Monday, March 15, 2010

Dollar Up On Poor Economic Data And News...Imagine That

Another amusing day in the Precious Metals and World currency markets. You had to figure that Friday's breakout in the Euro and breakdown in the US Dollar would not be permitted a follow thru ahead of tomorrow's Fed meeting. A raft of Dollar negative news and data hit the wires today, but all eyes remained on the on again/off again bailout of Greece. So buy the Dollar!


No EU Accord on Greek Bailout
BRUSSELS—Euro-zone finance ministers meeting here Monday are set to discuss how Greece could be bailed out if its financial condition worsened, but they are unlikely to adopt any firm measures.

The hurry-up-and-wait attitude reflects a growing divide between Europe's power centers. On one side are some other southern European countries, the Brussels-based European Commission and, of course, Greece itself, who all fear the nation may be unable to refinance its debt this spring without some measure of support—if only enough to bring down the punishingly high interest rates Greece must pay to buyers of its bonds.

On the other, principally, are Germany and France, the union's two largest economies and the de facto paymasters for any bailout, who are reluctant to pay for Greece's long-time profligacy. Germany, which would have to foot the lion's share of any bill, insists that no specific promises be made to Greece until it is on the verge of defaulting on its debt.

German Chancellor Angela Merkel and Finance Minister Wolfgang Schäuble oppose even reaching a European agreement on how a bailout would work, believing such an accord would be a strong signal that a bailout is imminent. European leaders' promise in February that they would act to protect the euro zone's stability if needed was a clear enough message to financial markets, German officials say.

That European leaders are moving at very different speeds is evident in the public postures of two of them: economy commissioner Olli Rehn and French Finance Minister Christine Lagarde.

In recent weeks, officials in Mr. Rehn's directorate have been working on possible bailout plans, and "the scope of possible options has narrowed," says a person familiar with the matter, adding that demonstrating the EU is ready to step in is a "credibility test" of sorts for the bloc. Monday, Mr. Rehn seemed to advance talk of a bailout, saying the commission, the EU's executive arm, is "ready to develop a proposal for a European framework of coordinated assistance."

But the world is full of surprises. What a shock it will be when the US finds itself in Greece's shoes!
-Bill Bonner, The Daily Reckoning

Is The Euro Breaking Out?
Revisiting yesterday's post regarding a breakout in the Euro... Today we retested the breakout much sooner than I expected. I don't view this as a positive or a negative. A retest of the breakout was expected, and today we got it. The fact that we bounced off the retest at 1.3660 is a positive. Some follow through tomorrow would be even more positive. I have a chart video that further analyzes Friday's breakout in the Euro and discusses where it may be headed in the weeks ahead.

This morning we were given four excellent reasons to dump the Dollar , yet miraculously it rose back above the 80 handle. When we last looked at the Dollar Friday afternoon it was hanging by a thread, so today's "miracle" should be of no surprise.

U.S., U.K. Move Closer to Losing Rating, Moody’s Says
March 15 (Bloomberg) -- The U.S. and the U.K. have moved “substantially” closer to losing their AAA credit ratings as the cost of servicing their debt rose, according to Moody’s Investors Service.

The governments of the two economies must balance bringing down their debt burdens without damaging growth by removing fiscal stimulus too quickly, Pierre Cailleteau, managing director of sovereign risk at Moody’s in London, said in a telephone interview.

Under the ratings company’s so-called baseline scenario, the U.S. will spend more on debt service as a percentage of revenue this year than any other top-rated country except the U.K., and will be the biggest spender from 2011 to 2013, Moody’s said today in a report.

“We expect the situation to further deteriorate in terms of the key ratings metrics before they start stabilizing,” Cailleteau said. “This story is not going to stop at the end of the year. There is inertia in the deterioration of credit metrics.”

Hey, Little Timmy Geithner told us just the other day that the USA "will never lose it's triple-A credit rating". And CNBC's Steve Liesman told us that again this morning...much to the dismay of Rick Santeli. US debt must be the ultimate safe-haven! Hardly...

Bottom line: Dollar negative.

Snowstorms curb industrial output, rebound seen
(Reuters) - U.S. industrial production braked sharply in February, held back by severe winter storms that slammed parts of the country, while manufacturing activity in New York state stalled this month.

