Cash (the Dollar) Is King

[carseller]

The US administration is deliberately devaluing the dollar in order to mitigate unprecedented indebtedness to foreign lenders. The devaluation won't help the little people though, it will make life more expensive for the average punter because all those imports will suddenly become more expensive, particularly with some oil producers switching to Euros and making people cut back on their spending thus creating a deflation of the kind not seen since the great depression.

The deflation will be at the expense of countries like China who've been heavily dependent on exports to the US and who hold massive dollar reserves. This will make the Chinese seek ways of exchanging their dollar holdings for a stake in the US banks' mortgaged assets.

I believe this is what the result of the so called bailout will be - Chinese investors will exchange a lot of their dollar reserves for assets and anything else mortgaged by US banks that can't be paid. It's like being reposessed, only the people reposessing you are Chinese banks. Once news of this get out, there will be massive civil unrest - part of the reason that US troops are being brought back home.

I still think the gold is a good long term way of storing purchasing power and if cash really does become king again, then it won't matter if the price of gold has fallen because the money I can get for it will have more buying power.

here is a good article: http://www.politicalgateway.com/news/read/140497

I don't think that this time will be different. Commodities slumped during the great depression. Gold went down to 17 dollars. The problem with deflation on a fiat currency is a psychological one, as it takes optimism for people to generate new money. It's slavery. Now house prices are excessive, and a lot of people have become slaves.

I think the bottom in the dollar sentiment was when music artists, and black market money changers did not want the dollar anymore, and Bernanke was making statements about the dollar being to cheap. I think it was around that time Warren Buffet sold all his oil shares. (July) and closed his short positions on the dollar. And guys like George Soros shorted oil from 127 dollars, and went long gold. Why would buffet sell his oil shares in the US largest producer, and go look at oil sands in Canada? Probably he wanted to do his homework in time for the bust, and the bargain hunting.

Edited October 4, 2008 by carseller

[carseller]

This is the first day with big dollar injections from the rescue package. Gold straight up!

[punter]

looks to me the pound is heading to 1.5 ish against the dollar, the pound is in big trouble

[carseller]

I think the dollar is the only thing that is going to hold together with gold, even gold could take a hit to the 4-500 dollar range.

If the dow jones is really going to fall like in 1929, and gold to dow will hit 2:1 as in 1932, then that means gold at around 1600 dollars and the dow at 3200, 3200 is the level that will mark a technical bottom. Compared to lows after 29 ,and in 82, right now the DOW is at a level that could trigger a technical rally soon. I almost bought at friday. I think it's very, very close to a market rally now.

After 1929, companies that produced gold, miners hold up very well. Now that we are on a paper standard, it's actually utilities, and stocks with a good cash flow that are holding up well. Stocks like Coca Cola, Philip Morris, and other solid companies are very cheap right now.

I fear the Pound will devalue sharply, and that the Euro can crash, somewhere after it it hit 0,7-0,8 the dollar. There is to much tension between germany, and countries as spain and italy (they are more banana republics, and need a weak currency with high inflation). The Euro was a bad idea to start with. Germany is a country that is capable of having a strong currency, as are the swiss. Some of the EU countries just dont have the right mentality

for a strong currency.

Edited October 11, 2008 by carseller

[Guest Winnie]

I am also looking at the Aussie Dollar as an alternative to sterling. It has been teetering near 2.6-2.7 and that is almost the all time high - ie sterling at its strongest versus AUD.

I believe that with Aussie banks better insulated and regulated, and the commodities dip priced in, we may see AUD do far better than sterling over the next year. Non-traditional perhaps, but time to buy AUD?

[mattyboy1973]

I think the dollar is the only thing that is going to hold together with gold, even gold could take a hit to the 4-500 dollar range.

If the dow jones is really going to fall like in 1929, and gold to dow will hit 2:1 as in 1932, then that means gold at around 1600 dollars and the dow at 3200, 3200 is the level that will mark a technical bottom. Compared to lows after 29 ,and in 82, right now the DOW is at a level that could trigger a technical rally soon. I almost bought at friday. I think it's very, very close to a market rally now.

