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Soaring dollar, global trade war and China currency crisis

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Telegraph: Soaring Trump dollar risks global trade war and China currency crisis, warns Posen

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Adam Posen, president of the Peterson Institute for International Economics, said investors have badly misjudged the confluence of forces at work in Washington.

They wrongly assume that fiscal stimulus will come to little under Donald Trump, and are equally wrong that Janet Yellen Fed's will remain dovish as the US nears full employment.

The Fed is going to be far more aggressive than people think. 

Apart from Full employment what other things will cause IR hike/dollar spike? 

Edited by Fairyland

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Listened to a french podcast the other day, economists said that 1%IR from the FED increase is reflected on the EUR bonds by +0.6% mechanically. 

The effect makes sense as there is competition on the risk pricing market. Anyone knows anything about that and the multiplier this may affect the GBP?

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There is no soaring $ dollar.It has already entered  a downturn for me and i expect the dollar index to fall to 96/97 pretty soon on the way down to 87/88 by summer.That is why gold is already going up,and might hit $1450 at the same timeThat will be the time to sell everything and be cash and the $ through treasuries (TLT) if they havent already shot up.Keep a few £ though to buy some popcorn and sit back and watch the biggest deflationary bust since WW2 kick in.The fed tightened too early after the great depression and they have made the same mistake again IMO.Tightening is crazy with the leverage on the financial system that is beyond anything ever seen.The size of the wealth destruction will shock most people i expect.

Interest rates,the dollar,and inflation will be going on for double figures in 5/7 years,but thats after the helicopter money kicks in a reflationary cycle (the first since late 70s) as the central banks panic at the scale of the deflation ahead,and fight to save the financial system as a massive amount of debt is defaulted.Interesting times.

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16 minutes ago, Freki said:

Listened to a french podcast the other day, economists said that 1%IR from the FED increase is reflected on the EUR bonds by +0.6% mechanically. 

The effect makes sense as there is competition on the risk pricing market. Anyone knows anything about that and the multiplier this may affect the GBP?

Don't know about multipliers but if the fed raises then the BoE faces a stark choice between protecting the currency or the banks.

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9 minutes ago, durhamborn said:

The fed tightened too early after the great depression and they have made the same mistake again

This is the most infamous mistake in the Fed's history, and yet it does seem as though they're doing exactly the same thing again. Any ideas about the qui bono?

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12 minutes ago, darkmarket said:

This is the most infamous mistake in the Fed's history, and yet it does seem as though they're doing exactly the same thing again. Any ideas about the qui bono?

Disagree. Surely, it's Yellen's failure to even partially renormalise US interest rates that's allowed Emerging Markets and non-bank borrowers alike to gorge themselves silly on cheap dollar-denominated debt?

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1 minute ago, zugzwang said:

Disagree. Surely, it's Yellen's failure to even partially renormalise US interest rates that's allowed Emerging Markets and non-bank borrowers alike to gorge themselves silly on cheap dollar-denominated debt?

Well this comes back to the distorted Keynesian stimulus, which prevented a natural recovery taking place which would have allowed rates to rise naturally in turn. The point is that now several indicators are flashing red for the US, growth is not high, employment is high but quality of employment is low.

There are other ways to deal with excessive lending for stock buybacks etc, and interest rates should have been allowed to rise already, but at the moment it looks like deliberate sabotage. I'm not against it, but I don't understand how it isn't a major policy break.

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33 minutes ago, darkmarket said:

This is the most infamous mistake in the Fed's history, and yet it does seem as though they're doing exactly the same thing again. Any ideas about the qui bono?

I think its almost a case of them following the tape and there is nobody left who can remember a deflationary bust.In the US auto loans are rolling over,construction is rolling over,mall traffic is falling off a cliff.They state in the minutes they are going to shrink their balance sheet.I see no chance of that.They have already made a huge mistake tightening.They will be printing on a massive scale,not tightening to try to save the financial system when this deflationary bust hits.I fully expect the wealth destruction to be huge before they make any difference.People think the FED can stop a deflationary bust quickly.Wrong.The FED thinks the deflation risk has gone,so they will be slow to see their mistake.Im expecting helicopter money after that though.US.Europe,Japan,UK,everywhere.Pushed to governments to spend.They will over do it like G William Miller did,but it will kick in the first reflationary cycle since the late 70s.That will see inflation and rates get close,or maybe over double figures in 5 years.

