Forex News: Words say Everything - Its how you read them that changes the meaning

Tuesday, June 30, 2009

I was going to write yesterday about how the pattern in which the calls for the dethroning of the US currency are made always has a follow up, half hearted retraction.

I did not, partly because it was obvious and partly because this story is getting old and tiresome as a re-run of a TV sitcom from the seventies. This, however, was the case yesterday as China’s Central Bank calmed the markets by declaring that their monetary reserve policy (and keep an eye on that word “monetary”) has not changed.

What they did not say was that they back the sovereign Dollar and love the idea that 2 Trillion Dollars worth of their assets are invested in the Dollar, but we will go back to this in a little bit.

Forex online junkies can recall not too long ago, when the BRIC nations (Brazil, Russia, India and China) met, there was a call by the Russian President, Dmitry Medvedev, to establish a global bond system through the IMF as an alternative to the Dollar. Later on he “clarified” his point by saying “in addition to” the Dollar.

Not too long before that, was the Russian Finance Minister in Italy making a comment about how the world needs a new reserve currency as the Dollar “has become debt weighted” and a day later the statement again was “clarified” by Moscow which said that the Dollar is and will be the primary Russian reserve for a while (specifically because the IMF bond will take a few years to implement – but not many actually realized that).

This pattern of jab and retreat has played out time and again, and it is because the knee jerk reaction to the Dollars vulnerability and the second world’s absolute resentment of the US has caused conflict in Central Banks around the world.

The fact is, even the retractions are not retractions. Let me go back to the word “monetary” that the Chinese Central Bank used, and let us look at some facts. Now, while their policy might not have changed, being that the proportions of their holdings were left intact, their reserve policy as a whole has shifted to include tangible assets. And thus, the dollar dump has begun…

China, which held over 2 Trillion Dollars in Dollar related Assets in January – about 50% of their reserves, has been using those dollars to purchase raw materials, natural resources and precious metals. In fact, China has gone on such a spending spree, they now accounts for nearly 50% of Australia’s natural resource commodity exports, one of the reasons why Australia is not doing so bad considering the rest of the world.

It is not that the Chinese have changed their monetary policy – the proportions might still be the same, however they seem to have changed their overall reserve policy – opting for things rather than paper.

Russia is also playing this game, only 1 year ago they had about a 1/3rd of their currency reserves in the US Dollar with the total reserves that they had estimated at around 800 Billion. Today, Russia still maintains about 1/3rd of their reserves in the USD, but their overall reserves have shrunk to an estimated 500 Billion.

Oddly enough, their Gold, Platinum and Silver holdings have increase by about 250 Billion Dollars – meaning that they have been diversifying their overall reserves with commodities – just like the Chinese.

What does this mean for Forex traders? It means simply that there is a target on the USD – and while the US’s creditors are trying to find a way out, they need to do so delicately so, as not to disrupt the value of the US on the Forex – a weak Dollar does them no good.

But, as they continue to “diversify” their holdings, keep in mind that more Dollars get added to the market system – watering down the value and inflating the currency. I would anticipate a 5-10% minimum inflation rate in the US in the couple of years – I personally think it could get even higher than that.

As the BRIC’s throw Bricks and then claim ‘it was an accident” the next day – the plans are in the works to dethrone the Dollar. It is coming, be prepared.


Another Chinese Call For Change seems to be working

Monday, June 29, 2009

This is like a bad dream that won’t go away from the US - another jab at the Dollar from China or Russia or someone else that has peeked its head into nearly every week of trading since the G20 meeting in February. However, this time around China was being more direct.

Instead of calling for a blatant ban on the Dollar, the Chinese are hurting the US currency by openly calling for an international sovereign alternative – alternative being the operative word. They never mentioned the Dollar, but that is what makes it so harsh. It is as if the Dollar is a non-factor, and at this point it might very well be.

While there has been no firm evidence of a massive selling of US money assets as of yet, the rate at which China, Russia, India and Brazil (known as the BRIC) have been buying precious metals and other permanent commodities is unprecedented. The US bond markets are yielding their highest in close to 20 years, a sign that bond holders are demanding more return for the risk involved.

The pattern seems to be the same as well, the countries blasting the Dollar seem to wait for the weekends to push their agenda and I have figured out why. Not too long ago I wrote about how the US was safe in this area, because it would take an act of the IMF and the World Bank to establish a global sovereign reserve, and these two agencies are essentially in the US’s control.

So the plan that they have is to start a viral campaign in which they put immense pressure on the Dollar through the Forex marketplace – by inciting and scaring investors to unload – by making the issues appear in the face of Forex online traders every single day so that it sinks in, “The Dollar is bad, the Dollar is evil”, and in my opinion, it’s been working to an extent.

The US needs to show the world that they have their spending and money management in control. I know that the last minute vote on fuel emission standards is not going to do much to build that confidence, considering that it will tax the states and consumers heavily – and hurt industry, and the fact that it narrowly passed after a 3am vote in which most of the dissenters left thinking the issue would be tabled for another time. This is not going to do it – and I know you will see the dollar suffer because of it.

