What Dollar Rally?

Dow ends at lowest close in more than 6 years
NEW YORK (AP) -- An important psychological barrier gave way on Wall Street Thursday as the Dow Jones industrials fell to their lowest level in more than six years.

The Dow broke through a bottom reached in November, pulled down by a steep drop in key financial shares. It was the lowest close for the Dow since Oct. 9, 2002, when the last bear market bottomed out.

The blue chips' latest slide dashed hopes that the doldrums of November would mark the ending point of a long slump in the market, which is now nearly halfway below the peak levels reached in October 2007.
http://biz.yahoo.com/ap/090219/wall_street.html

But they passed the highly touted Obama Plan. What gives? It looks like the dike could use another finger...

Wholesale inflation takes biggest jump in 6 months
WASHINGTON (AP) -- Inflation at the wholesale level surged unexpectedly in January, reflecting sharply higher prices for gasoline and other energy products.

The Labor Department said Thursday that wholesale prices increased by 0.8 percent last month, the biggest gain since last July and well above the 0.2 percent increase that economists had expected.

The acceleration was led by a 3.7 percent surge in energy prices with gasoline prices jumping by 15 percent, the biggest gain in 14 months.

Even outside the volatile food and energy sectors, wholesale prices showed a bigger-than-expected increase, rising by 0.4 percent. Economists had expected a slight 0.1 percent rise in so-called core inflation.

Federal Reserve Chairman Ben Bernanke told an audience at the National Press Club on Wednesday that he saw little risk that the Fed's efforts to fight the recession and a severe financial crisis would trigger inflation presusres.

He said that once the economy begins to rebound and financial markets stabilize, the Fed will be able to quickly reverse the actions it has taken before inflation becomes a problem.
http://finance.yahoo.com/news/Wholesale-inflation-takes-apf-14410311.html

Federal Reserve Chairman Ben Bernanke is a liar and a thief. All of his actions to date scream inflation is purposely being baked into the cake. Bumbling Ben knows this and is counting on it, but his "job" is to "keep inflation expectations in check", so he lies to anybody who'll listen. Unfortunately for you Capt. Ben, the public tuned you out weeks ago...they're on to you.

U.S. continuing jobless claims at record
NEW YORK (Reuters) - The number of U.S. workers continuing to claim jobless benefits jumped to a record high in the first week of February, the Labor Department data showed on Thursday, while new claims for unemployment insurance were unchanged at a very high level.

JOBLESS CLAIMS: * The number of people remaining on the benefits rolls after drawing an initial week of aid surged 170,000 to 4.987 million in the week ended Feb 7, the most recent week for which the data is available. That was the highest reading on records dating back to 1967. * Analysts had estimated so-called continued claims would be 4.86 million from a previously reported 4.81 million the prior week. * Initial claims for state unemployment insurance benefits were a seasonally adjusted 627,000 in the week ended February 14 unchanged from an upwardly revised 627,000 the previous week. * New claims hovered close to a 26-year high. * Analysts polled by Reuters had forecast 620,000 new claims versus a previously reported figure of 623,000 the week before. * The four-week moving average of new jobless claims, a better gauge of underlying labor trends because it irons out week-to-week volatility, rose to 619,000, the highest since 1982, from 608,500 the prior week.
http://www.reuters.com/article/gc03/idUSTRE51I36D20090219

Well, our new President is right about one thing: "Things are gonna get worse, before they get better." To bad that he and his cast of financial rubes have nary a clue how to steer this rudderless ship. The President claims his highly suspect Stimulus Plan will save OR create 3.5 million new jobs. He might want to have the part about "saving jobs" updated or deleted all together. At the rate the economy is now losing jobs, 3.6 million will have disappeared by The 4th of July.

Treasuries Tumble as Fed Signals U.S. Debt Purchases on Hold
Feb. 18 (Bloomberg) -- Treasuries fell as the Federal Reserve signaled it’s not going to purchase U.S. securities to lower consumer borrowing costs any time soon.

Thirty-year bonds, which had been little changed for much of the day, plunged after the minutes of the Fed’s Jan. 27-28 policy meeting showed officials will wait before buying Treasuries. The government tomorrow will announce the size of next week’s auctions of two-, five-, and seven-year notes. The likely total is $97 billion, according to Wrightson ICAP LLC.

