Talk Is Cheap

Looking for a bridge to buy?

If you believe Russian Finance Minister Alexei Kudrin has confidence in the US Dollar, I have a bridge to sell you.

If you believe that Federal Reserve Chairman Bumbling Ben Bernanke "will not monetize the US Debt", I have a bridge to sell you.

If you believe there is still Gold in Ft. Knox, I have a bridge to sell you.

If you believe, like International Monetary Fund Managing Director Dominique Strauss-Kahn, that the US Dollar is "correctly valued" by the markets and likely wouldn't be pressed lower in the near term, I have a bridge to sell you.

If you believe the BRIC Nations won't discuss alternative reserve currencies at their summit meeting in Yekaterinburg, Russia, on Tuesday, I have a bridge to sell you.

If you believe that today's "rally" in the Dollar is anything but nervous shorts covering their trades, I have a bridge to sell you.

I can't promise the bridge won't fall down soon after you purchase it, but you shouldn't be surprised if it does. The point is, today's "pop" in the Dollar will most likely be dismissed quickly. Much like the Dollars pop ten days ago on the news that job losses for the month of May were "less-than-expected". Yeah, that was some pop in the Dollar... The only sound you're going to hear from the Dollar going forward for the next few YEARS is the hiss hot air escaping from it.

It should come as no surprise that the Dollar "rallied" following another meeting of the bloated G8 finance ministers [aka wind bags]. It is no secret that the US Fed and Treasury want, and need, the Dollar lower, but they want it lower on their terms. It's called a "controlled descent", and is now the truth that saddles the US' "strong Dollar policy".

Jawboning delivers dollar gains
LONDON (MarketWatch) - U.S. Treasury Secretary Timothy Geithner appears to have won a respite for the U.S. dollar, economists said Monday, after various officials voiced confidence in the greenback following the weekend meeting of the Group of Eight finance ministers in Italy.

The most dramatic signal of support for the dollar came from Russian Finance Minister Alexei Kudrin on the sidelines of the G8 gathering in Lecce. Kudrin said the dollar's role as the world's main reserve currency wasn't likely to change any time soon.

"It is hard to say that in the next few years this system will change significantly," Kudrin said, according to news reports.

That marked a change of emphasis for Kudrin and other Russian officials. Russian and Chinese officials have this year repeatedly called for changes in the global financial system that would downgrade the dollar's role as the world's primary reserve currency.

Officials have said they fear massive U.S. borrowing will erode the value of the greenback and the value of their reserves. China is the largest holder of dollar reserves. Japan is second and Russia is third.

Meanwhile, International Monetary Fund Managing Director Dominique Strauss-Kahn told reporters that the dollar was "correctly valued" by the markets and likely wouldn't be pressed lower in the near term.

And just ahead of the G8 meeting, Japanese Finance Minister Kaoru Yosano told Bloomberg that the government's trust in U.S. Treasuries was "absolutely unshakeable."

On Sunday an aide to Russian President Dmitry Medvedev told reporters in Moscow that the meeting of leaders of Brazil, Russia, India and China -- the BRIC nations -- won't discuss alternative reserve currencies at their summit meeting in Yekaterinburg, Russia, on Tuesday, news reports said.

"It's a little bit interesting" that officials made a range of dollar-friendly comments after meeting with Geithner and other U.S. officials, said Daragh Maher, currency strategist at Calyon.

"There seems to be a concerted effort not to dollar bash," he said.

But economists questioned how much mileage dollar bulls can get from the comments.

After all, remarks underlining the dollar's medium-term role as the world's premier reserve currency don't necessarily contradict a long-term desire to reduce exposure to the greenback, Maher said.