I would also keep my eyes out for the US unemployment numbers towards the end of this week – I am sure they will be of much interest to those feeling like the end of the rocky road is near.


Are the Euro's days numbered?

Friday, June 26, 2009

So yesterday, the European Central Bank announced that they will be injecting a record 400 Billion Euros (that’s 613 Million USD) into the banking sector to spur lending by the devastated European Banks.

The financial meltdown started in the US with the investment banks taking advantage of lax laws governing certain assets. They grouped bad investments together and sold them as a unit of potentially high yielding securities – without properly disclosing the risks involved.

Now, many US banks purchased these assets and suffered, however the US government intervened and guaranteed these “toxic assets”, which enabled the US economy to begin the path to recovery.

The EU is different, they resisted helping the banks that made poor judgment choices by buying these assets, fueled by greed and the need for stellar returns. In fact, they were so exposed to these assets, that three of the largest banks in the Euro zone had more than 40% of their risk capital invested in these products.

The European Unions failing was that they did not rush to help. Many, including myself, believe that the US went too far with their assistance – some banks needed to fail as “failure breeds success” is the motto of the capitalist society. But, the government did do the right thing by unblocking the path to lending.

The Europeans, in all their hatred of anything American, took the total opposite approach. The Socialist societies which pride themselves on being there for those in need, became ultra-conservative and hardened their hearts towards the banks who made stupid decisions.

So we come to Wednesday, June 24th and the ECB is at the point of no return. Signs of life are flickering in the US, while the Euro Zone is at a standstill, falling deeper into a hole. So what does the Central bank do? The worst thing possible for the struggling Euro – they inject so much money into the system to break the non-lending cycle, that the traders panic and Forex Online bloggers come up with doomsday conspiracy theories about this was the last resort.

The European Union will be fine, but we are seeing that their monetary agreement, resulting in the Euro, might not survive. The problem is there is a large gap between rich states and poor states in the Euro Zone – and it is nearly impossible to please everyone all the time.

But, and this is a biggie, by doing what they did yesterday – by helping out when the big Western European Banks were in the most need, they sent a clear message to the Eastern Europena countries, whose banks have been suffering for nearly eight months with no reprieve, that they are not as important as the wealthier West.

So what impact will this have on the Euro? It got hammered yesterday and is in for a rough ride today. Please do not think for one minute here that I am now a USD fan, I am not by a long shot – but I will admit that the prospects for the Dollar, with all the issues hovering above its head right now, are much greater than those of the Euro.


Make or Break Moment for the Greenback

Thursday, June 25, 2009

With all the talk lately about the dethroning of the US currency as the premiere reserve investment for sovereign countries, the debate is about to get a stark reality check.

This week, the US is doing its best to auction off a whopping 106 Billion Dollars in new debt, in a bond auction and what Forex online blogs and street traders are looking for is how quickly they sell. There is no doubt that it will sell out, but the questions are, who will be doing the buying? And, how quickly will it be sold?

The US auctions typically has a short life, with most of the debt going away even before the official gavel is dropped down. However, it has been a sobering sign for the US Treasury that in recent auctions, it was been more difficult to get rid of the debt, to the point that yields on the bonds and notes have hit record highs as if the buyers are saying that the investment is more risky than others and therefore you need to pay us for assuming that risk.

Another telling sign of the recent sales is that when the Federal Reserve, the Central Bank of the US, sees that the Treasury auctions are not selling out in a timely manner, the Fed buys the debt. This is equated with just plain printing money and diluting the value of the dollar, as the money used to buy the debt extends the treasuries credit line with the Fed.

The Fed is responsible for setting monetary policy such as interest rate levels and balancing the valuation of the dollar in relationship to other currencies. The US Treasury is responsible for the actual management of money. Yet, recent legislation has broadened the Fed’s scope of jurisdiction and it is easier for the Fed now to “loan” the treasury money.

Now, Forex traders are not stupid – we were all brought up learning that paying your MasterCard with your Visa is not a smart policy of money management – yet this is essentially what the US is doing.

China, Russia, Brazil and India – fondly known as the BRIC nations met last week and came out vocally for a new reserve currency alternative – and they did so by specifically mentioning the policy of printing money that the US is employing now. The statements they made make sense, how can they ensure the value of their investment if there is seemingly a conscious policy to water it down?

To correlate this to other investments, take the Ford Mustang. This year the Ford Motor Company is coming out with a limited edition (only 45 cars) of the Mustang to celebrate the 45th anniversary of the car.

Now, each car is unique and a throwback to the old style with modern bells and whistles and is already being bid up to over 200,000 USD per car. If Ford were to make hundreds of these cars, the uniqueness of the product will be devalued and would water down the investment value of the car. This is what the BRIC’s are afraid of.

So, this brings us to the auction this week. Considering that the primary buyers of the debt in past years have been the BRIC nations, what is their interest going to be in the record breaking bond issue this week? Are they going to put their money where their mouth is or will they succumb and continue to buy like heroine addicts in need of a fix?

