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Thread: chart of the week - US Dollar Getting Destroyed

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    Default chart of the week - US Dollar Getting Destroyed



    (snip)Friday, April 8, 2011
    US Dollar Getting Destroyed - 75.09 printed (UUP)

    Scribed by Sellputs at 4/08/2011 03:31:00 PM 0 Comments SO here we are.. Bernanke has offically screwed the dollar.. PPT on the GOLD offers and INDEX bids.. WE go below 75 its gonna get wild in GOLD.. MOrgan stanely cannot hold down the bids for long... 74.96 is tthe 2 year low in the dollar.. (snip)

    from


    The US Dollar Index shown on the above chart is based on the 'purchasing power' of the US dollar in global markets ... or more specifically reflects the international exchange rate value of the US dollar versus six major foreign currencies.

    While the author emphasizes the investor standpoint impact of a weak US dollar on rising prices of gold and US stock indexes, from a consumer standpoint the effect is the opposite. Or put another way, it now requires 88 US dollars to purchase the same amount of foreign / imported goods that 75 US dollars would have purchased a year ago. And as an unneeded reminder, oil is imported at the 'margin', food is imported at the 'margin' etc. thus price levels for US produced oil and food will actually be set by the US dollar denominated price of imported equivalents.

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    Default Re: chart of the week - US Dollar Getting Destroyed

    I don't know much about FX, but this has quite made my jaw drop. Also I hear puts on the S&P500 traded a bunch leading up to that government shutdown or whatever.
    Once again, the conservative, sandwich-heavy portfolio pays off for the hungry investor
    - Dr John Zoidberg

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    Default Re: chart of the week - US Dollar Getting Destroyed

    ^^^ while I don't want to dwell on the 'gov't policy' aspects of the US economy in the Dollar Den, according to several pundits the real global concern over the US economy / US dollar isn't actually a function of the possible ( and now averted ) gov't shutdown. Instead, it is related to the apparent inability of the US house versus senate vs executive branch to actually cut gov't spending in any meaningful way ... which in turn is guaranteed to lead to the US gov't spending more money than it is collecting in tax revenues ... which in turn is guaranteed to lead to the US Treasury floating more treasury bond sales in order to fund the shortfall ... which in turn is probably going to result in the FED becoming the ( primary ) buyer of newly issued US treasury bonds using freshly printed US dollars in order to ( indirectly , via Wall St 'member' banks ) fund the purchase.

    From the point of view of foreign investors ( like China, Japan, the Oil Sheiks etc.) this action amounts to a deliberate monetizing of US debt thus a deliberate devaluation of the US dollar's exchange rate versus their 'home' currencies, thus a deliberate devaluation of the hundreds of billions worth of US treasury bonds that these foreign investors already own. Obviously, the prospect of ongoing future losses on US treasury bonds in terms of foreign investor 'home' currencies provides zero incentive for those foreign investors to purchase yet more US treasury bonds with their US trade surplus dollars ... which instead provides significant incentive for those foreign investor trade surplus dollars to 'find a home' elsewhere. Some of these US trade surplus dollars have found their way to the commodity markets, some to other major currencies dubbed to be more 'stable' than the US dollar ( i.e. Swiss Franc, and to some extent the Euro ), and obviously some has gone to the precious metals markets as well.

    And from a US stock market standpoint, the only way that the US stock shares owned by foreign investors can avoid similar de-facto devaluation in terms of their 'home' currencies is for the FED ( again via Wall St 'member' banks ) to continue the purchase of ( index listed ) US stock shares ( again paid for by freshly printed FED dollars ) so that falling de-facto value of the shares in terms of those 'home' currencies is counteracted by rising US dollar denominated share prices ( which is significantly due to those Wall St 'member' banks buying and selling US stock shares amongst themselves ).

    The real subsurface fear, according to some of the businessmen vacationing in my new 'neck of the woods' at least, is that if / when foreign investors lose confidence in their ability to earn a net positive rate of return on US Treasury bonds ( relative to the value of their 'home' currencies ), they will disappear from future US Treasury bond auctions. This in turn will result in either the FED having to accelerate the rate at which yet more billions of dollars are printed out of thin air in order to indirectly purchase the new US Treasury bonds the gov't needs to sell in order to continue sending out checks ( at an acceptably low interest rate ), OR the US Treasury will have to raise interest rates on newly issued Treasury bonds significantly in order to (re)attract foreign investor action at future Treasury bond auctions ( which would quickly percolate throughout all aspects of the US economy ).

    ~
    Last edited by Melonie; 04-11-2011 at 02:39 PM.

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    Default Re: chart of the week - US Dollar Getting Destroyed

    Bonds all round the shop getting some activity today - with the Japan crisis, people are moving their money around
    Once again, the conservative, sandwich-heavy portfolio pays off for the hungry investor
    - Dr John Zoidberg

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