Im actually long gold and the gold miners since late last year as i think they should rally hard with a falling dollar.However il be looking to sell those in the summer and il be cash and US treasuries then.Gold will be hit hard with everything else during the bust.

After that,maybe even next year the gold miners will be stunning buys.Most people havent had to invest through a reflation cycle.PE ratios compress down as rates rise,even with high inflation.The metals will perform very strongly,perhaps even being to the 2020s what the tech stocks were to the late 90s.

 

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23 minutes ago, darkmarket said:

Well this comes back to the distorted Keynesian stimulus, which prevented a natural recovery taking place which would have allowed rates to rise naturally in turn. The point is that now several indicators are flashing red for the US, growth is not high, employment is high but quality of employment is low.

There are other ways to deal with excessive lending for stock buybacks etc, and interest rates should have been allowed to rise already, but at the moment it looks like deliberate sabotage. I'm not against it, but I don't understand how it isn't a major policy break.

I agree,those stock buybacks that many did with debt will prove a massive mistake going forward.I fully expect a lot of companies will go under during the deflationary bust because of it.It wont look so clever when earnings collapse having to service that debt.I dont think its deliberate sabotage to tighten,i just think its a massive error.Like you say those indicators really are flashing red,and due to the leverage on the system the coming recession will be turned into something much worse.A deflationary bust.The money printing to follow will stave off a depression and kick in a reflationary cycle.Thats how i see it.

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1 hour ago, durhamborn said:

There is no soaring $ dollar.It has already entered  a downturn for me and i expect the dollar index to fall to 96/97 pretty soon on the way down to 87/88 by summer.That is why gold is already going up,and might hit $1450 at the same timeThat will be the time to sell everything and be cash and the $ through treasuries (TLT) if they havent already shot up.Keep a few £ though to buy some popcorn and sit back and watch the biggest deflationary bust since WW2 kick in.The fed tightened too early after the great depression and they have made the same mistake again IMO.Tightening is crazy with the leverage on the financial system that is beyond anything ever seen.The size of the wealth destruction will shock most people i expect.

Interest rates,the dollar,and inflation will be going on for double figures in 5/7 years,but thats after the helicopter money kicks in a reflationary cycle (the first since late 70s) as the central banks panic at the scale of the deflation ahead,and fight to save the financial system as a massive amount of debt is defaulted.Interesting times.

What has it been since the 2009 money printing, if it not a reflationary cycle?

That has increased leverage in the system, so if they do even more printing, won't that further increase leverage in the system, so when do you think it would be a good time to tighten? 

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27 minutes ago, durhamborn said:

I think its almost a case of them following the tape and there is nobody left who can remember a deflationary bust.In the US auto loans are rolling over,construction is rolling over,mall traffic is falling off a cliff.They state in the minutes they are going to shrink their balance sheet.I see no chance of that.They have already made a huge mistake tightening.They will be printing on a massive scale,not tightening to try to save the financial system when this deflationary bust hits.I fully expect the wealth destruction to be huge before they make any difference.People think the FED can stop a deflationary bust quickly.Wrong.The FED thinks the deflation risk has gone,so they will be slow to see their mistake.Im expecting helicopter money after that though.US.Europe,Japan,UK,everywhere.Pushed to governments to spend.They will over do it like G William Miller did,but it will kick in the first reflationary cycle since the late 70s.That will see inflation and rates get close,or maybe over double figures in 5 years.

Im actually long gold and the gold miners since late last year as i think they should rally hard with a falling dollar.However il be looking to sell those in the summer and il be cash and US treasuries then.Gold will be hit hard with everything else during the bust.

After that,maybe even next year the gold miners will be stunning buys.Most people havent had to invest through a reflation cycle.PE ratios compress down as rates rise,even with high inflation.The metals will perform very strongly,perhaps even being to the 2020s what the tech stocks were to the late 90s.

 

Do you mean summer 2017?

I can't see a bust, unless there is a currency crisis from somewhere. There is too much loose money and too much availability of debt. Its businesses as usual qe to infinity. And the gold isn't owned by the bankers its on loan.