I am not speculating on the outcome, I truly don’t have a clue. But, I do know that if they stick to their principles, the Dollar is in for a rough ride – and if they do not, the USD seems like a good investment in the short term.


A little perspective please - Internal Polls in the US showed that Obama’s Honeymoon is Over

Wednesday, June 24, 2009

So with President Obama’s popularity waning, I thought I would take this opportunity to correlate the issues facing America right now and its affect on the all mighty Dollar.

As Forex online traders (and offline) we live and die, profit or lose, based on the Dollar, so this fine Tuesday morning in the latter part of June, 2009 is a great opportunity to reiterate that you cannot believe just words and that real knowledge truly is power in our business.

Yesterday internal polls in the US showed that Obama’s honeymoon is over. His social policies are unpopular and receiving criticism even amongst his own political party.

In his first six months as president of the largest economy in the world, he has virtually nationalized the banking sector, the auto industry and is now trying very hard to do the same to the healthcare industry, as I mentioned yesterday.

His Treasury secretary, Timothy Geithner, has been trolling the world giving speeches meant to boost the confidence that the investing world has in the Dollar’s value – and has been laughed at during these speeches in China, and most recently in Italy this past weekend.

North Korea is warmongering, Iran is blaming the US for their political unrest, Al Qaeda is threatening to use Pakistan’s nuclear arsenal on the US (should they get hold of it), Russia and China are openly calling for a new reserve currency on a daily basis and Brazil has removed the dollar as the primary currency used in trade with other countries. et, all the while we read reports that the economy in the US is rebounding and that things are getting better – well we need to look at these numbers to see just how good it is getting.

Monday, the US announced that the numbers of people on welfare have risen at the fastest pace since the recession began and are now at levels unseen since Bill Clinton’s presidency. Last Thursday they said that unemployment was at its highest rate in the US in over 30 years – hitting over 10% in 1/5th of the 50 states that make up the US and that interest rates are at the highest levels in close to a decade.

Let’s focus on these rates for a minute and how important they are – the interest rates set mortgage rates and personal loan rates – meaning, people looking to buy big have to pay more – and they are not buying and this is causing a trickle down effect.

Last week, the US government auctioned off 160 Billion Dollars worth of Treasury Bonds and Notes, and for the most part it was a success – even with the highest rates in years. But look closer, the record debt sale that went on saw the US Federal Reserve (a.k.a. THE central bank) as the biggest customer for these bonds.

This means simply that the US bought their own debt and is paying a larger price for it as well. And it is specifically this information which have brought Obama’s numbers down sharply – it’s one thing to preach fiscal discipline and take over industry after industry in the guise of showing them fiscal discipline – yet it is completely another thing to put into practice something entirely different.

And this is where the US is right now - they are not practicing what they preach and as we saw in China, Italy, France and Germany, the US is being laughed at when they tell people that an investment in the US is a good investment right now.

We might hear the pundits telling us that everything is great in the US of A, but looking at it logically, the use of the Dollar as a long term investment tool is not looking that smart anymore.

We have seen on the Forex and watched online as the dollar has dipped and has lost value – the DAC index is off nearly 30% from its highs – this says volumes about the Dollar – no matter how much they try to show us that all is ok in the USA.

Be careful – and if you were like me, watch down under – their Dollars are looking pretty good in comparison.


Another lesson in Trading - Watch the Aussie this week

Tuesday, June 23, 2009

In a demonstration of what the Forex markets have been about lately, instant gratification, the dollar rose against the most currencies in what was seen as profit taking from the traders’ venture into risk appetite late last week.

Forex online Traders are hoping for some sign that all will be well this coming week when the US Federal reserve meets and this has hampered volume on Monday, as trading was extremely light, about 1/3rd less than what it normally is.

It seems that when there is nothing to report, the Dollar has a good day and analysts make excuses such as profit taking using big words like risk aversion. Don’t be fooled, the Dollar went up today because stocks got hammered, and this is the clearest most consistent indicator in the Forex market.

The Dow Jones Industrial Average fell over 200 points as the US business community is becoming more afraid of the changes that President Obama is seeking to bring. With the Congressional Budget Office (CBO) sobering up the healthcare debate with an estimate for over a trillion dollars that will be needed to overhaul it, the healthcare and medical and banking sectors got destroyed.
And as I try to do regularly with these entries is show everyone how to trade – more specifically, what news to trade on. If you missed Monday, don’t worry, Wednesday will be much of the same – I have not decided on Tuesday yet as it seems likely that a bounce is coming, but gloal events such as Iran and North Korea might change that.

Coming as a pleasant surprise to the Forex trading community was news from Germany that its business sentiment was higher. Being that the German banks are in dire straits and that the EU’s largest economy is in the worst shape it has been in since reunification in the early 90’s, I don’t want to see poll numbers – look at the real numbers and stay away from the Euro for a bit until they become clearer.

