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Denniger On Dow And Currency Movements

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Yesterday the dollar advanced about a percent and a half. The stock market fell by more than 100 DOW points.

Today, the dollar declines by (thus far) 1.32%. The stock market advances by more than 100 DOW points.

Simply put, you're not investing. You're gambling on the movement of the currency, which is a direct function of the actions of The Fed and Congress.

A stronger dollar means your imports get cheaper and your exports more expensive. Your money goes further to buy things you want to import, such as energy.

A weaker dollar means imports get more expensive and exports cheaper. Your labor becomes devalued, since you must buy energy in order to survive, and it is in everything you buy - including most-especially food. We import some 70% of our oil, as just one example.

A weaker currency means your real buying power is diminished. Your prior labor's surplus is effectively stolen. Prices of stocks may appear to rise, but to someone who is investing in Euros they haven't gone up at all - the "increase" in "wealth" alleged is in fact an illusion - and when paraded in front of the public as a reason to "go spend more", it is a fraud.

No nation has ever managed to devalue its currency as a means of achieving or reclaiming prosperity. In point of fact all such attempts have ended in either abject failure or worse, monetary system collapse as capital flight ultimately ensues.

The usual reaction to capital flight, rather than addressing the underlying rot that causes it, is to try to slap capital controls on the firms who have capital invested in the nation. This always backfires as once a nation engages in this nobody in their right mind will invest in a nation where it could become "trapped" in the future. So while you can "trap" the capital that you already have, doing so simply means you'll never get any more.

CNBS is claiming that the dollar is weakening "a bit." 1.3% moves in a day is not "a bit." The bond market is not impressed, driving /ZN (10year Treasury Futures) sharply higher since the dollar began its dive a couple of hours ago.

The instability these currency moves are creating will eventually cause a market collapse. The Dollar/Yen cross is today trading under 81 - a near-historic low - and continues on the trendline we have seen since June, when Bernanke began his threats of devaluation.

These moves trash Japanese profitability. Their Ministry of Finance and Central Bank have threatened to "prevent" disorderly strengthening - but their "intervention" bought them only 2 weeks of respite from an inexorable trend and amounted to flushing billions down the toilet, as the currency simply re-accelerated its declines until it once-again intercepted the trend that had been running for six months. In other words, they were shown to be impotent by the market, which immediately called the bluff and turned them into liars - exactly as has happened in every intervention they ever conducted over the last two decades.

CNBS is once again, this morning, hauling out every useful idiot they can find to pump stocks. This after bringing on David Tepper, who immediately got Tattoed with his holdings in the financial sector after his last pump. One wonders if these guys are unloading into the pops they create with their public touting, thereby attempting to stick you, once again, with the inevitable losses.

This time it was Bill Miller, who, I might remind you, was long up to his neck in stocks in 2007 and 2008 and likewise was "pumping" stocks then - he got destroyed in the crash. Why doesn't anyone ever point out how much Countrywide Financial he held - all the way down the toilet bowl?

Everyone is talking about how low rates make stocks "cheap."

Does anyone understand how stupid this is? Think back to 2003.

Money was cheap then too. Greenspan told you to buy houses. The price of houses soared due to the cheap money.

But as soon as the cheap money wore off, the ability to afford that house disappeared.

Cheap money can wear off two ways: Interest rates can rise or the currency can depreciate.

Oh wait - they're deprecating the currency, aren't they?

You want to know what forced the serial-refinancing frauds on the market? Here's the reason for it:

Now let's talk about this a minute. The S&P 500 went from 800 in late 2002 to 1576 in 2007. But the dollar went from 121 to 80 - a devaluation of 33%.

The loose lending alone wasn't enough - and that dollar depreciation served to hide real wage declines, that were in fact much worse than published. In "inflation-adjusted" dollars, for all but the super-rich (the top 5%) real wages went down during the 2000 decade.

When adjusted for the depreciation of the currency real wages decreased by about 40% and when adjusted for depreciation of the currency the S&P 500 only reached about 1000 - NOT the previous 2000 highs!

If you want to know why we had a credit bubble, that's the reason. It's what was used to prop up the economy in the 2000s - false prosperity predicated on a rank lie - rising equity and house prices that were not affordable through the purchasing power of economic surplus - that is, what you had left from your earnings after you paid your necessary living expenses.

Ever-looser lending standards "permitted" driving higher equity and house prices through the expansion of credit that could not be paid except through serial refinancing on the back of alleged increases in "value."

Ok, so where are we now?

In deep **** far worse than we were in 2007 when I started writing The Market Ticker.


Because the credit bubble has not come out.

That is, all that debt is still there, as I have repeatedly shown:

There has been very little contraction in overall debt.

There has also been no appreciable "reset" higher in the currency value (dollar.)

This is exactly what happened in the 1930s. The bad debt was not forced out of the system. It instead was allowed to fester (despite what you were told), and not even a forced devaluation of the currency pulled the nation out of Depression. We in fact had a Depression inside the Depression (1937-38) in terms of GDP although you're not taught that in school. Japan has likewise failed to exit their deflation and regain their stock market's highs despite 20 years of attempting to manipulate their currency and markets for the same reason - they never forced the bad debt out of the system.