I fear the Pound will devalue sharply, and that the Euro can crash, somewhere after it it hit 0,7-0,8 against the dollar. There is to much tension between germany, and countries as spain and italy (they are more banana republics, and need a weak currency with high inflation). The Euro was a bad idea to start with. Germany is a country that is capable of having a strong currency, as are the swiss. Some of the EU countries just dont have the right mentality

for a strong currency.

humour me - why is USD where it is now and what will keep it strong? And how does halving in value (gold - to $400??) constitute holding it together??

[mattyboy1973]

I am also looking at the Aussie Dollar as an alternative to sterling. It has been teetering near 2.6-2.7 and that is almost the all time high - ie sterling at its strongest versus AUD.

I believe that with Aussie banks better insulated and regulated, and the commodities dip priced in, we may see AUD do far better than sterling over the next year. Non-traditional perhaps, but time to buy AUD?

It was over 3 about 5 years ago - I was down here watching the cricket and remember it well. Its back to its recent average(ish) sort of GBP/AUD figure now (last 5 years or so). I have since moved down here and my cash is in AUD so I hope you're right to some extent. If you look over the last year or so you'll see real GBP/AUD spikes at moments of financial stress (risk aversion/carry trade unwinding etc) - so I reckon we will snap back a bit from this one sooner rather than later - unless it all goes to sh!t. Don't know tho with commodities etc AUD may have lost its gloss for a while but then ask yourself - what is so good about GBP?

[StoppedClock]

I am also looking at the Aussie Dollar as an alternative to sterling. It has been teetering near 2.6-2.7 and that is almost the all time high - ie sterling at its strongest versus AUD.

I believe that with Aussie banks better insulated and regulated, and the commodities dip priced in, we may see AUD do far better than sterling over the next year. Non-traditional perhaps, but time to buy AUD?

I am a massive fan of Oz and believe they do a lot of things right but long term they have two very big structural issues, firstly even during the commodities boom they still had a trade deficit, this can only get worse from here on in and their negative gearing of property is unsustainable and will eventually lead to either civil unrest or knee jerk policies which will cost the country dearly.

[carseller]

I am also looking at the Aussie Dollar as an alternative to sterling. It has been teetering near 2.6-2.7 and that is almost the all time high - ie sterling at its strongest versus AUD.

I believe that with Aussie banks better insulated and regulated, and the commodities dip priced in, we may see AUD do far better than sterling over the next year. Non-traditional perhaps, but time to buy AUD?

I disagree. I think it's going to be hit worse, but both are flawed currencies. Remember, they will lower interest rates until they can't lower any more, together with a huge slump in commodity prices in 2009. I think it's exellent to sell the AUD and buy the Yen for the longer term. I never trade short term using thin margins.

[carseller]

I am a massive fan of Oz and believe they do a lot of things right but long term they have two very big structural issues, firstly even during the commodities boom they still had a trade deficit, this can only get worse from here on in and their negative gearing of property is unsustainable and will eventually lead to either civil unrest or knee jerk policies which will cost the country dearly.

This is what you get when you have politicians and a central bank that's not independent. They will have perhaps get an inflation problem. When commodities boom ended in the past, it was not rare for some resource countries to get hyperinflation, when the countries printed money directly to cover the government spending, this could perhaps happen in Brazil. But no matter, it's not a good currency to hold, as they will drive rates down even if it create inflation. The time to hold the AUD dollar is if for some reason the trend to deflation turn around, and money starts flowing into commodities again, but that is the case, then why not just own commodities, or the Australian stock market at that time and dollar and yen until it turns around?

The currencies to hold, are those that the low rates does not cause inflation, such as YEN. The unwinding carry trade is a bonus, it's in the middle of happening. When it's done, the yen will be up around 50 %

The YEN is still low compared to the AUD, and still they have paid huge interest on deposits in Australia, when the Japanese have had 0 %. With no significant inflation in the economy. The end result is that the AUD will go down to a level against the Yen not seen since 2000, perhaps further.