Analysts said Monday's data did not alter their views that the factory-led economic recovery remained on track, given weather disruptions and the fact details of the reports showed underlying strength. They expect a rebound in industrial production in March.

While U.S. manufacturing output fell in February, it rose outside of the auto sector, and mining activity posted a strong gain, leading overall industrial output to rise slightly. In addition, factory employment, shipments and unfilled orders in New York state all rose this month.

"The two reports were positive for the economy and they do indicate that the factory sector will make a positive contribution to growth in the first quarter," said Kenneth Kim, an economist at Stone & McCarthy Research Associates in Princeton, New Jersey.

Blame the weather. LOL! Sure they "expect" a rebound in industrial production in March. "they've" been "expecting" a rebound for month already, why not next month too. Of course it will probably rain too much, and industrial production will be abysmal yet again. I guess it's all about how you interpret the data and report the facts. Look at this report on industrial production:

Industrial production is up, thanks to mining, utilities
WASHINGTON — Industrial production edged up 0.1% in February, beating expectations and marking the eighth monthly increase. But the key manufacturing sector produced less.

The Federal Reserve reported Monday that manufacturing output, the index's largest component, fell 0.2%; while output at mining companies and utilities increased 2.0% and 0.6%, respectively.

Manufacturing took a hit from winter storms that shut down most of the Northeast in February, decreasing hours worked at factories and restraining workers' earnings. However, the storms increased demand for energy, boosting mining and utility production.

So it snowed in the Northeast. Is manufacturing ONLY done in the Northeast? I think all the cars are built in the Midwest... In the first story the claim is that reports indicate that the factory sector will make a positive contribution to growth in the first quarter. The second story makes it clear that manufacturing sucked wind, and that "because" of the bad weather utilities were a major contributor to there being any growth in industrial production at all in February. So blame the weather... Without it industrial production would have been negative.

Bottom line: Dollar negative.

U.S. suffers net capital outflow in January
(Reuters) - Foreign investors, led by central banks, were net sellers of all U.S. securities in January but continued to buy U.S. Treasuries, the Treasury Department said on Monday.

China remained the largest single holder of U.S. government debt, with $889 billion in hand in January, down from $894.8 billion in December. Japan was second with $765.4 billion compared with $765.7 billion the prior month.

Net outflows from all U.S. securities, including short-term instruments such as Treasury bills, totaled $33.4 billion in January, reversing a $53.6 billion inflow seen in December.

Official investors -- primarily central banks worldwide -- were the biggest sellers, unloading a record net $34.1 billion, the most since they sold $26.3 billion in September 1998 following financial crises in Asia and Russia.

Long-term securities saw a net inflow of $19.1 billion, though that was below December's $63.3 billion tally.

The government refuses to admit it, and the financial media refuses to acknowledge it...the World is running away from the US Dollar and Dollar based assets as quickly as it can. China has now lightened it's load of Dollar securities three months in a row. A net capital outflow means the US did not take in enough investment money to fund the current account deficit.

Bottom line: VERY Dollar negative.

China trims holdings of Treasury securities
WASHINGTON (AP) -- China retained its spot as the biggest foreign holder of U.S. Treasury debt in January even as it trimmed its holdings for a third straight month. The string of declines underscored worries that the U.S. government could face much higher interest rates to finance soaring budget deficits.

The Treasury Department said Monday that China's holdings dipped by $5.8 billion to $889 billion in January compared with December. Japan, the second-largest foreign holder of U.S. government debt, also trimmed its holdings but by a much smaller $300 million, to $765.4 billion.

Net foreign purchases of long-term securities, a category that includes both government and corporate debt, totaled $19.1 billion in January, as net purchases of private corporate bonds fell by $24.8 billion, the biggest drop on record.

Now what was Moody's talking about in the first story above? The US could lose it's triple-A debt rating if costs to service that debt continue to rise. I fail to see how the Chinese lightening their load of US debt refutes Moody's assertion. If anything, it confirms it.

Bottom line: Dollar negative.

Clearly, NOTHING Dollar positive can be gleaned from these four data/news releases this morning. Yet somehow, the Dollar managed to pull back from the cliff this morning and rise above it. Well of must buy the Dollar with all those troubles over in Euroland with little Greece facing a debt crisis. I know, it's hilarious, right?