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34 minutes ago, durhamborn said:

I dont think its deliberate sabotage to tighten,i just think its a massive error.Like you say those indicators really are flashing red,and due to the leverage on the system the coming recession will be turned into something much worse.A deflationary bust.The money printing to follow will stave off a depression and kick in a reflationary cycle.Thats how i see it.

Certainly a high possibility, and not one that's being discussed by any of the relevant decision-makers. I'd be less sure of the policy response. Despite your prediction being in line with responses so far, I'm not sure that confidence in government borrowing won't temper another round of stimulus. At that point you're really dealing with existential threats to the order though.

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Its all nuts. Who knows what will happen.

Currencies are volatile and reflect loads of thing.

At the moment, the Us is runninga large trade deficit with China. Its CHina's problem - they are happy keeping itspopualtion busy whilst taking a massie US position.

What well happen in China? God knows. There's one or two reveloutions baked into that system. I doubt any large Chinese compnay is profiable. All ooks a giant Ponozi to me.

US? Itll carry on raising rates slowly. I dont think the US is tightening too quick; its tightening too slow. About 18 months behind the curve.

The stats showing job tightening do not reflect half the problem. About 20% of the over 40+ appear to be on some form of synto-smack disabiliy setup.

 

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29 minutes ago, Democorruptcy said:

What has it been since the 2009 money printing, if it not a reflationary cycle?

That has increased leverage in the system, so if they do even more printing, won't that further increase leverage in the system, so when do you think it would be a good time to tighten? 

Not reflationary so far,only dealing with the financial system falling over IMO.A true reflationary cycle sees inflation and interest rates rising and velocity increase.Base money has shot up yes ,but not velocity..A good time to tighten will be 2019,after the helicopter money,but i figure they will panic and print too much and be way behind the curve.Investing during a delflation cycle like we have had since 1982/3 is easy because markets go to new highs after falls.Reflation cycles are much different because you get lower highs.PE ratios contract down as interest rates rise.If we see a 50%+ fall in corporate profits plus a contraction in PE ratios to 8s etc you could argue for 70% falls in equity markets.

Before all that though i fully expect this deflationary crunch to be the biggest since WW2.Its the central banks action to deal with it that will signal if its a full on reflation cycle coming after.Im expecting it is.

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44 minutes ago, GreenDevil said:

Do you mean summer 2017?

I can't see a bust, unless there is a currency crisis from somewhere. There is too much loose money and too much availability of debt. Its businesses as usual qe to infinity. And the gold isn't owned by the bankers its on loan.

Yes this summer.Thats the point,there isnt too much loose money,there isnt enough relative to the massive leverage on the system,the FED has been tightening as the deflationary noose hangs over the global financial system.Im not sure how the crash will start,but im pretty convinced its close and that the massive action central banks take really will kick in a reflation cycle like the late 70s.A lot of the debt will go during the financial bust and the rest during the reflation cycle.Younger people will be big winners as long as they arent locked into massive debts already.Assets will crash and their labour's value will increase with the inflation relative to assets.The house is my pension/equity release/BTL brigade are in for a huge shock.

Not many alive can remember a deflationary bust,and not many working can remember a reflation cycle.They are all about to get an education for me.

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1 hour ago, durhamborn said:

Not reflationary so far,only dealing with the financial system falling over IMO.A true reflationary cycle sees inflation and interest rates rising and velocity increase.Base money has shot up yes ,but not velocity..A good time to tighten will be 2019,after the helicopter money,but i figure they will panic and print too much and be way behind the curve.Investing during a delflation cycle like we have had since 1982/3 is easy because markets go to new highs after falls.Reflation cycles are much different because you get lower highs.PE ratios contract down as interest rates rise.If we see a 50%+ fall in corporate profits plus a contraction in PE ratios to 8s etc you could argue for 70% falls in equity markets.

Before all that though i fully expect this deflationary crunch to be the biggest since WW2.Its the central banks action to deal with it that will signal if its a full on reflation cycle coming after.Im expecting it is.

Reminds me of this old thread when what's his/her name switched to bear status

Re your answer to GreenDevil

"Younger people will be big winners as long as they arent locked into massive debts already. Assets will crash and their labour's value will increase".

So the little people are supposed to win and the 1% lose their grip on our democorruptcy! It will need a revolution.

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2 hours ago, Democorruptcy said:

 

 

"Younger people will be big winners as long as they arent locked into massive debts already. Assets will crash and their labour's value will increase".