I am a bit split, on how this will play out. We are in for a 73-74 bear market experience, where the commodity boom get's "on" again, and if we are in that environment, the bottom is very close.

The other alternative is the deflationary 29 like crash. In history it tends to alternate between inflationary and deflationary crashes. And the last was inflationary in the seventies. Or in the era leading up to the twenties. This is likely a deflationary crash, where the dollar should be good, and the market will correct until the dow is in the 3000 range.

After the 73-74 bear market model, we are already at around the bottom.

Edited October 11, 2008 by carseller

[mattyboy1973]

I am a massive fan of Oz and believe they do a lot of things right but long term they have two very big structural issues, firstly even during the commodities boom they still had a trade deficit, this can only get worse from here on in and their negative gearing of property is unsustainable and will eventually lead to either civil unrest or knee jerk policies which will cost the country dearly.

Can't disagree with the first bit and I agree, negative gearing is a pernicious tax really hard to believe they still allow it here (and in NZ). Having said that I just can't see the Aussies getting off their arses to get a bit of civil unrest going, but I wish they would!

[carseller]

I recommend this article: http://www.marketoracle.co.uk/Article3547.html

The increase in long term yields Soros Warned about, happened yesterday ! The US FED is probably at the tipping point for how low short term rates can go for now.

It shows where we are in the cycle for the dollar, and other paper currencies, and why we are more in a 29 like crash, than 73-74.

Then the interest rates had been heading upwards for 25 years already. Now interest rates have been moving as before the 29 crash. Actually we are somewhere around WW2, when comparing directly, using only interest rates as the guide.

To learn more about the carry trade, and other macro stuff read the articles here: http://www.marketoracle.co.uk/UserInfo-Paul_Lamont.html

Edited October 11, 2008 by carseller

[Errol]

Dollar will implode in good time. Down to 68 and the 52 on the dollar index.

[carseller]

I think this is the bottom for stocks. I think it will go up from today, to well into next year. Friday, many of my favorite stocks were breaking down completely, and before I knew it, there was a rush of buyers. I went with a leveraged S&P 500 fund. That is the best way to play these moves that will come now.

Not the final bottom, but the markets are ahead of the real economy, and I think the markets will go up from here, and maybe get a reality check again some time next year. I think it will move 20 % up or more from here.

Edited October 13, 2008 by carseller

[carseller]

Dollar will implode in good time. Down to 68 and the 52 on the dollar index.

Maybe you are right. But remember all the US companies, Apple, Google, microsoft ,Coca Cola, the list goes on with US companies making money abroad, all these things keep the dollar from collapsing. Likely the dollar will weaken in the coming bear market rally I envision. But it should regain strength.

[carseller]

11 % in one day. That is something. This is the trigger for a powerful rally that will last for quite some time.

[athe]

If it goes that low l might start putting it in my tea instead of milk. Like a sort of high energy carb drink.

However you never know, so l will gladly splinter my @rse on this one.

If I remember rightly (and I may not) there more energy in a pizza than a gallon of petrol. May be better to stick with the milk!!

[narco]

11 % in one day. That is something. This is the trigger for a powerful rally that will last for quite some time.

Yeah maybe until around Spring 09 by the looks of it.

[carseller]

Yeah maybe until around Spring 09 by the looks of it.

I think the lowest the dow jones can drop is to 3000. Lower is impossible, unless it goes below the 1932 low adjusted for inflation.

My impression have been for some time that this is a bottom, not a suckers rally "IF", credit start floating, oil start moving again, and the depression, turn out to be a papered over, rather mild, inflationary recession. If that don't happen, and credit remains tight and the deflation trend go on, then the markets will move lower after the rally in your graph.

[narco]

I think the lowest the dow jones can drop is to 3000.

