[quote author="upperlowerclass" date=1220649177][quote author="awgee" date=1220646651][quote author="upperlowerclass" date=1220619119]Interesting insight on the dollar I picked up from another blog
"James Turk - GoldMoney.com August 7, 2008
So what happened to cause the dollar to rally over the past three weeks? In a word, intervention. Central banks have propped up the dollar, and here's the proof.
When central banks intervene in the currency markets, they exchange their currency for dollars. Central banks then use the dollars they acquire to buy US government debt instruments so that they can earn interest on their money. The debt instruments central banks acquire are held in custody for them at the Federal Reserve, which reports this amount weekly.
On July 16, 2008 (the closest date of the weekly reports to the July 15th low in the Dollar Index), the Federal Reserve reported holding $2,349 billion of US government paper in custody for central banks. In its report released today, this amount had grown over the past three weeks to $2,401 billion, a 38.4% annual rate of growth. To put this phenomenally high growth rate into perspective, for the twelve months ending this past July 16th, assets in the Federal Reserve's custody account grew by 17.3%, which is less than one-half the growth rate experienced over the past three weeks.
So central banks were accumulating dollars over the past three weeks at a rate far above what one would expect as a result of the US trade deficit. The logical conclusion is that they were intervening in currency markets. They were buying dollars for the purpose of propping it up, to keep the dollar from falling off the edge of the cliff and doing so ignited a short covering rally, which is not too difficult to do given the leverage employed in the markets these days by hedge funds and others. So central banks pushed in one direction and funds and traders then stepped on board. In other words, central banks ignited the fuse of a bear market rally.
"
Seems to be a good explantion for the unfounded dollar rally we have had lately. Especially since there is no fundemental reason for a dollar rally (any suggestions?).
Once foreign central banks realize that they are doing us a favor by reducing their quality of life, the floor will drop out on the dollar.</blockquote>
Most of this is verifiable fact except for the last statement, which is opinion. And I would be careful on that opinion. The CBs can continue doing whatever they think is in their best interests, even if they are wrong.
And IMO, James Turks analysis points to a very important question. How are you measuring the dollar?
The markets measure the dollar by the Forex number, or in other words, against a basket of other currencies.
But, most folks do not trade Forex, so they may want to consider what does the value of the dollar mean to them? For most Americans, those not trading Forex, the value of the dollar is whatever a dollar can buy them.
IMO, this is a much more relevant measure of the dollar. If the Euro, Yen, Renminbi, etc. also buy less goods for their currencies in their own countries, it matters much less if the dollar is "strong" or "weak" relative to those currencies.
The recent "strength" in the dollar is completely based on the idea that the US economy is going to be stronger because the European economy is showing signs of weakness, and the Euro is weaker. Less than two weeks ago, all the talking heads were saying US stocks and the thusly the US economy would stay out of a recession because the we are in a global economy and even if the US economy weakens, the European economy and the Asian economy would keep the US economy going. Now, they are saying the US economy will be stronger because the European economy is showing weakness.
IMO, both ideas are wrong and stupid.
The relevant questions and fundamental questions are: Do you think the dollar in your pocket will be buying the same or less or more for you than it did last year? Do you think asset deflation will cause the dollar to be valued more highly? What do you think the response of the Federal Reserve and the Treasury Dept. will be to asset deflation? What has their response been so far? What have they done historically?</blockquote>
I certainly understand betting that foreign CBs will see the light is a risky bet. However, it has become increasingly more obvious that thier actions to prop up the dollar have been detrimental to their countries. They can't be enjoying our inflation they are sucking up.
The answer to your question is easy, the dollar will be worth less. But where to protect that purchasing power is becoming a harder decision every day. Fundementally, gold and foreign currencies would be good bets, but there is so much manipulation in both markets.
Gold, for example:
"Rob Kirby - Wake Up Call
August 26, 2008
For gold, 3 U.S. banks held a short position of 7,787 contracts (778,700 ounces) in July, and 3 U.S. banks held a short position of 86,398 contracts (8,639,800 ounces) in August, an eleven-fold increase and coinciding with a gold price decline of more than $150 per ounce. As was the case with silver, this is the largest short position ever by US banks in the data listed on the CFTC?s site. This position was put on and resulted in massive market price collapse.
END.
Kirby notes that such a short position can be only the work of a central bank, "because no public entity -- bank or otherwise -- has the balance sheet maneuverability in an impaired credit environment to conduct such business.
Resource Investor's Gene Arensberg is suspicious as well, he seems convinced in his latest "Gold Gold Report" that the recent enormous shorting of gold and silver by a few banks was a market manipulation and likely a currency intervention inspired by the U.S. government.
"
So I guess the best you can do for now is hope these "powers that be" are only capable of causing pull-backs or buying opportunities for you and don't have the power to reverse the trend. This is the boat I'm currently sitting in.</blockquote>
Upperlowerclass,
I am glad that there is some fresh blood bring up this issue on this forum as Graph and CalGal thinks that i am one Crazy Panda that has gone complete Nuts. I've read the articles that you posted that i agree with you where you are going with all this.
"Now we have not one, but two little Awgees"
on the IHB.
Manipulation, Fraud, Corruption, and Deception is like a web where the truth will be eventually revealed at the end. I absoutely have no trust in our government and wall street. What happened to the founding fathers of our great country who built our country with integrity??? Our currency must go back to the gold standard.
