berlin,Paris and London will not be visited along with the non-purchase of some Van Gogh prints becoming too costly

 

Beardrech The only reservation I'm keeping is the 4th class steamboat ticcket to the city Benares;I love it there:it's so Necropolitan

[DrStool]

In currency market, contrary opinion is not as useful as in stock market.

 

 

It's not very useful in the stock market any more either.

[anotherone]

Speaking of Party Time. NYCASS photos have finally been uploaded to the NYCASS thread on LOB. (NYCASS = NYC Stoolies). Enjoy.

[Guest]

Jimi,

 

nice analysis.

 

currency crisis is indeed rare when it is THE reserve currency.

 

40 on the dollar index is gonna be fun for some of us

[MrHankydoesWallStreet]

All time low (multi-decade anyhow) on the buck 79.19.

Here's what I think

[wndysrf]

Speaking of Party Time. NYCASS photos have finally been uploaded to the NYCASS thread on LOB. (NYCASS = NYC Stoolies). Enjoy.

<{POST_SNAPBACK}>

 

 

How can we tell who is who??

 

Can anybody post the names of the Stoolies on each picture???

 

Is The End's head permanently blocked out w/ Jim Morrison's???

[DrStool]

Long term outlook update.

[thesun]

I have been trying to find a correlation between consumer spending, mortgage re-financing, personal savings rates and stock market tankings.

 

Unfortunately, everything I find seems to be a bit of a reach. But, it is still interesting.

 

http://research.stlouisfed.org/fred2/series/PSAVERT/112

 

The last time the personal savings rate went above 4%, it immediately tanked and so did the stock market. However, this was 9/11/01 approx, the time of a catastrophic 10 sigma event.

 

The next time the personal savings rate started climbing again was mid 2002, the time of yet another stock market tanking.

 

In 2003, the personal savings rate increased again, but this time the market went up instead of down.

 

 

Bob Shtinker pointed out that

The only reason cause I can find was the enormous stimulus created by mortgage re-financings at approximately the same time.

 

http://www.prudentbear.com/Bear%20Case%20L...ry/mtgrefi.html

 

As another Stoolie here pointed out, the government added 47 billion in expected insurance claims from hurricane Ivan to the personal savings rate to fool everyone in to thinking that the savings rate was positive.

 

http://www.bea.doc.gov/bea/newsrel/pinewsrelease.htm

 

So, the real personal savings rate is negative. IMHO, this is not sustailable and there will be a rush to sell assets to get a hold of real cash to pay down debts and increase retirement savings.

 

Also, the housing bubble is starting to deflate, this will pressure Baby Boomers to actually start thinking about saving as they will not be able to rely on housing price profits to retire on. (not to mention the fact that they have gone back to the re-fi trough over and over again to pay down credit cards and buy new SUV's).

 

I think the personal savings rate will enjoy a steady climb back to 4% over the next 6 months. This will KILL consumer spending.

 

I would also expect the market to suffer from a liquidity hangover.This may have already started.

 

Just stirring the pot here on a Sunday...

 

Also, I want to point out that the dollar has gone down for 3 straight years.

 

http://stockcharts.com/def/servlet/SC.web?c=$USD,uu[m,a]daclyyay[df][pb50][vc60]

[iUb14!La12,26,9]&pref=G

 

At some point, wouldn't there be a bounce?

<{POST_SNAPBACK}>

[Guest]

Mr. Smith, new to the stock market, borrows $100 and purchases his first share of stock. He had wanted to buy a share of NICE at $400 per share, but does not have enough money. So instead he buys a share of CRAP at $100. Luckily, it doubles in only two years so he sells his CRAP at $200 and pays off his loan, leaving him with a $100 profit which makes him feel smart.

 

Then he learns that his broker has greatly lowered margin requirements, so using his $100 profit he goes ahead and buys that share of NICE he always wanted, although it, too, has doubled. He pays $800, borrowing $700 on margin, leaving him with a loan seven times the size of his original loan.

 

But he's not worried, because he's now a confident, experienced stock market investor and he's sure he'll make even more money on NICE. He doesn't understand what will happen to the price of NICE, and to him, as margin requirements are raised back to normal levels. But he feels that he's a winner, he's a player, and his future is bright.

 

I think Mr. Smith is in big trouble.

 

Mr. Jones, new to the real estate market, takes on a $100K mortgage and purchases his first house no-money-down. He had wanted to buy a really nice house for $400K, but could not qualify for the mortgage. So instead he buys a crappy house for $100K. Luckily, it doubles in only two years so he sells his his crappy house at $200K and pays off his mortgage, leaving him with a $100K profit which makes him feel smart.

 

Then he learns that Al Greenspan has greatly lowered mortgage rates, so using his $100K profit he goes ahead and buys that really nice house he always wanted, although it, too, has doubled. He pays $800K, leaving him with a $700K variable-rate mortgage seven times the size of his original mortgage.

 

But he's not worried, because he's now a confident, experienced real estate investor and he's sure he'll make even more money on the nice house. He doesn't understand what will happen to the price of the house, and to him, as mortgage rates are raised back to normal levels. But he feels that he's a winner, he's a player, and his future is bright.

 

I think Mr. Jones is in big trouble.