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Strategies & Market Trends : The coming US dollar crisis -- Ignore unavailable to you. Want to Upgrade?

To: stan_hughes who wrote (886)	9/9/2007 9:58:54 AM
From: Real Man	Respond to of 71475

Well, that's certainly an interesting perspective, and we'll see shortly if BB succumbs to the pressure to cut.

To: stan_hughes who wrote (886)	9/9/2007 6:13:35 PM
From: RockyBalboa	Read Replies (1) \| Respond to of 71475

The collapse begins,... ruining some trades, carry trade a little under pressure, because traders expect the Europeans tomorrow morning to apply some billions quick fix. FWIW,the yen again looks at recent highs under Y113 vs the greenback. Y100 would be an obvious try, supported by the USX continue to trade under 80... I m gonna listen a little bit to our old friend Jim "Boooyah" youtube.com He has NO IDEA how bad it is out there, NO IDEA! NUTS, HE KNOWS NOTHING NOT!"... btw: got a grub :)

To: stan_hughes who wrote (886)	9/9/2007 11:47:30 PM
From: oldsman	Respond to of 71475

Nice rant Stan

To: stan_hughes who wrote (886)	9/10/2007 5:38:38 AM
From: Real Man	Respond to of 71475

A very nice rant. Personally, it is very hard for me to believe in "tough Ben", because of his wave of coupon passes every 3 months to cope with the problem, just as recently as April/May. IMHO the Fed is trapped, and is facing increased pressure on all fronts. One front is the dollar, the other front is the economy. When you talk about tough Ben, don't forget this is the very same Ben that discontinued M3 in 2006 and proposed more hedonics to alter inflation statistics, which drastically understates inflation already. It's all about saving face, saving the image, the credibility Ben is not dumb. He knows that if he cuts, say, 50bp., here and now, Mr. Market (400 Trillion dollar 800 lb. carry trade gorilla) will respond by selling the dollar. Foreign CBs sold dollars all August. So? If selling intensifies, his cut effort will be undermined by de facto reverse coupon passes imposed by our foreign creditors. They could raise 10-year and 30-year rates to 10-15% easily if they panic. Who raised the libor rates after all? It's payback time, for the Fed bubble blowing policies. The credit market and the currency market are a lot bigger than the Fed. Once the Fed's credibility goes, so will the dollar, to the tune of a 50% drop. So? I think I agree, it's all about saving the image of US Fed. But what they do is another matter. In a dollar crisis scenario it may be very hard for them to do anything. They may cut, then Mr. Market will sell dollars and raise LT rates for them. Tough stuff, self-imposed by blowing bubbles, of course. No doubt Ben, Hank, Shrub and Co. don't want an equity market meltdown, so they will do anything to buy more time before the inevitable. Stuff will hit the fan, eventually, and this Summer has been just a prelude to what's coming as more mortgages will reset over years.

To: stan_hughes who wrote (886)	9/11/2007 6:45:20 AM
From: Real Man	Read Replies (2) \| Respond to of 71475

These are probabilities of Fed meeting outcome implied by the markets, so the market is now giving a 50bp. cut a higher probability than a 25bp. cut. The probability of no cut is almost zero In general, rate declines should not be bullish for stocks, as we've seen in 2000-2002 -g-

To: stan_hughes who wrote (886)	9/14/2007 8:34:35 AM
From: ProDeath	Respond to of 71475

Very good Stan, thanks for pointing your posting out to me. I can't see anything to disagree with at all, and it is a comfort to find that I'm not the only one hoping for something other than another rate cut "gimme". I had noted Bernanke's inflation sensitivity in the recent past and would like to see him make another reiteration of this concern. I'm all for your "no Fed Funds cut" prediction, but I'm also thinking this could be made less bitter in taste by a tweak on the discount window. I don't have much confidence in terms of the risk I am taking on on any of the possible outcomes, so I'm mostly cash with some selected short positions that can be closed quickly if we end up with a rate cut party.

To: stan_hughes who wrote (886)	9/14/2007 12:25:20 PM
From: Perspective	Read Replies (1) \| Respond to of 71475

Nice post! <IMO what happens in the next few weeks could color life in the US for many years to come, which also has considerable implications for many others outside its borders> and to look at the equity markets, you'd think it was just business as usual. BC

To: stan_hughes who wrote (886)	9/15/2007 1:56:50 AM
From: the navigator	Read Replies (1) \| Respond to of 71475

Very very good post. So this is what motivated the "bin laden trades," they know the fed is not going to cut rates! (just kidding) Seriously, though, I've been thinking about Mr. Bernanke and the situation in which the Fed finds itself and I'm prepared to expect a big surprise. BB knows "the whole world is watching." And the market is like Pavlov's dogs. They've become so accustomed to being saved by the previous fed head that they are ass uming that it's going to happen again, expectations are powerful things. Bernanke may have the ego to want to make his mark and this is the first really BIG crisis he's had to deal with, there is a lot on the line for him here. He may try to get creative.