The place to be still in my mind is the Aussie, the high yields and the rising price of oil will help sustain the currency as the economy down under goes through some rough times. The Canadian Dollar as well looks like a good buy as well to me, but I am not as enamored with it because of its proximity to the US. The auto maker issue is still weighing heavily on the economy and you will see an spike in unemployment – which might offset the jump in commodity prices.

All in all, this will be a week of waiting – nothing really will happen until Wednesday’s fed meeting and so we wait. And while we do so, we try to make a quick buck – good luck.


Livin' La Vida Loca Down Under

Thursday, June 18, 2009

I have spent so much time talking about the US and Europe lately, that I have almost neglected my favorite currency, the Aussie. So I will try to avoid ranking on Obama and Brown and Trichet, while I put a plug in for the down under dollar and go back to my love relationship with the potential this currency has.

The Australian employment report that came out overnight brought about another rise in Online Forex AUD Trading, almost across the board (The Yen had a strong day too). While the key change in employment payrolls was much better than most Forex Online traders expected at almost unchanged levels, the internal numbers could spell trouble.

The numbers showed full time employment falling sharply and part-time employment rising sharply, which is normal in a recession when most of the world’s industrialized nations are dealing with a 10% jobless rate. However, you do not want this to continue long term.

As well, the unemployment rate surged to 5.7%, still far below the global average – but nonetheless worrisome as the number keeps going up. This number matches the highest level seen in Aussieland since late 2003.

But here is why the currency is strong: The AUD continues to find strength as bonds have not managed to rally and equities stormed back into the close yesterday in the US after a steep intra-session sell-off.

The background theme for Aussie strength is the idea that the global recovery, led by China, is underway. I read an article in the Wall Street Journal just this morning about the levels at which the Chinese are buying commodities, which is bringing about serious questions of its sustainability.

If this trend slows in the near future, which I do not think it will (and I will explain this below), the Aussie could be in for a very sharp adjustment lower across the board. Chinese trade numbers are still off sharply for both imports and exports on a year over year basis.

Now, while the vaulted WSJ might believe this trend will burst eventually, sooner rather than later as they said, I am finding it difficult to swallow. Here is why: The Chinese have been consuming commodities at an alarming pace for their building, this is how they are stimulating their economy. But back in March I wrote about how the Chinese are also buying up commodities using US Dollar (Yes, I know I promised I but cannot resist mentioning the Greenbuck) while at the same time making public calls for a change in the global reserve standard.

Essentially, China is swapping Dollars for tangible items – and while the WSJ uses the import and export figures to assume that their consumption has to end – I am looking at their 2 Trillion Dollar reserves and saying, they are swapping paper for copper and oil and gold and iron because right now, there is not option other than the dollar – except real stuff.

So have no fear, the Aussie will be here – trust me on this.


A lesson for us all, not to say I told you so

Wednesday, June 17, 2009

I’m beginning to believe that I have some psychic ability. In yesterdays post I spoke about the “spin” that the Americans and the press took on the Russian Finance Minister’s comments backing the dollar.

And, as if he read the posting himself, Russian President Dmitry Medvedev agreed with me and sent shockwaves through the Forex world.

Actually, what Mr. Medvedev said was that there was a strong need for another currency reserve that the world can turn to. Now, many saw this as a contradiction to what his Finance Minister said, but make no mistake, what Alexi Kudrin had said was that the Dollar will be the Reserve currency for some time to come. He did not say, “I believe in the Dollar”, he did not say “I love the Dollar”, he did not say that he wants the Dollar. What he said was practical as “right now there is no option other than the Dollar for countries looking to park their funds someplace”...

The arrogance of some who believe that they can manipulate the system, and manipulate exchange rates by twisting words to their advantage is becoming ridiculous. The Forex Online traders look for quick snippets of information before trading, and are usually hasty in assuming – and what happened on Monday was the Dollar shot up, without traders listening to what was said but rather reading a quick sentence “Russian FM backs Dollar as Primary Reserve” – this is the problem when you do before you think. Because the very next day, all those Forex Online traders got burnt after Medvedev clarified the Russian position.

The key to trading the Forex, and I have said this over and again, is to be informed. You cannot rush to judgment and jump to conclusions, you need to watch out and be thorough.

Warren Buffet, Rupert Murdoch and George Soros did not become rich from buying on rumors, they made (and still make) their fortunes based on knowledge, research – and well thought out strategies.

It is time for the Forex online community to do the same or, we risk turning our very liquid market into the volatile entity that the Stock market is – where everything hinges on nothing and things happen for no reason.


The “bitch fight” going on between the US and Russia

Tuesday, June 16, 2009

Yesterday, the Russian Finance Minister reaffirmed Russia’s belief in the Dollar’s status as the world’s reserve currency – in what seemed to be quite a surprising quote.

This was at least what the American spin on this was, and when the major newspapers reported it they used this spin. The fact is, what Alexi Kudrin said was that “the Dollar will continue to be the primary reserve currency for some time”, and if you listen to the audio of how he said this at the G8 meeting, it was almost a conciliatory tone – as if to say “there is nothing we can do about this right now, as much we would like to, but……..” .

