Category: Currency

Bad Investments

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Interesting numbers on foreign investments in the US:

Foreign investors exploited the declining U.S. dollar during the past three months to snap up American companies, taking the biggest share of U.S. deals in at least a decade.

Buyers from Dubai to the Netherlands accounted for 46 percent of the $230.5 billion of U.S. mergers and acquisitions announced in the fourth quarter, the largest portion since 1998 when Bloomberg started compiling the data. The total excludes $17.9 billion of so-called passive investments by state-run funds in Asia and the Middle East in U.S. banks, including New York-based Citigroup Inc.

So, counting the “passive investments” we’re over 50%.

This reminds me of when the Japanese bought in the US in the early 1990s, and later sold at a 30% loss.

This time though, I think that it’s more likely that the losses will come from a plummeting dollar.

More Trouble for Anglo-Saxon Capitalism: UK Defisit Soars

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The current account deficit has increased 50% to £20 billion in the 3rd quarter.

That’s double what was expected, and it is largely as a result of the credit crunch.

My take is that there were a lot of revenues generated by phony deals on phony securities, and the time to pay the piper is now coming due.

It should push down the Sterling a bit, which is one reason that my year end predictions now look increasingly unlikely.*

*There is also the fact that I can’t predict my way out of a paper bag.

National Banks Try to Bolster the Dollar

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Lower interest rates overseas make the dollar a more attractive investment, so, in an attempt to bolster the dollar, you have the Bank of England cutting rates to 5.5%, the ECB, which intended to raise rates, leaving the Euro interest rate unchanged, and the Bank of Canada cutting interest rates, which is why the Canadian dollar is below parity for the first time in about a month.

It won’t last. The Fed will cut rates at the next meeting, and might do it by 50 basis points (½%).

Yeah, Right, No Connection to the Ron Paul Campaign

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Feds raid private mint, Norfed, for mail fraud, wire fraud, money laundering and conspiracy, in addition to currency related violations.

Here is the interesting part:

Norfed officials said yesterday that the six-hour raid occurred just as its six employees were mailing out the first batch of 60,000 “Ron Paul Dollars,” copper coins sold for $1 to honor the candidate, who is a longtime advocate of abolishing the Federal Reserve. The group says it has shipped out about 10,000 silver Ron Paul Dollars that sold for $20 and about 3,500 of the copper $1 coins. But it said the agents seized more than 50,000 of the copper coins — more than two tons’ worth — plus smaller amounts of the silver coins and gold and platinum Ron Paul Dollars, which sell for $1,000 and $2,000.

….

A Paul campaign spokeswoman said yesterday that the campaign has “no affiliation” with the Ron Paul Dollars.

Just like the people using zombie networks to crank out Ron Paul spam, “no affiliation” to the Paul campaign.

It appears that someone in the campaign has ties with groups of dishonest people who cheat others for their own profit, and that they are calling in favors.

Who the hell is running this campaign, Vincent “the Chin” Gigante?

Economic News for the Day

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Yes, the stock market is up, but that is peripatetic. Here are some more links to follow:

Countrywide’s mortgage loan origination falls 48%

Existing home sales expected to hit 5-year low in 2007, a 12/7% decline, with 2008 looking even worse.

China’s inflation rate hits 11-year high, they are claiming 6.5%, but how you can have that when food is going up at 17.6%, and pork by 54.9%, I gotta figure that they, like the US tweak their cost of living figures. If forced to raise interest rates, it will put further downward pressure on the dollar.

Foreign Central Banks Instituting Currency Controls to Prop Up Dollar

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Just so you knoow, this is a pretty good indicator that the dollar’s “Wile E. Coyote” moment will be sooner rather than later. So the fact that the central banks of India, Korea, and Columbia have implemented measures to keep the the dollar from tanking is not a good sign.

In Colombia, international investors buying stocks and bonds must leave a 40 percent deposit at Banco de la Republica for six months. The Reserve Bank of India created a bureaucratic thicket to curb speculation by foreign money managers. The Bank of Korea is investigating trading of currency forward contracts to limit gains in the won, now at a 10-year high.

Instead of using currency reserves or interest rates to influence foreign exchange markets, central banks and finance ministries are setting up obstacles to keep the falling dollar from threatening company profits and economic growth. The U.S. currency slumped 10 percent this year against its biggest trading partners, the steepest decline since 2003, while Treasury Secretary Henry Paulson has reiterated that the U.S. supports a “strong” dollar.

This isn’t going to work, and will make the eventual dollar collapse worse.

Economic Avalance Update: November 7 Edition

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The Dollar hit another all time low, it’s currently at $1.4645:1.0000€, oil peaked at $98.62/bbl, the Canadian Dollar briefly broke $1.10 US today and the Dow dropped 361 points.