The government will sell $41 billion in two-year notes, $31 billion in five-year notes and $25 billion in seven-year notes next week, Wrightson ICAP forecast. The Jersey City, New Jersey- based firm specializes in government finance. The record for a two-year auction is the $40 billion sold Jan. 27. The five-year record is $30 billion, set Jan. 29, and the seven-year record is $9.8 billion in 1993, the year the note was discontinued.

The Treasury sold a record $67 billion in notes and bonds last week.

“The market is going to have to digest a huge dose of Treasuries for a while,” said Jack Bauer, a managing director who helps oversee more than $4 billion in debt in Fairport, New York, for Manning & Napier Advisors Inc. “These numbers are so big it’s hard to get your arms around them.”

Demand for Treasuries from China “remains quite strong,” Fed Chairman Ben S. Bernanke said in response to a question after a speech in Washington.
http://www.bloomberg.com/apps/news?pid=20601087&sid=an89aE6mnAFw&refer=homehttp://www.bloomberg.com/apps/news?pid=20601087&sid=an89aE6mnAFw&refer=home

There he goes again, Capt. Ben stretching the truth further than advised. Yeah, China might still be buying "some" Treasury's Ben, and it might seem like they're buying a lot of them relative to "last years" debt burden that came in just under $500 BILLION. But Ben, the Treasury is going to have to float at least $2 Trillion in bonds this year. Do really believe, do you expect us to believe, that the Chinese are going to buy more bonds this year than last year, or the year before? Ben, you mathematical genius, the Chinese bought maybe 25% of the Treasury debt last year, I don't think that is gonna happen this year OR next.

China is right to have doubts about who will buy all America's debt
Chinese doubts about the value of US Treasury bonds highlight a crucial question: who will buy the estimated $2.7 trillion to $4.2 trillion of debt expected to be issued over the next two years?

With annual foreign purchases accounting for less than a tenth of the low end of that range, and domestic investors unable to bridge the gap, the Chinese are right to worry.

Foreign buyers have absorbed a little over $200bn of Treasuries annually, a useful contribution to financing the $459bn 2008 deficit, but only a modest help towards the $1.35 trillion minimum average deficit forecast for 2009 and 2010.

Unless that changes substantially, there will be $1 trillion annually to be raised by the Treasury from domestic sources, more than double the previous record from domestic and foreign sources together, plus whatever is needed to bail out the banks.

Yu Yong ding, former adviser to the People's Bank of China, recently demanded guarantees for the value of China's $682bn of Treasury securities.... Yu is right to worry.
http://www.telegraph.co.uk/finance/breakingviewscom/4611408/China-is-right-to-have-doubts-about-who-will-buy-all-Americas-debt.html

Oil prices surge on report of falling inventories
COLUMBUS, Ohio (AP) -- Oil prices jumped Thursday as new government data showed U.S. oil inventories fell unexpectedly and that consumption of gasoline and other petroleum products -- which have been plummeting because of the recession -- may be starting to edge higher.

Light, sweet crude for April delivery rose 7 percent, or $2.77, to settle at $40.18 per barrel on the New York Mercantile Exchange. The vast majority of trades have shifted to the April contract with the March contract expiring Friday.

Benchmark crude for March delivery surged 14 percent, or $4.86, to settle at $39.48.

The Energy Information Administration said crude stocks decreased 200,000 barrels to 350.6 million barrels for the week ended Friday. Analysts had expected stock to grow by 3.5 million barrels, according to Platts, the energy information arm of McGraw-Hill Cos. Inventories have risen more than 30 million barrels in the prior six weeks.
http://finance.yahoo.com/news/Oil-prices-surge-on-report-of-apf-14412863.html

AS last Fall's OPEC production cuts work their way through the supply chain, "unexpected" drops in Oil inventories will become the norm over the next several weeks. Oil prices are bottoming NOW. A bottoming in Oil prices coupled with a topping in the US Dollar Index, and the stage could be set for a very rapid advance in the price of Oil through this Spring and into mid summer. $70 Oil by Memorial Day remains my target. Do not be shocked to hear the words Oil and shortage in the same sentence by Labor Day.