Dollar Bulls Beware
By: Peter Schiff, Euro Pacific Capital, Inc.
By late 2009, as the U.S. dollar flirted with multi-year lows against most foreign currencies, big investment players crowded into trades that shorted the greenback. Commentators noted that the anti-dollar momentum had taken on a life of its own and that the trade had become too crowded. It is true that markets have a nasty tendency to move against the crowd. When a lot of traders agree on a particular trade, it's more likely that in the short-run the opposite trade will be a winner.

The 2008 "flight to safety" rally of the U.S. dollar was a once in a lifetime event that presented huge opportunities for aggressive currency traders. By December 2008, after rallying 25% over the previous five months, the dollar topped out. However, there were many speculators who had come somewhat late to the party, as well as many others who had ridden the dollar up and were thus sitting on huge unrealized gains.

Those technical reasons, combined with the re-emergence of strong growth in emerging markets and solid earnings from overseas companies, redirected investment flows away from the dollar. 2009 became a year of dollar weakness, with the buck giving back nearly all of its gains. At that point, most people made the reasonable conclusion that the decline would continue.

As is often the case, an unforeseen event came along that made mincemeat out of the consensus' well-conceived strategy. Once some fiscal squabbling grabbed headlines in the eurozone, the negative sentiment that had built up on the dollar was suddenly diverted to the euro. Catalyzed by the Greek debt crisis, the greenback surged by about 8% in six weeks.

From a technical standpoint, the short dollar trade of late 2009 was too crowded; but from a fundamental standpoint, I don't think it was crowded enough. As with stocks, there can be no long-term substitute to examining a government's fundamentals to determine its currency's worth. Based on the fundamentals, far too many investors remain far too confident about the greenback's underlying viability.

In fact, I do not think I have ever seen so rapid a change in sentiment in my career. The crowd had completely switched sides, with most now betting on the demise of the euro rather than the dollar. This is looking like July 2008 all over again, with the dollar poised to put in over-sized gains. It also presents a good opportunity for those who keep their heads.

In my opinion, the market is now perfectly positioned for a massive dollar sell-off. The fundamentals for the dollar in 2010 are so much worse than they were in 2008 that it is hard to imagine a reason for people to keep buying once a modicum of political and monetary stability can be restored in Europe. In fact, the euro has recently stabilized.

My gut is that the dollar sell-off will be sharp and swift. Once the dollar decisively breaks below last year's lows, many of the traders who jumped ship in the recent rally will look to re-establish their positions. This will accelerate the dollar's descent and refocus everyone's attention back on the financial train-wreck unfolding in the United States.

The Great Credit Squeeze
by Martin D. Weiss, Ph.D.
If you think that the sovereign debt crisis is mostly behind us … that America’s federal deficit is turning into a non-issue … or that we can just go back to business as usual … you’d better consider the drama now unfolding in the hard numbers just released last week:

February deficit: In February alone, the official U.S. federal deficit was a monstrous $221 billion, far greater than anything we have ever experienced in history.

Back in the 1980s, for example, President Reagan was plagued with the worst string of federal deficits ever recorded until that time. But with February’s deficit, Washington has managed to run up just as much red ink as it did in all of 1986, the single worst deficit year under Reagan.

Going back further, to the 1970s under President Nixon, we also had a rash of deficit spending that sent chills up the spines of economists. But last month’s deficit of $221 billion was more than TRIPLE the sum total of ALL deficits during the six years under Nixon.

Ever since America’s Declaration of Independence, deficit spending has been a recurring theme in Washington that invariably returns with a vengeance, especially during wartime. But it took 169 long years and seven major wars — from 1776 to 1945 — to rack up a cumulative deficit that matches the gaping budget hole of just 28 short days in February.

What does the government resort to in order to finance these humongous deficits? The answer is obvious …

Despite the Dollar's miraculous resilience today in the face of overwhelmingly negative news and data, Gold and Silver stood strong and actually eked out modest gains on the day. Not surprising really considering the Precious Metal's performance the past couple weeks in the face of obvious manipulative efforts by the CRIMEX goons. The TRUTH is out there. And as each day passes, the TRUTH gains strength as the bright lights begin to focus ever more brightly on the fiscal blight choking America.

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