Not only do I expect to be right on the Euro breaking $1.50 and oil breaking $100/bbl before year’s end, we may see significant moves toward moving oil to Euro denomination by next June. Iran and Venezuela are already pushing for this for political reasons, and the dollar’s decline will likely put pressure on other petro economies to go a similar way.

To quote Paul Krugman (PDF):

Almost everyone believes that the US current account deficit must eventually end, and that this end will involve dollar depreciation. However, many believe that this depreciation will take place gradually. This paper shows that any process of gradual dollar decline fast enough to prevent the accumulation of implausible levels of US external debt would impose capital losses on investors much larger than they currently expect. As a result, there will at some point have to be a ‘Wile E. Coyote moment’ – a point at which expectations are revised, and the dollar drops sharply. …..

You have to love an economist who can invoke the Warner Brothers.

Gisele Bündchen No Longer Trusts the Dollar

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Yes, the dollar has become so weakthat even super models know about it. Gisele Bündchen is now demanding that all her contracts be Euro denominated.

The kicker is, she’s from Brazil….They know what it’s like there to have to get your salary daily because you need to spend it because it will be worthless in a week.

US money is not good enough for her.

Though apparently US guys are (that’s Tom Brady).

Yet another reason to hate the New England Patriots.

Economic Update

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Well, the economy logged a brisk 3.9 growth rate, which is pretty stellar, particularly since it would have been about 1% higher if the housing market were not tanking, but still, the Fed cuts rates by 25 basis points.

Maybe they know that there is some level of bullsh&% in the figures that they cannot trust.

In response, the dollar tumbled. The Canadian dollar bought more than $1.06 for the first time since 1957, the Euro broke the $1.45 barrier, going to $1.4503:1.0000€, and the Sterling is now $2.0813:£1.0000.

I said that the dollar would break through $1.50:1.00€ before year’s end, and I stand by that.

As to the Chinese Yuan, it doesn’t move as much, as it it still partially pegged to the dollar,

but it has risen by about 10 % since it became more loosely pegged about 27 months ago.

I expect a run on the US dollar sooner, rather than later, perhaps before the 2008 elections.

Financial News, and it is Not Good

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The dollar is at an all time low, $1.4393:1.00€, and $1.0398:$1.00CAD.

Oil is now at $92.79/bbl.

So, the question is now not just whether the fed can cut rates, but if the currency situation has already precluded any more action in that direction.

Even if the fed cuts rates, if the dollar falls significantly, and all indications are that it will, it will push up rates anyway, as the US needs the foreign dollars to function, but those lenders will demand a better return on their investment for the higher perceived risk..

Nouriel Roubini is a F&^%ing Genius

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Dr. Roubini reminisces aboutr how he was thought a lunatic in his latest blog post. A governor of the Chilean central bank commented “Usually at this kind of meetings I used to hear that the views of Nouriel Roubini about an impending financial and real hard landing are from the Moon. But this year there are plenty of “lunatics” around!“

Just so you know, these were the good doctors predictions form a year ago:

  • The U.S. would experience its worst housing recession in decades;
  • home prices would follow sharply (at least 20% in the next few years);
  • the housing troubles would start in the sub-prime mortgage market and lead to move severe problems and a credit crunch in broader mortgage and credit markets;
  • housing woes would spillover to the rest of the economy and to other components of demand – including consumption – via a variety of channels;
  • multiple bearish factors (housing slump, credit crunch, spillovers of housing to other sectors, high oil prices) would lead to a hard landing of the economy in 2007;
  • the world would not decouple from such a U.S. hard landing.
  • Needless to say Nouriel Roubini is a f&^%ing genius, I should also note that I’ve been predicting this since 2003 on the Stellar Parthenon discussion board.

I would also note, that I have been predicting much the same since before December 2003, and additionally, I’ve been commenting on the downward pressure on the dollar, which I believe will lead to sever (double digit) inflation, though this may already have occurred, given how much the BLS and other governmental entities collude in tweaking the numbers to generate low numbers.

I can’t give an exact date and time, but I expect the dollar to weaken to more than $1.50:1.00€ before years end. 5 Years ago it was about $0.95:1.00€, and a few years befoire that, it was $0.72:1.00€.

So the dollar has fallen 50%.

U.S. Assets Dumped by Foreign Investors in August

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The US had net sales of minus $69.3 billion in August, a positive sales of $60 billion. To put this in perspective, the last time that net sales of long-term securities such as bonds, notes and equities was this bad was when Russia defaulted on its debt.

The dollar is near ist historic low versus the Euro, and the weakness of the dollar is also driving higher oil prices.

This will place further upward pressure on interest rates, to pull the money back, which could make the current situation even more precarious.