So the little people are supposed to win and the 1% lose their grip on our democorruptcy! It will need a revolution.

The 1% have already lost control i think.There is $225 trillion in debt.China has more than quadrupled its debt in 8 years.The US debt to GDP has doubled in the same time.Notional value of derivatives are at a quadrillion US$.Leverage is at higher levels than any time in human history.Its only a matter of time before it crosses a line and something triggers a default cycle and huge financial crash.I think US treasury bonds will be at their highs when they trigger helicopter money.Other assets will be down by eye watering amounts.Nothing is ever certain,but for my own personal position im keeping things as if we are getting a huge deflationary crash,then helicopter money and a full on reflationary cycle to follow.

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24 minutes ago, durhamborn said:

The 1% have already lost control i think.There is $225 trillion in debt.China has more than quadrupled its debt in 8 years.The US debt to GDP has doubled in the same time.Notional value of derivatives are at a quadrillion US$.Leverage is at higher levels than any time in human history.Its only a matter of time before it crosses a line and something triggers a default cycle and huge financial crash.I think US treasury bonds will be at their highs when they trigger helicopter money.Other assets will be down by eye watering amounts.Nothing is ever certain,but for my own personal position im keeping things as if we are getting a huge deflationary crash,then helicopter money and a full on reflationary cycle to follow.

The wealthy leverage up their assets, so benefit from cheap debt/QE so cannot have lost control yet. The little people are supposed to think they are better off because of it, while inequality increases. Good luck with your position, don't forget to post the main sell/buy days!

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Very topical:

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“I do like a low-interest rate policy, I must be honest with you,” Mr. Trump said at the White House, when asked about Ms. Yellen. “ I think our dollar is getting too strong, and partially that’s my fault because people have confidence in me. But that’s hurting—that will hurt ultimately,” he added. “Look, there’s some very good things about a strong dollar, but usually speaking the best thing about it is that it sounds good.”

 

Quote

And just like that Trump is now in war with the tightening Fed.

http://www.zerohedge.com/news/2017-04-12/market-turmoils-dollar-crashes-after-trump-tells-wsj-dollar-getting-too-strong

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11 hours ago, durhamborn said:

There is no soaring $ dollar.It has already entered  a downturn for me and i expect the dollar index to fall to 96/97 pretty soon on the way down to 87/88 by summer.

...

That will be the time to sell everything and be cash and the $ through treasuries (TLT) if they havent already shot up.

...

Interest rates,the dollar,and inflation will be going on for double figures in 5/7 years,

...

Interesting times.

Interesting post.

I have a question [OK several] on the selective chain of events I extracted from your post:

Why TLT [20+ year US treasuries] ? Maybe I misunderstood but I took your sentence to mean "be cash" by buying TLT?

I am guessing the aim of many here is: buy a "more reasonable" priced [UK] house, using cash held, at the ealiest opportunity. To achieve that you need access to the cash in GBP at the time you want to buy without having to sell something with a hugely volatile and unpredictable price. USD-GBP moves by x0% a year and price of 20 year bonds likewise ... so compound the two.

From your chain of events would that be in 3-4 years time? [Assuming you don't want to wait for the long slow rest of crash.]

In that case would you not be better [less volatility] with GBP gov bonds with a maturity around 5 years?

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2 minutes ago, ebull said:

Interesting post.

I have a question [OK several] on the selective chain of events I extracted from your post:

Why TLT [20+ year US treasuries] ? Maybe I misunderstood but I took your sentence to mean "be cash" by buying TLT?

I am guessing the aim of many here is: buy a "more reasonable" priced [UK] house, using cash held, at the ealiest opportunity. To achieve that you need access to the cash in GBP at the time you want to buy without having to sell something with a hugely volatile and unpredictable price. USD-GBP moves by x0% a year and price of 20 year bonds likewise ... so compound the two.

From your chain of events would that be in 3-4 years time? [Assuming you don't want to wait for the long slow rest of crash.]

In that case would you not be better [less volatility] with GBP gov bonds with a maturity around 5 years?

I am expecting the £ to recover against the $ before the bust hits.Maybe $1.35/40.Im not in TLT at the moment because im long the gold miners as i expect a falling dollar will see gold rally into the summer and push the miners a lot higher.Il probably sell them then whatever has happened and move into cash, sterling,the rest in dollars by holding and buying TLT.If i was looking to buy a house in sterling id still be buying TLT anyway because when/if this bust hits the $ and treasuries will fly.