The fun part of all this is that after the American media spun this off as a positive for the Dollar – and the Dollar rose in kind, today, Russian President Dmitry Medvedev commented that the world needs new reserve currency options, signaling in plain English, yes English, what the media refused to focus on – Russia is looking to diversify their reserves and lose the Dollar.

The “bitch fight” going on between the US and Russia is spilling over into all areas, from political alliances involving the Korean and Iranian issues, over to finance – where an American makes a statement and a Russian debunks it. It is probably frustrating for Forex online traders, although I myself have been quite entertained by the whole situation. Carry on boys…

The key here is to not just believe everything you read, if you don’t hear it yourself, and listen to what you are hearing, you might just not get the whole story. It is nice to say that the Dollar will be around as the leader, Forex Online bloggsters know however, that it is not just what you say, but how you say it. Keep your ears posted.


Note my Forex Online Comments!!

Monday, June 15, 2009

In January of last year, specifically the 15th of the month, I wrote about the fate of the carmakers in the US. Specifically, I spoke about the urgent need to let them fail – to not prop them up and create a situation in which they are “owned” by the government.

The fact that no one listened to me is not important here, but what is, is that the policies of the government in Washington, highlighted by the announcement of a car Czar whose job it is to oversee the auto industry in the US, not to mention a pay Czar who is tasked with ensuring companies do not overpay executives, have planted the seeds for the demise of the capitalistic society that created enormous growth and wealth in the world.

There is something that has bothered me about the American people and the American economy as of late. With all the money being spent by the government, one has to ask where it’s all coming from. And aside from a few news mediums and some conservative commentators who would attack any decision and so can be labeled as partisan, no one is doing it.

The fact is that all this money that is being printed and all the oversight jobs being created to regulate industry is not good for the long term prospects of the currency.

Put an exclamation point on that: free markets should be free. It should not be the government which intervenes to save the world from corporate disasters. Helping citizens is one thing, providing food or housing needs is important – but handing over billions of dollars to companies in the name of helping citizenry is a legal form of robbery, and will have enormous impact on the value of the all mighty Dollar.

The nature of a free market is that it can live and die by its own hands – as it can by the success of a competitor or the failings of its own products – these companies, especially the Automakers, lived large and fast and I believe they should be allowed to crash.

Doing what we can to save them will only affect the long term prospects of the country’s standing. Online Forex traders know this to be true, as last week they killed the dollar – and all the data coming out that says that the US is on a recovery path means nothing, because it’s becoming more apparent that what is being shown is what they want us to see.

Online Forex blogs this weekend were littered with talk about the value of the Dollar. With yields going up, mortgages are expensive – with gas going up, energy is expensive – people need to save in order to pay their core bills.

Watch the retail numbers this week and you will see what I mean. And watch the Forex, EUR/USD and USD/JPY specifically – the decisions Obama is making will come to haunt them and I believe that this process started last week.


Do you really think the US will dilute their power in the IMF, knowing that it could hurt them financially in the long run?

Thursday, June 11, 2009

Russia made a statement from its Central Bank that they will begin to diversify their reserves, totaling around 400 Billion US Dollar in value, by liquidating some of its US Dollar based assets in exchange for IMF issued bonds. Now, if this were to be taken seriously, rather than political banter meant to rock the financial world, Russia would have to explain a few things. Forex online traders,(while this did affect the trading a bit) need to look at the hard facts before jumping ship on the USD, and take the Russian declaration for what it is - just a hype, nothing more.

First, the US is issuing over 2 Trillion Dollars of new debt in 2009, and they already have closed to 11 Trillion already issued. Of Russia’s 400 Billion in reserves, only 30% are in actual US Dollar securities - cash and bonds - so even if Russia were to diversify their dollar holdings, the 120 Billion US Dollars they are holding would not even crack the surface of the overall US debt market. Second, and this is the most important one, at last check, the IMF does not have the authority to issue bonds just yet. While they are talking about it, it has not been implemented yet, so if Russia were to swap their dollars for IMF backed securities, they first need the IMF to implement the program, which as anyone familiar with large bureaucracies knows this could take years upon years.

Now, just today, the BRIC (Brazil, Russia, India and China) announced that they too would like to diversify and buy IMF bonds. But here is the real deal - the IMF is governed by countries with “voting rights” in the IMF, and this is the breakdown: Brazil has a 1.38% say, Russia has a 2.69% say, India has a 1.89% say and China has a 3.66% say. The US holds a 16.77% say in what goes on in the IMF – they have so much power there, that anytime the Chairmanship comes up, it is the US which has the pick to fill the vacancy.

So with this, let me ask you in Forex Online land: do you really think the US will dilute their power in the IMF, knowing that it could hurt them financially in the long run? Considering that the US Treasury Secretary, Timothy Geithner, is a former IMF head, even with all the changes that Obama has been making, I doubt highly that you will see IMF debt issues anytime soon. Power begets power, and while the US is in financial straits, I doubt they will readily give up some of that power if it will end up hurting them even more down the road.