To: stan_hughes who wrote (886)	9/15/2007 12:10:36 PM
From: el_gaviero	Read Replies (3) \| Respond to of 71475

Stan Hughes, I think your post about Bernanke is good, and that you might well be right. Bernanke could surprise everybody and not reduce the fed funds rate. If so, however, my opinion is that he won’t be able to hold out long. You are dead right about one thing -- he sees expectations as being crucial. But my opinion is that he is focused upon the wrong expectations. The problem is NOT expectations about inflation. Rather, instead, the problem is expectations about the FED itself. What do I mean? My opinion (and in effect my assumption here) is that there should be more panic in the markets than we have seen so far. (Housing is falling off, the sub-prime mess is not cleaned up, a senseless and expensive war drags on, oil prices are high, the dollar is low, etc. etc. ---- in short, there is a lot to be worried about). But although there is a lot to be worried about, there is no panic. Why? Wall Street has a deep level of belief in the FED, and makes money by making decisions based on an accurate anticipation of what the FED is going to do next. Anticipation of course is just another way to say “expectation.” (((“Wall Street,” by the way, is here understood to be the corps of people who dominate the market these days -- managers of big mutual funds, managers of big retirement funds, hedge fund hotshots, prop desk jockeys and so forth.))) We independent types see how Wall Street’s strategy of keying off the FED leads to “moral hazard.” We see this because we tend to look at markets from the point of view of the mountaintop (i.e., from the perspective of the system as a whole). But were we to come down the mountain, and look at Wall Street from the level of Wall Street, we might see something different, not “moral hazard” but “prisoner’s dilemma.” What the heck am I talking about? I’m making an assumption here: markets are now “overbought,” and an overbought market is a kind of prisoner’s dilemma, where the first people who defect (i.e. sell) set in motion a series of events that brings down the entire market. Since everybody knows this, there is constant pressure pushing markets towards stability, i.e., towards “normal” metrics based on history and reason. So far, however, nobody (((on Wall Street))) has defected in a big way. Instead they have pushed markets far away from the normal and the rational. The reason is because they have expectations NOT about inflation but about the FED itself, and about government in general. They believe in government (which means in practice, they believe that they have the power to influence government, and they believe that government has the power to transmit their influence to the rest of the system). If Bernanke does not lower the federal funds rate as EXPECTED, he is playing with fire in a way that he may not be fully aware of. He may think that he is trying to anchor expectation about inflation when in fact what he is doing is un-anchoring expectations about the FED (among a corps of key players, you understand). The danger is that Bernanke kicks Wall Street out of its current mental framework (“we can manage the system to our collective mutual advantage”) to one in which key players come to think that they are in a prisoner’s dilemma, with its huge first mover advantages. What I take away from this line of argument is that we should pay attention not just to the usual metrics about inflation and so forth, but also to signs of a change of ideas on Wall Street. If Wall Street were to become unbelievers in the church of the FED, the world would soon be a different place.

To: stan_hughes who wrote (886)	9/16/2007 2:24:27 PM
From: Canuck Dave	Read Replies (1) \| Respond to of 71475

Great post. Keep em coming. I had similar suspicions, but not nearly as well thought out as yours. "Ben's got balls." NOW try to sell sell your speculative second house. CD

To: stan_hughes who wrote (886)	9/16/2007 2:32:02 PM
From: koan	Respond to of 71475

Thank you very much. Very good. But I am guessing 1/4% reduction of fed funds rate Mon, and another 1/2% before year end, becasue to do otherwise will cause wall street and the world's stock markets to sell off huge. I agree BB knows he is in a box, but the ONLY way out of this box is controlled inflation and he must know that to. There is no other way out. We sure as hell cannot amortize the debt! A steep fall in the worlds markets, followed by a recession/depression and concomitant huge increases in budget deficits, will cause the dollar to fall just as fast, or faster, and further than mild inflation. Controlled inflation is the only way out of the box, this administration has put the US into. See Greenspans latest pronoucnements about GW's NON economic policies.