The only reason we got out of the Depression in the 40s was that we literally destroyed the productive capacity of 3/4 of the world's industrial economies and killed millions of workers competing for jobs!

In both cases the government and banksters decided to protect those who would be instantly bankrupted by the realization of actual value against their loan books - the big banks and their monied interests.

In both cases the claim was made that the impact on "Main Street" would be "catastrophic" if such recognition were to occur, and thus it "must not happen."

In both cases the economy failed to truly recover as the excess debt remained as a millstone around the neck of the economic and monetary system and since that excess credit is ten times or more the currency base there is no ability to "inflate it away" without causing an instantaneous collapse of the currency.

Unless you're prepared for a global nuclear war the path we are on cannot lead to a prosperous intermediate and long-term outcome. It is mathematically impossible and Ben Bernanke knows it.

Were he to face me in a debate of 30 minutes or longer I could, in fact, force him to admit it or sulk away and concede by silence, using nothing more than publicly available data and a basic charting program such as Excel. That debate will never happen and you will never see Congress do it (even though some of them know it too) because the day it happens confidence disappears and unless that realization comes with a concise and cogent plan to address the problem all markets tied to the United States instantaneously collapse.


We cannot further expand credit, as we're still up against the wall. We never defaulted and got rid of the bad debt - our government and banks hid it instead.

We are not expanding real wages and therefore we are not expanding economic surplus with which to expand consumption and pay down debt balances.

The currency is depreciating due to the actions of The Fed and Government so in purchasing-power-adjusted terms buying power is going down, not up, and prices for energy and commodities will continue to rise.

We cannot devalue sufficiently to fix the problem as the bad debt is some 10x or more the currency in the system. Printing of that amount would take the /DX to roughly 10 and destroy the currency along with everyone's standard of living. That would not exacerbate the Depression, it would lead to immediate privation for more than 200 million Americans and result in an instantaneous "hot" (that is, shooting-style, not political-style) revolution.


In short, we're in worse trouble now than we were in 2007 and yet all the monkeys on CNBS along with the rest of the media are telling you to go out and buy stocks?!

Incidentally, the all-time low in the dollar is that 70.69 print. At the rate we're going we will decidedly violate that, crude oil will skyrocket and purchasing power will collapse. Unable to expand debt the consumer will experience a "foldback" some time in the next 12-24 months and when they do, it will be "lights out" for tax revenues and the general economy.

All the claims that we're "recovering" are lies. None of this is difficult to verify or subject to interpretation - it's all right here in the charts and data in the public domain - but nobody wants to talk about it.

If you're not listening you would be wise to start paying attention to the data and the facts because just as it did in 2007 you will be led straight off the cliff this time as well, and this time they have already spent their rate cuts, legislative games to hide debt, and currency devaluation tricks.

That is, this time they're flat-out of ways to stop it.

Charts at the link.

An interesting piece, volatility is certainly in the markets at the minute. Does that usually end in collapse? Have there been periods of market volatility when we've had economic stability?

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Interesting post.

What is clear is that the markets and the economy and investment are increasingly divorced from one another.

Stocks move based on the currency wars, likelihood of QA, automated high frequency trading, what the investment banks are selling to each other.

Fundamentals and prospects of the companies don't mean shit compared to all of these games. Better off staying out, or going to the casino if you genuinely want to gamble.

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The dollar fell across the board on Wednesday amid signs the Federal Reserve will pump $500billion into the economy over the next six months.

The Fed’s Beige Book survey on regional business on Wednesday said the US economy expanded at a “modest pace” with little sign of acceleration last month, fueling speculation that central bankers could take further measures to support growth.

Jack Ablin, chief investment officer at Chicago-based Harris Private Bank told Bloomberg: “The Beige Book reiterates the call for quantitative easing. The economy is growing, just not accelerating. It remains to be seen what ultimately the Fed buying of bonds will do.”

A report by consulting firm Medley Global Advisors suggested the Fed could start introducing the stimulus as soon as next month, spending $100bn a month on bond purchases. It is understood the Fed has an open-ended commitment to do more over the next 18 months.

The dollar plummeted to its lowest level against the euro since July, and a 15-year low against the yen. The euro was up 1.06pc at $1.395 and the dollar ended at 81.05 yen.

Camilla Sutton, Scotia Capital currency strategist, told Reuters: “We think the dollar will end the year weaker, but for now, we're probably going to be in a period of more subdued trading until we get a firmer idea of where policymakers are headed.”

The promise of free money and stocks go up.

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Fundamentally I believe Denninger is right about this. Most of the measures that have been taken are just, to my mind, doing nothing more than "kicking the can down the road"; they don't address the fundamental problem of how we are going to get rid of the debt and who will take the hit. In my view most of the banks are insolvent, some very deeply so, if they used anything like a reasonable basis to value their assets. I think the only realistic way of getting out of this is either default or inflation but, as Denninger says, inflation would probably cause currency collapse anyway. Default would effectively be bankruptcy for the banks and that may be something that is unthinkable now but may be less so in a couple of years time. I get the feeling that we're walking on a knife edge.

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