My Forex Online Views on Current Market Situation

Wednesday, June 10, 2009

I have spent several days now talking about the largest economy in the world, the US, and criticizing the economic policy choices that have been made there. Yesterday, the Wall Street Journal came out with an article that essentially justified my position. The article, written by Bill McGurn - a most respected financial columnist - focused on the claim that the Obama administration has “saved or created” a certain amount of jobs as a result of the stimulus.

The focus is not necessarily on what that number is (Obama puts it at 150,000 so far, and wants to add an additional 600,000 to that category), what is important is the fact that there is no way to tell how many jobs were “saved” as a result of the stimulus – it’s an arbitrary number and the media has fallen for it, time and again.

Another smokescreen the administration has put up was the reporting of the job numbers. When Obama talks about “creating” jobs, he does not tell you that a person, who was unemployed from a job paying him $100 per hour for example, is now on the government roles as a “temporary” worker, making $9 to $15 per hour. So while the numbers of the unemployed are going up at a slower pace now, it’s not like the Obama policy has managed to turn water into wine…

OK, I am done with the US for now. Shift to Germany, and the banking problems that the IMF declared yesterday to be dire. What would happen if these banks became insolvent? Would the IMF move to save them? If so, what would Latvia do? As all you in Forex Online land may know, Latvia has been pondering devaluing their currency in order to offset their debt, while EU officials have been coaxing them into not doing so. The Eastern Bloc nations of Europe have been hit particularly hard by this recession, and the EU has not come to their rescue, neither has the IMF.

Germany, the largest economy in Europe, is having issues - banking issues - that resemble Bear Stearns and Citigroup scale problems, and all of a sudden, the IMF and EU wake up and are now talking about “helping” out – the world is fair, you know?

Two messages that this sends to the East is that, 1) you don’t matter as much as the wealthier nations in the West and 2) while we are all in a partnership here (economic one based on the Euro) we are all not equal, not at all.

Forex online traders need to watch this closely, because if Latvia does devalue, which I suspect they will, it will have a ripple effect on the Swiss Franc, the Krona and the Crown. Forex traders should keep an eye out for EU economic news, and watch the IMF as they watch the German banks. it could prove to be an early warning sign of pending downtrends.


US Debt is getting more Expensive for the Taxpayer while the US digs itself in deeper

Tuesday, June 9, 2009

News came out yesterday that shows the US Treasury Bonds yields are going up at a record pace. Well, these yields are not fixed and are set on an open market based on demand - the more demand, the less the yield and vice versa.

For the US taxpayer, it means that the price of funding their enormous debt (11 Trillion Dollar) is becoming more expensive (a lot more…) and if the trend continues, it will inevitably have a stark impact on the value of the dollar.

Just think, for every 100 Dollars the US borrows, it now needs to pay back 104.35, for every 1,000, it needs to pay back 1043.50, for every million, it needs to repay 1,043,500, for every Billion, the cost is 1,004,350,000 and for every Trillion the number is 1,004,350,500,000. Translate that into the 11 Trillion Dollars that the US is in the hole for, and you’ll get an annual interest rate of 47,855,500,000 US Dollars. I’d say we have a bit of a problem here…

If you take that staggering number of almost 48 Billion Dollar payment, and divide it among the 350 million US taxpayers, it totals about $178 per person – to pay back the principle, it would cost almost $32,000 per person – more than average annual wage for an American. So the question on the minds of Forex online traders is “how is this going to work if the US does not devalue their currency to offset these costs?”

Keep in mind that this week the US is auctioning off another 65 Billion Dollars in debt. Considering that the cost is getting higher for them right now, this only adds to the problem. The issue is beginning to overtly affect the way in which the US’s leading lenders, namely China, view the US.

A leading banker in China was quoted recently as saying in a cynical manner that the US should start issuing their debt in Yuan, the Chinese currency, rather than dollars. While this was an obvious joke, my mother always taught me that within every joke lies some semblance of truth.

With the US now owning 60% of General Motors and after the Supreme Courts decision to delay the sale nearly 70% of Chrysler, one has to wonder who really owns it. If the US taxpayer is in hock to China for more than 2 Trillion Dollars (a liability of $5,714 per person) while owning 50 Billion Dollars worth of GM (an asset of $157 per person) – do the math.

The trading in the Dollar has picked up in the past two sessions, as Forex online traders and Forex blogs predict a US recovery – but I ask you here, look at the numbers yourself and decide whether a recovery is indeed “just around the corner”.

And one last thought, if it were, the US GDP would need to swell to 48 Trillion Dollars for it to do so, and that would only pay off its obligations in 10 years. The US GDP currently stands at 12 Trillion - Just something to think about.


Is the Obama’s America a Free and Fair America?

Monday, June 8, 2009

The problem I have with what US President Barack Obama is doing with the “free market” US, is that he is making it impossible to actually be a free and fair market. By “investing” in 60% of GM and 70% of Chrysler, it allows for the government to incentivize the purchase of these vehicles over others.