Six headlines above. All Gold positive, and Dollar Negative. The Dollar did come off it's new rally high today, but Gold dropped along with it. As a matter of fact, the Dollar and Gold have been joined at the hip since about mid January. This is VERY unusual behavior as the two almost always move in the inverse of each other. But these are unusual circumstances the global financial system is facing. Expecting the unexpected has become the norm if you want to trade these present day markets with any success.

WHAT IS THE DOLLAR AND GOLD RALLY TELLING US?
Capital flight has driven the US dollar higher. On a day when President Obama signed the Economic Stimulus Package into law, the banking turmoil in Europe and the resignation of Japan’s Finance Minister has turned investors away from other major currencies. Even though the greenback is yielding next to nothing, investors are willing to park their money with the US government as long as they keep it safe. The lack of negative game changing news from the US has been very positive for the US dollar. The greenback and gold prices have been moving in tandem since January 14th. This unusual correlation is actually sending a strong message to currency traders.

It is not very often that we see the US dollar and gold prices move in the same direction. Since gold is priced in dollars, the value of the yellow metal tends to fall when the dollar rises and rise when the dollar falls. However this has not been the case since January 14th as the rally in the US dollar corresponds with the rise in gold prices, which closed today at a 7 month high of $970 an ounce. The last time we saw this traditionally negative correlation turn into a positive one was in 1982. At that time, recession hit many countries including the US. Although the rise in gold prices can be partially attributed to future inflation problems, the cohesive movement in the value of gold and the US dollar suggests that central banks around the world are losing credibility. There are growing concerns that a time bomb could explode in Europe leading to more troubles for the region as a whole. If that is the case, there may not be any safer form of investment than gold. The rally in the US dollar and gold is telling the market that investors are worried about global economic stability outside of the US and therefore they are preparing for the worst.
http://www.gftforex.com/analysis/676/what-is-the-dollar-and-gold-rally-telling-us

“Larry, the dollar seems to be defying gravity. What gives?”
by Larry Edelson
On the surface, it looks like the dollar is strong. But stand back for a minute and consider the following: The British pound and the euro are plummeting. So is the Russian ruble and all Eastern European currencies.

Add in all the dollar-denominated debts that are being liquidated and paid off, and the dollar should actually be soaring. But it’s not. The Dollar Index is a mere 16% above its record low set last year.

On a relative performance basis, that’s terrible upside action in the buck. And it’s a sign of what’s to come. There’s not one shred of doubt in my mind that the dollar is headed much, much lower.

Either forced lower by the marketplace, which is fully aware of the trillions in fiat money that must be printed, or by authorities who have the legal means to change and depreciate the value of the dollar to alleviate the deflationary impact of the mountain of debt out there.

Note: Some say Europe is in much worse shape than the U.S., and in some respects, that’s true. But Europe is NOT expected to save the world, the U.S. is.

Couple that with the fact that most of the world lays the blame for this crisis on the U.S. and you have a geo-political situation that squarely puts U.S. authorities on the hot seat, under pressure to devalue.

Moreover, since a global economic recovery depends on a recovery in the U.S. — it actually behooves U.S. authorities to devalue the buck. By doing so, they can …

1. Stimulate U.S. exports

2. Re-ignite inflation and rising prices, both domestically and internationally

This is exactly what President Roosevelt did in 1933 when he confiscated gold, raised its price, and devalued the dollar. Almost immediately, the economy began to recover, employment picked up, and both prices and wages started rising.
http://www.moneyandmarkets.com/important-qa-2-29790

At this time Gold and the Dollar are on a parallel course. For how long is anybody's guess. I suspect it will not be for too much longer. Looming catastrophe in the insurance sector and the nation's pension plans are certain to put a dagger through the heart of the Dollar and ignite Gold to new highs. There will most likely be a reversion to the normal inverse relationship between the Dollar and Gold by the end of the third quarter, possibly as soon as mid March.

In the here and now however, the Gold Bugs face options and contracts that will expire on February 24-25. It would be safe to assume that the Gold Cartel will make every effort to keep Gold in check Friday and into next week's expiration's. Should they fail to do so, the shorts in these Precious Metals markets may be about to face one hellaciuos ass whuppin'.

Gold support 961 / 950 / 939 - buy any move to 930 aggressively

Silver support 13.95 / 13.82 / 13.68 - buy any move to 13.25 aggressively