Cycles are hard to time,but rough im thinking gold miners until late spring/summer,then TLT and cash,then if there is a crash start buying inflation assets after they have crashed.The reason i prefer TLT is because if the crash does hit the $ will fly again as will treasuries so for a sterling investor you gain twice.Of course if the call is wrong you lose out twice.I fully understand someone who is saving for a house not wanting the currency risk,so GBP gilts would be an option.Interesting times.

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I'm under the impression that as interest rates rise wealth will be transferred into Notes / Bonds.

As for Gold, I'm waiting for the pullback position to buy again. It's making the climb towards its down trend resistance line. Looking at AUD futures are rising. Sterling is suffering from excess liquidity, that's the price when supply outstrips demand.

When the central bank (BoE) raises interest rates, then the tipping point should be a base rate of 1.25% approx. as mortgage rates will be pushed to 4% approx. 

 

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12 hours ago, maverick73 said:

I'm under the impression that as interest rates rise wealth will be transferred into Notes / Bonds.

As for Gold, I'm waiting for the pullback position to buy again. It's making the climb towards its down trend resistance line. Looking at AUD futures are rising. Sterling is suffering from excess liquidity, that's the price when supply outstrips demand.

When the central bank (BoE) raises interest rates, then the tipping point should be a base rate of 1.25% approx. as mortgage rates will be pushed to 4% approx. 

 

I think gold might go to $1450+ as the $ falls before summer, and the miners (GDX) up to $37+,then down to maybe -$700 in the deflationary bust with everything else (apart from US tresuries and the $ then).Gold after the bust, along with the miners will probably be the buy of the century if we do get a real reflation cycle.I think houses will crash with no rate increases.The banks are going under again,or at the least liquidity will dry up forcing down prices.We are going to see huge debt default across the world and with it wealth destruction on a scale not seen since the great depression.

This is 1937 all over again,the FED going tight will be seen in a few years as the biggest policy mistake in 80 years.The stress on the financial system is huge.Velocity is collapsing and the consumer is rolling over as are loans,mortgages,construction etc etc.The FED is tightening into a recession.Who knows where things will start.China,EMs,Europe?.

The key point for me is at what point the central banks go helicopter money.I think TLT at $155 might be the point they print like crazy.

Of course nothing might happen,the world might muddle through for years on end,but anyone who has studied cycles know every signal is flashing red for a huge deflationary event.

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4 minutes ago, durhamborn said:

I think gold might go to $1450+ as the $ falls before summer, and the miners (GDX) up to $37+,then down to maybe -$700 in the deflationary bust with everything else (apart from US tresuries and the $ then).Gold after the bust, along with the miners will probably be the buy of the century if we do get a real reflation cycle.I think houses will crash with no rate increases.The banks are going under again,or at the least liquidity will dry up forcing down prices.We are going to see huge debt default across the world and with it wealth destruction on a scale not seen since the great depression.

This is 1937 all over again,the FED going tight will be seen in a few years as the biggest policy mistake in 80 years.The stress on the financial system is huge.Velocity is collapsing and the consumer is rolling over as are loans,mortgages,construction etc etc.The FED is tightening into a recession.Who knows where things will start.China,EMs,Europe?.

The key point for me is at what point the central banks go helicopter money.I think TLT at $155 might be the point they print like crazy.

Of course nothing might happen,the world might muddle through for years on end,but anyone who has studied cycles know every signal is flashing red for a huge deflationary event.

^

Can't fault any of this. Keynesian prescriptions for recovery have failed just as they did in the 1970s, and for the same reason: it's impossible to prevent speculators from using oil as a liquidity substitute and/or temporary store of wealth and hence keep inflation out of energy and commodities. Since the more we spend on essentials the less we have left to spend on everything else, the transmission of energy spikes through an economy serves to fatally undermine the reflationary process. As i see it, the only practical work around to the Keynesian Fallacy is to flush energy and commodity prices to their absolute floor via a great depression and start afresh from there. Re-nationalising the utility companies would also help.

Steve Keen takes a look at the BIS debt numbers and answers the question 'Can We Avoid Another Financial Crisis?' in his new book with a resounding no. This pig is going down!

 

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