Take for example the scenario in which a CEO wants to buy 100 new cars for a corporate fleet, and he is looking at Ford as his choice, the US government, in order to ensure that their investments succeed, can offer tax rebates and incentives on the GM and Chrysler lines that would not be available to Ford - the only US automaker that stands on its own.

I bring this up because over the weekend I read a story in the financial times about how protectionist ideologies are beginning to take hold in much of the world. The article focused specifically on Canada, and as Forex online traders know, the Canadian economy lives and dies by the price of commodities.

In response to a strong “Buy American” campaign south of the Canadian border, the Canadians are implementing their own buy Canadian campaign - from everything from Manitoban Wheat to Edmonton Oil. Canada, which has a small stake in GM and Chrysler, is being left out of the loop when it comes to the car sales. There is talk of plant closings and supplier chain closings associated with the bankruptcies of these two carmakers, and the first plants to close will seemingly be the ones in Canada – adding more Canadians to the unemployment rosters while sparing the US of these cuts.

Is this fair? No. And it goes back to my original thought – is the Obama’s America a free and fair America? The signs on the wall are clear, the answer is no. It’s one thing to meet and greet your counterparts from other countries and smile and say the right things like protectionist measures won’t work – yet, it’s completely another thing to put that ideology into practice during the worst economic downturn since the great depression.

Obama’s America is no different from that of the Smoot-Hawley America of the 1930’s - where some senators implemented measures designed to keep Americans working at the expense of their trading partners. This policy was the reason why the depression lasted so long. And if this is the case now, as I believe it is – we are in for a long and painful road ahead.

Forex online traders need not worry though, because unlike stocks – there is always one currency going up when another is falling.


Latest Forex Online Updates

Saturday, June 6, 2009

In his after policy meeting comments, Jean-Claude Trichet commented that he appreciated the U.S. government's declaration that they are committed to a strong dollar, the comment helped keep the Dollars continued losses to a minimum. The Dollar had another rough day on Thursday as investors ponder both the size of the US’s growing deficit and the prospect that the recession is slowing – taking away the Greenback’s safe haven appeal.

The Bank of England left their benchmark interest rates unchanged at a 0.5 percent and stuck to its 125 billion Pound target for quantitative easing, as expected.

The Swedish Crown rebounded from 6 week lows against the euro, brought on by concerns that Latvia might devalue its currency in order to offset the cost of repaying their debt. The Swedish currency is very susceptible to economic issues in Eastern Europe due to heavy investments in the region. The reprieve came after rumours regarding additional support for the Baltic country from the International Monetary Fund were circulated.

Read more at:


Finexo Market Review

Thursday, June 4, 2009


The Dollar gained back some of the recent losses on Wednesday, as it retrieved more than 1% of the recent month long 8% slide against a basket of currencies. A broad selloff in equities revived the safe-haven appeal the US currency enjoys. A falloff in oil prices helped the dollar make sharp gains against the commodity currencies and contributed to the steep rise in the ICE index.

Also contributing to the rise in the Dollar on Wednesday was comments from several Asian governments, reaffirming their policies of investing in US debt instruments. China, Japan, India and South Korea said that even if Moody’s or Standard and Poor’s cut the US’s “AAA” rating, it would not prevent them from investing in the US for the long term.

And, more news for Forex Online traders: at 10:30 PM GMT, the ICE Dollar Index, which measures the Dollar against six other currencies, was up 1.02% to 78.94. The Dollar was up .3% to the Yen to 95.84, up 1.9% to the Pound to 1.6269, up 2.9% to the Canadian Dollar to 1.1109, and up 4.2% to the New Zealand Dollar to .6299.


The Australian economy grew in the first quarter charged by a 48 year high in international trade. The Aussie GDP rose by .04% from January to March, preventing a recession down under (which is widely accepted as being 2 straight quarters of negative growth).

The rise in trade offset a decline in housing and business, and reduced the need for intervention by the Reserve Bank of Australia, the Aussie Central Bank. The news spurred on the AUD early in the session, although a steep decline in commodity prices Wednesday reversed those gains. As of today, Australia is the only recession free country with a major currency in the Forex market in general and in the Forex Online market in particular.

At 10:50 PM GMT, the Australian Dollar was down 3.1% to the US Dollar to .796, down 1.66% to the Euro to 1.7706, down 2.56% to the Japanese Yen to 76.57 and off .2% to the Canadian Dollar to .8855. The Australian Dollar did rise 1.1% against the Kiwi and was holding at 1.2634.

Chart: GDP Comparison: Australia, US and Japan

The chart below clearly outlines the significance of Australia’s growth last quarter, which is showing a marked increase against the GDP of the 2 largest economies in the world. Commodity prices and China’s hunger for the core exports of Australia, iron, ore and copper, contributed greatly towards this anomaly in the global recession.


My Views on Daily FX Update: Watch China, and Watch the Dollar – From here on, They go Hand in Hand

Wednesday, June 3, 2009

Tuesday saw a major help to British bank Barclay’s, during the heart of the credit crunch bailout of their investment. Abu Dhabi, which purchased 11% of Barclay’s shares late last year, just unloaded it all for 2.5 Billion Dollars, a move that sent shivers down the spines of Sterling investors throughout the world who thought that the banking issues were resolved already.

