January 9th, 2010

Ye Olde Retirement Account:
Whither the Buck?

Posted in Money by ed

Since Pearl Harbor Day, everybody — everybody — in the money world has setting up for a dollar rally in early 2010, to correct the Buck’s big fall in 2009. The rally — or at least a snap of the dollar’s downtrend — began in December.

But recent US economic news has been mixed, with housing optimism again failing. And yesterday’s unexpected drop in the monthly Jobs report — when the whisper numbers, reported by Todd H at Minyanville, were as sunny as 100,000 jobs created, not the 85,000 lost in fact reported — has people scratching.

And has a lot of fat set-ups suddenly looking pale. If the dollar were to turn down here with any authority, it would touch off a panic sell. And gold would soar.

Here’s the past year for the DXY index, which measures the Dollar against the Euro, Yen, Pound, Swiss Franc, Swedish Kroner and … Aussie dollar, if memory serves.

You can see the year’s tumble, the upturn in December, and the flatline since, as people puzzled and waited for yesterday’s US job number — which sent the dollar down.

Also this past week, bad employment news in Europe and an unusual public disagreement in Tokyo enriched the currency picture.

The new Japanese Finance Minister on his first day loudly renounced his predecessor’s Strong Yen bias — but the next day the Prime Minister rebuked the new Finance guy.

Nevertheless, people seem to think the Japanese bank may begin to publicly intervene — buying dollars — to weaken the Yen, trying to recover the balance that was broken this past year as the Dollar tumbled. (A relatively weak Yen helps Toyota and Sony sell stuff to the corpulent American consumer.)

So. New employment weakness in Europe will promote a weaker Euro.

Tokyo wants a weaker Yen.

But the (mixed) weakness in USA economic numbers across the past month will also blunt the momentum that had been building at the Fed to raise its bank rates sooner than later, blunting the Dollar’s heavily anticipated rise.

So. The three big currencies seem ready to race each other to the bottom.

Makes it very difficult to guess or bet on the currency pairs (ie, to trade dollar versus euro, euro vs yen, dollar vs yen, etc).

But if all the central bankers are intent on keeping their currencies weak, it seems gold — despite the recent trend in thinking re the Dollar rebound — will benefit again this year.

So I got back into some gold yesterday in my retirement account (having sold out early December, on the report of the November employment numbers).

And may prove a bit early getting back into gold now, if indeed the Dollar bid of December holds a while longer. As always we shall see. The dollar was down yesterday, on the bad US employment news.

I also got into a Japan fund this week, inspired by the new Finance Minister. The chart here is inviting — for Japanese stocks have suffered of late, not like American, worse than Chinese. Thus obvious room for upside if the Strong Yen is truly dead. And Japan would serve as something of a hedge on my new gold bet if the dollar were to rock a bit skyward against the yen.

Am still 40% cash in the retirement account. Would like to get back in technology if the stock markets provide an opening (ie, go down) sometime. They’ve been up, generally speaking, since March last year — perhaps (another story this week) with direct help from Tsy and Fed, who may have been buying S&P Mini Futures on the sly (again).

(They began doing so in March 2003 to support the Iraq war. Fiendish. A great sickness. Free market capitalism? Don’t be silly.)

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  1. ed says:

    Art Cashin, good short-term mkt feel guy:

    “But I’m looking at two other numbers that kind of surprised me: commercial paper issuance dropped dramatically in the recent week and M3* seems to be contracting.”

    “We’re going to watch to see if that’s a sign that the economy is starting to pull back a little here.”

    Cashin said that small businesses, once the largest employers in America, are still being injured by multiple problems in the banking sector:

    “The big banks are awash in cash, but claiming that no one wants to borrow. The smaller regional banks are not quite in the same shape—and that’s hurting small businesses.”

    This kind of weakness, again, would work against the Dollar rising.

    We shall see. Earnings reports begin in earnest next week too.

    January 9th, 2010 at 9:07 pm

  2. ed says:

    Some clarity re the mid-term may be at hand (along lines laid out in main post above): Monday morning in Asia the follow thru is strong:

    – Gold up sharply, up $20-25, as high as 1163. Important resistance here is 1166. If that breaks early this week, could be in for a real ride.

    – Dollar is down mildly vs euro and yen, following thru on Friday’s bad US jobs report. Thesis is that a little dollar weakness now may set off voluminous disappointed selling of the buck, given the huge buildup thru out investorland since Pearl Harbor Day for a rally. Which would tend to help precious metals, commodities, big US exporters and US assets in general (the latter as the “dollar carry trade” resumes after a December pause) …

    This situation should not change until the US economic data shows enough improvement to get the Fed talking about raising the two bank rates it controls and shutting down its various relief programs. This trend in talk began in December, as the dollar did its rebound, but it’s now likely the Fed heads will go back to pure doves.

    And that’s why the dollar’s soft and gold very strong in Asia.

    Well, let’s see, tomorrow, if Monday in north america supports Monday in asia.

    – Chinese stocks up sharply on economic data. This seems in retro to explain China gov’tal tightening last week — ie, they saw the jumpy data and concluded they needed to begin tightening to avoid renewed asset bubbles …

    China’s stock market has been sluggish for months. This may mark the resumption of its bull. We shall see.

    January 10th, 2010 at 9:04 pm

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