3000 is roughly where the DOW / Gold cross should take place but I wouldn't rule out anything higher considering some of the stupidity we've been seeing.

[cht]

Interesting about the increase in bond yields. There was an article in the economist a couple of weeks back that the fall in equities meant that the average yield on FTSE was lower than bonds, a clear buy signal. This maybe one of the factors behind the suckers rally.

[carseller]

3000 is roughly where the DOW / Gold cross should take place but I wouldn't rule out anything higher considering some of the stupidity we've been seeing.

The dow now is at around an historical average, neighter cheap or expensive, however in this low interest environment it's probably still on the cheap side.

What will happen now is that the interbank rates will come down sharply, and that is very bullish for the stock market.

Edited October 14, 2008 by carseller

[JOliver]

I tried to post it as a new topic but guess it's not been approved so will post it here as seem appropriate for original thread title.

Mrs. JOliver who’s working for smaller building society just rang that they limit cash withdrawals to £1000/week from November.

The rest is my thoughts, feel free to shoot me dead.

It can not just one BS decision as you’d simply transfer all funds to another bank and cash it. So I presume it’s a resolution from the top.

I was fully in a deflation camp as it seemed logical but it seems that they are going to issue as much money as they want so a gap between cash and electronic money value will appear.

Memories of the late Soviet Union come back where cash was valued some 20%-30% more than electronic money as Gvt was paying left right and centre with money they did not have or even planned to have. Remember that question those 2 clown did not bother answering “where the money are coming from” – well it’s clear now they come from thing air.

Gvt has f00k all in its coffers while spending like there’s no tomorrow, and it’ll only increase. A certain Olympic games which we so needed are in just 3 years and nothing has been built so far. That will be a nice icing on a cake, or Feast in Time of Plague – as you like.

For Soviet Union it resulted in massive inflation and currency devaluation (from RUR 0,60/$ to RUR 6000/$). What will be the result for the UK?

[carseller]

The electronic money only help if it increase into the real economy in a larger amount than the demand destruction from the deflationary forces. Paulson adds money to banks, but it is a waste. They will just hoard it, and not lend it out. The US goverment are trying to smooth things over, something that will

make it so much longer and harder for the average guy, while the rich preserve their wealth.

The inflationary boom can occur if the housing market bottoms and things really start to pick up. The central banks really have a one way ticket now . Eigher it will work or it wont. Something in between is out of the question. I think that's unlikely with inflation, I rather think rates will remain very low while it occur a japan like deflation, and a global economic slump where the dollar, yen and other currencies rise against everything.

The inflationary crash rather comes when the trust of fiat money starts to disappear because of the general state of the US economy and their abillity to pack back any of their debt, or that losses on bank assets become so high that it threathens the AAA rating on the dollar. Meaning a default, with sudden hyperinflation, rather than an inflationary boom. I think the economy of Iceland that experienced collapse and hyperinflation now, are like a small version of the US economy.

Edited October 15, 2008 by carseller

[carseller]

The main difference between the US now and Japan, is that the world have been in a very inflationary period. And there was a mirror 1982 for stocks, in commodities in 2001, I think the markets are very close to something resembling a bottom, if the central banks pump enough, and does it fast. They need to pump, pump, pump, and bring up the long term rates, so that investing now becomes more attractive. They can achieve that if they buy enough junk, and does it fast enough.. It's going to be close, like an airplane almost crashing in the ground when going down to get speed. Asia need to buy less US bonds, to help bring the inflation up.

One country I am very optimistic about is Japan. They will benefit from inflation. Then they will start to use all that saved money at home. It will be one hell of a Japan boom. Look at who is buying US banks, like Morgan Stanley, a bank i Japan. House prices in Japan have been going down since 1991. Houses and Equities are priced like it was in 1982. 1982.

Japan does not have the baggage we got. They are mostly debt free. They are like the US in 1950. Imagine living in Japan, buying a cheap house, getting a 30 year fixed rate mortage at 1 % that will be eaten away by inflation.

Edited October 16, 2008 by carseller