From Mike Hartman - FinancialSense....
Dollar Falls to Record Low as Snow Signals No Agreement to Stem Its Slide
The dollar fell to a record against the euro for the fourth time in two weeks and dropped versus the yen as U.S. Treasury Secretary John Snow signaled he won't back any agreement to stem the currency's slide.
"The history of efforts to impose non-market valuations on currencies is at best unrewarding and checkered," Snow said in response to a question on whether he would support an agreement with Europeans to manage the pace of the dollar's decline. He made the comments after a speech in London. (MY COMMENT: Why doesn’t Mr. Snow tell Japan and China about the "unrewarding and checkered" history of currency intervention, instead of telling Europe why we aren’t going to support the dollar in the currency markets?)
Against the euro, the dollar extended its decline this year to 3.4 percent, falling to $1.3037 at 1:44 p.m. in New York from $1.2956 yesterday, according to electronic foreign-exchange dealing system EBS. It dropped as low as $1.3048, the weakest since the euro's 1999 debut. The U.S. currency fell to 103.81 yen, from 105.35, trading at its weakest since April 2.
"It's become obvious the U.S. administration isn't going to stand in the way of dollar weakness," said Jeremy Fand, senior proprietary trader in New York at WestLB AG. "The U.S. administration is playing hardball with the Europeans. If the Europeans aren't going to stimulate their economy, they have to understand there's a consequence."
A rising currency may damp economic growth by making European exports more expensive. Sales abroad account for a fifth of the euro region's economy, which grew at a quarterly rate of 0.3 percent in the third quarter, the slowest pace in more than a year. For the U.S., a weaker dollar may help narrow the record current-account deficit.
'Not Welcome'
Fand predicted the dollar will fall to $1.35 per euro in the next few months. He said the European Central Bank wouldn't "hit the panic button" and consider selling the euro to weaken it until it reaches about $1.40.
"We don't welcome" the euro's rise to a record, European Union Monetary Affairs Commissioner Joaquin Almunia said in Strasbourg, France. "We are all interested in avoiding disorderly movements of the currencies." At least six European Central Bank officials, including President Jean-Claude Trichet, in the past 10 days expressed concern over euro strength.
Basically, Mr. Snow is trying to tell the European Union to get with the program and stimulate the economy via monetary and fiscal stimulus. We want them to inflate just like we are along with Japan. Monetarily we are telling them to lower interest rates and gun the money supply, while on the fiscal side we are probably telling them to increase government deficit spending to keep the money flowing until economic momentum can sustain itself. Remember that the euro was created to eventually work as a global reserve currency concurrent with the U.S. dollar. It looks like our guys are saying, OK Europe, you want a strong currency…you can have it along with its attendant problems. Now we have to see who will win this grand game of chicken. Will the U.S. begin to impose discipline on monetary and fiscal policies, or will the E.C.B. buckle under the pressure of a strong euro forcing them to overtly weaken the euro and support the dollar just as Japan and China have been doing?
Something else from Mr. Snow appeared in another Bloomberg article that came across as almost comical. I ask you, who is this guy is trying to con? He was asked about the possibility that the Bush administration doesn’t mind the dollar’s drop because it makes U.S. exports more competitive. His answer, “Let me be clear: our policy is for a strong dollar. Our dollar policy remains unchanged because a strong dollar is in both the national and international interest.” If you have seen a dollar chart for the last three years, it’s obvious this is just the stated party line with nothing of substance. The dollar is getting crushed internationally!
It appears quite clear that we are headed for some turbulent times in the currency markets with all the noise between the European and U.S. officials, the direct link between the dollar and the Chinese yuan (Renmibi), and overt intervention by Japan to weaken the yen. Who really knows what any of the major countries intend to do with their currencies. One thing for sure is that the countries around the globe will not decrease their money supplies to strengthen their currencies, but will only change the rate at which they increase the supply of money. Once again, that is why I believe the right thing to do is to invest in the only time-tested, proven currency of precious metals. Deflation is not an option if we are to keep any semblance of the global monetary system we use today. The Federal Reserve knows their job is very simply to inflate or die. We are now pressuring Europe to do the same. In some ways it looks like we are doing all we can to alienate our former allies. As time passes it is becoming more and more obvious why the Europeans have been snuggling up to Russia, China, and Iran for future business expansion and energy needs.
I also heard a blurb on CNBC from one of their commentators that someone from the ECB made comments about having to punish the “dollar managers” for their irresponsible deficit spending with a new round of import tariffs. The commentator mentioned possible tariffs on textiles, sweet corn and machinery. I have been looking for supporting evidence on the internet, but have not been able to confirm the possible threat of import tariffs. If this is true, you can add trade wars to currency wars for next year.
Gold and silver are still marching forward, but there are clearly some doubting gold and silver stock investors that remain on the sidelines waiting for a pull-back. Sure we could get one, but what if we don’t? It was sure nice to see some of the juniors finally breaking out today…one of my favorites was up by 9% today. At what point do you begin to chase this bull market? Many investors in gold and silver mining companies watch the metals prices closely, and even go a step deeper to see the positions of traders on the commodity exchanges. The open interest in gold and silver is reaching new heights and the short position of the commercials continues to grow along with the net long positions held by the specs. Many analysts and investors are expecting the commercials to get heavy handed with their selling to force the market lower, especially with the stakes being very high for the December contracts. My take on the situation is pretty simple. As long as the dollar is getting hammered in the currency markets, the commercials won’t be able to roll the specs over.
If you are interested in reading more on the shenanigans of the ongoing saga between the specs and commercials, I’m leaving you with these two links to a couple authors that really do know the COT report and how to decipher the messages. The first came a week ago from Ted Butler called “Do or Die?” and the second comes from my friend Dan Norcini (AKA, Trader Dan) called, “Some Comments on the Latest COT Release of 11-15-2004.” (Try the trial membership to lemetrolpolecafe.com to view the article.) I have a great deal of respect for both of these gentlemen to give you the straight scoop. As a special point of interest, please note what Mr. Butler has to say about investors holding bullion versus paper silver and mining stocks. If you own any bullion you will know exactly what he means. If you don’t own any, I think it’s a great idea to go get ya’ some!! Once you have it in your possession you will most likely begin to feel a greater sense of financial security…I did and still do!
Have a Great Evening!
Mike Hartman
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