FX Technicals by Marc Chandler of Marc to Market,
Guest post via Marc to Market.
The US Dollar Index reached its best level in more than six weeks on Friday. Yet it managed to only close a couple of ticks higher, as if warning short-term participants against ideas that a breakout is at hand. This also appears to be the message of the yen’s dramatic recovery from four-month lows.
Caught between what appears to be renewed deterioration of conditions in the euro area and US electoral and fiscal uncertainties, investors are paralyzed. Key events this week include policy meetings by the Japanese and Norwegian central banks, the new month PMI readings, and the US jobs and auto sales reports.
The economic data is unlikely to tell investors anything new. The euro zone economy is experiencing a shallow contraction for the second consecutive quarter. The UK data is likely to lend to our view that Q3 growth exaggerates the strength of the underlying economy. Meanwhile the US should continue to post modest net job creation. The Bloomberg consensus call for 125k rise in non-farm payrolls, which would be smack in the middle of the 3-month average (145k) and 6-month average (104k).
We won’t bother you with explaining how good they are.
Below is a simply must watch video with Hugh Hendry and Einhorn from the Buttonwood Conference.
Guest post by Jessie.
“All war is based on deception. Of all those close to the commander, none is more intimate than the secret agent; of all rewards none more liberal than those given to secret agents; of all matters none is more confidential than those relating to secret operations.”
“Let Hercules himself do what he may,
The cat will mew, and dog will have his day.”
William Shakespeare, Hamlet
There is a currency war underway.
The international trade clearing mechanisms are tottering. Countries are using their economic power, their banks and currencies, as a part of overall foreign as well as domestic policy.
This is a huge source of the tensions and problems which are are seeing both economically and militarily in the world today.
The current trade system based on the US dollar reserve currency is not sustainable. It has had a good long run, but like the euro it has reached the end of its rope. The US cannot continue to print enough money and increase its debt balance through trade any further. See Triffin Dilemma. Yes I am familiar with Eichengreen’s counter argument.
Guest post via Gold Silver Worlds.
The author does a terrific job again, this time in summarizing the most important thoughts about the current economic effects on the monetary policy of the US government (in casu QE3). Although a lot has been written about QE3, it can be difficult for people with no economic background, to connect the dots between monetary actions, economic effects, personal risks. Furthermore, with a limited understanding of monetary matters, it can be difficult to distinguish the benefits that are argued by policymakers versus the real benefits / risks. From that point of the view, the following article succeeds in bringing an understandable summary of what really is happening in our economy as a result of monetary policies.
Some essays or market commentaries contain too much jargon to easily read and understand. This article keeps things simple and understandable. And we love it at GoldSilverWorlds as it links Gold & Silver as being the ultimate ways to protect oneself, although still an extremely low percentage of the population is aware of it.
Guest post via Gold Silver Worlds.
People tend to forget quickly and fail to learn from history. As George Bernard Shaw once said : “What we learn from history is that people don’t learn from history.” So it’s worth one’s time to look back to the past and learn what others before us learnt sometimes the hard way.
As far as Gold’s role in our monetary system is concerned, the most recent learnings and insights come from “the Bretton Woods period”. Apart from being a nice resort in the mountains, Bretton Woodsstands for the agreements that created a new world monetary system in 1944. Courtesy of Scott Minerd, chief investment officer of Guggenheim Partners, who wrote the short but very powerful paper (bottom of this article), full of insights from monetary history. The learnings should be used by all of us, including our economic and political leaders.
Scott Minerd writes:
The early success of Bretton Woods, which relied upon weak currencies to successfully promote exports looks surprisingly similar to the policies being practiced by central banks around the world today. Some have referred to the current policies in foreign exchange markets as Bretton Woods II. Although not officially acknowledged, central banks are once again tacitly pegging their currencies to the dollar. As the U.S. is expanding its monetary base through quantitative easing (QE), other countries have few options but to join this race to the bottom. This situation is as unsustainable today as it was in the 1960s.
Gold was an important component of the Bretton Woods system. As a monetary anchor, it provided stability for the dollar as a global reserve currency. With the demise of gold convertibility under Bretton Woods, global price stability began to unravel. After being depegged from its official price of $35 per ounce in 1971, gold rose by more than 2,000% over the next 10 years. Investors migrate to gold when currencies no longer function as good stores of value.
Guest post by Marc Chandler of Marc to Market.
Guest post by Marc Chandler of Marc to Market.
Our concern then is that Q4 is going to be more volatile that is currently implied and that has directional implications for the dollar. Many longer-term investors believe the US fiscal cliff and debt ceiling issues are the biggest risks facing the world economy. Others are more concerned about the unresolved European debt crisis an the signs of prolonged economic weakness.
Latest market thoughts by Hussman of Hussman Funds.
In the context of historical evidence and outcomes, present market conditions give us no choice but to remain highly defensive. Valuations remain rich on the basis of normalized earnings (which are better correlated with subsequent returns than numerous popular alternatives based on forward operating earnings, the Fed Model and the like). Investor sentiment is overcrowded on the bullish side even as corporate insiders are liquidating at a rate of eight shares sold for every share purchased – a surge that Investors Intelligence describes as a “panic.” Market conditions remain steeply overbought on an intermediate and long-term basis, with the S&P 500 still near its upper Bollinger bands (two standard deviations above the 20-period moving average) on weekly and monthly resolutions. We continue to observe wide divergences in market action, from century-old criteria such as the weakness in transports versus industrials (which suggests an unwanted buildup of inventories) to more subtle divergences and signs of exhaustion in market internals.
Overall, we continue to estimate a steeply negative return/risk for stocks on horizons from 2-weeks to 18 months. I recognize that this is easy to treat as disposable news, given that the ensemble methods we developed to capture both post-war and Depression-era data have indicated a negative return/risk profile for stocks since April 2010, yet the S&P 500 is 18% higher today than it was at that time. Central bank interventions have certainly played a role in that gain. But then, our prospective return/risk estimates have been in the lowest 1% of historical data only since March, and the market loss that would erase the intervening gain since April 2010 is one that we would consider small from the perspective of present market conditions. The average cyclical bear market has historically wiped out more than half of the preceding bull market advance, and stocks have typically surrendered closer to 80% of their preceding bull market gains when the cyclical bear is part of a “secular” bear period such as the one we’ve experienced since 2000 (see the discussion of cyclical and secular fluctuations in A False Sense of Security). I remain convinced that we will observe numerous points in the market cycle ahead where the evidence will support a significant and even aggressive exposure to market fluctuations. Now is not one of those points.