To be fair, no one really knows why they sold the shares, but the fact that they did is huge, because it’s not clear whether or not the bank is stable enough yet – and as a result the Sterling fell, a move that made Forex online traders scratch their heads.

It seems that hot news just keeps coming from the General Motor’s front – US Secretary of State, Timothy Geithner, was in China doing his best to convince the Chinese administration that the US is committed to stabilizing the dollar. While this was going on, China was working behind the scenes on the purchase of General Motor’s luxury SUV brand, the Hummer – a move that clearly made the Obama administration take pause and wonder what exactly it is they are doing.

The company that is in talks with the Bankrupt GM for Hummer is out of North-West China, and is labeled as a plastics company that has a desire to become a carmaker. If you ask me, this is a way for the Chinese to unload their dollars and buy a tangible asset – the problem is with Obama’s new cafĂ© standards (carbon emission requirements) being so high for even the most conservative friendly vehicles, I am not so sure that cars as big as the Hummer will qualify. Which makes you think, as I am not a rocket scientist and I know this could be a problem - just what is China up to now?

Imagine the scene, the Chinese “help” out GM by buying a luxury brand and then employ Americans in the plants to make cars that can’t even be sold in the US – is that a public relations nightmare or what? Anyway, as Forex online traders (and offline) know, the Chinese will soon be the dominant economic power – just give it 10 years or so –these purchases are just strategic ways to literally “own” a piece of America. It’ll effect the stock market worldwide, Forex online trading etc.

History has shown us that this is the way it’s been done. It is how the US became what they are today, less than 100 years ago. Watch China, and watch the Dollar – from here on, they go hand in hand. As for the British banks, I told you weeks ago it was not over – thanks Abu Dhabi for supporting my case.


Impact of General Motors News on Forex Market!

Tuesday, June 2, 2009

So GM did it, they went bankrupt and left the US taxpayers with a 60% stake in a car company. If you consider the money they put into it before – ergo 20 Billion Dollars, they actually own more than 70%, but no matter, the deed was done and the affect on the mood and currency of the US is set. The dollar fell hard yesterday to new long time lows against a bunch of currencies – and in my opinion the pressure will be on it for some time.

You see while the street revels in the stock market gains from the past three months, up over 30%, many attribute that success to the light at the end of the tunnel. There is no real recovery yet, just glimpses of hope that there will be one soon and as an established investor would know, that is all the market needs.

The markets tend to exaggerate their movements, when things might be bleak they panic and sell and when the situation appears to have an end – even though it is not close – they buy. But the Forex Online Market is different; Forex markets cannot hide behind estimates and soft numbers, the market deals with reality mixed in with a little bit of fear. The truth about the US is that they are spending money like crazy, money their president admitted they don’t have, money that the entire world does not own – and as a result the interest rates on their debt instruments are raising. Inflation will hit the US – and most probably England for the same reason. How bad it gets depends upon how both governments handle crises like the GM bankruptcy in the future.

I am a capitalist. Company’s come and company’s go. If the US let them go before they interfered and committed so much money into it, the vacuum that is created will be filled by someone else. The land of opportunity is now stifling that, and it is the change from that value which might come back to bite them in the long run.


Melting General Motors - Ask a Stupid Question….

Monday, June 1, 2009

So General Motors is going bankrupt after the US took a 70% stake in the company, China is concerned about the amount of money that the US is spending on its debt, North Korea is distracting the global financial community with its nuclear ambitions and the Eurozone economy is slowly creeping downward after all is said and done. What now? Well, a report in yesterdays Wall Street Journal reported that the US Treasury and Federal Reserve is puzzled over the spike in rates on the open market of their debt instruments.

I ask very cautiously, what is so hard to understand? The dilemma that they have is figuring out if the spike means there is less of a need for the quantitative easing that the US has made a policy of due to increased demand (with demand comes higher rates) or whether the market is spooked by the mounting debt the US is incurring during this downturn. I have a simple answer, and I am by no means an accredited economist. The latter is the correct answer and it is obvious.

The fact that in the last round of 10 year T-note auctions the US bought 30% of them, or should I say the Federal Reserve “invested” non-existent money in debt issued by the US Treasury should be a clear sign of what is going on. Aside from the fact that by bidding on their own debt they increase demand, falsely at that, the idea that an entity issues debt and then buys it themselves is alarming.

What else is new? President Obama had an interview with C-Span, the publicly owned network which covers the US congress and senate 24/7 and was asked if he was concerned that we will run out of money with all of these stimulus measures costing so much. His answer did more to spook the markets than anything else, and went largely unreported by the mainstream (liberal) media.

Obama said “we are already out of money.” A president admitting that can do much for causing an exodus by investors. Perhaps the Fed and Treasury need to look above, to the man in the big white house, and then re-ask themselves the question instead of acting so perplexed at the cause of rising interest rates.

Do you think the 70’s were bad when it came to inflation? Just watch…..


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