But the pace of the dollar's recent decline may have spooked big holders of dollar reserves, prompting the change in emphasis, he said.
http://www.marketwatch.com/story/jawboning-delivers-dollar-gains

Talk is cheap, and actions speak louder than words. If you had an overwhelming pile of depreciating US Dollar assets wouldn't you "talk up the asset" publicly in hopes of dumping it at a higher price privately? Let's stay focused here. There is nothing "fundamentally" that suggests the US Dollar should rally here. Keeping the public's confidence is still job #1 at the Fed. Jawboning the Dollar is just a feeble attempt at buying it and the Fed some more time before the Day Of Reckoning arrives.

New York Region Manufacturing Shrinks at Faster Pace
June 15 (Bloomberg) -- Manufacturing in the New York region this month contracted at a faster pace as sales and inventories declined, showing the economy is still months away from a sustained recovery.

The Federal Reserve Bank of New York’s June general economic index fell to minus 9.4, less than forecast, from minus 4.6 the prior month, the bank said today. Readings below zero for the Empire State index signal manufacturing is shrinking.
http://www.bloomberg.com/apps/news?pid=20601068&sid=axYkF71ZGpq0

U.S. credit card defaults rise to record in May
NEW YORK (Reuters) - U.S. credit card defaults rose to record highs in May, with a steep deterioration of Bank of America Corp's (BAC - News) lending portfolio, in another sign that consumers remain under severe stress.

"Chargeoffs went up to record highs," said Walter Todd, a portfolio manager at Greenwood Capital Associates, referring to the entire U.S. credit industry.

Credit card losses usually follow the trend of unemployment, which rose in May to a 26-year high of 9.4 percent and is expected to peak over 10 percent by the end of 2009.

If credit card losses across the industry surpass 10 percent this year, as analysts and bank executives expect, loan losses could top $70 billion.
http://finance.yahoo.com/news/US-credit-card-defaults-rise-rb-15527409.html?sec=topStories&pos=7&asset=&ccode

U.S. sees $53.2 billion capital outflow in April
WASHINGTON (MarketWatch) -- U.S. net international capital flows dropped to negative $53.2 billion in April, the Treasury Department reported Monday. Foreign central banks bought $5.2 billion in U.S. assets on net, while the foreign private sector sold $58.4 billion. China reduced its holdings of U.S. Treasurys by $4.4 billion to $763.5 billion. Japan reduced its holdings by $800 million to $685.0 billion, while holdings in the Caribbean banking centers fell by $8.9 billion to $204.7 billion. Holdings in the U.K. rose by $24.6 billion to $152.8 billion
http://www.marketwatch.com/story/us-sees-532-billion-capital-outflow-in-april

It's highly unlikely that the US Dollar is going to collapse overnight, but again...if you think the Dollar is about to embark on a sustained rally, I have a bridge to sell you.

As for our Precious Metals...Dollar up, Metals down. Nothing new there. And so what! We must tip our hats again to the Hoods of the CRIMEX. They've won this battle, but they continue to lose the war.

Admittedly, I was a bit too confident in my assesment of the Gold and Silver charts last Thursday. Gold spit the bit and Silver flat out choked on it. Nothing has changed however. I am confident corrections in both markets will be proven beneficial shortly.

Liar, Liar [excellent read]
By Howard S. Katz
The Federal Reserve is lying about the nation’s money supply (M1). The current figure for money supply is being given as $1.6 trillion. The actual number is $2.34 trillion. The reported number is equivalent to an increase of 16% over the past year. The actual number is equivalent to an increase of 70% over the past year. This compares with the nation’s high money supply increase of 16.9% in 1986.

The implications for gold are astounding!

My previous calculation for the price of gold was $3500/oz. And this was calculated as follows: We are now in an economic phenomenon I call the commodity pendulum. This means that, when the Fed creates money, it has an immediate (1-2 year) effect on consumer goods but a long term (10-20 year) effect on commodities. The commodity pendulum started in 1963 with the Kennedy tax cut and printing of money. Over the next 8 years, commodities did not go up and thus became undervalued in real terms. By 1971, commodities were very undervalued, and began a 9 year rise from 100 to 337 on the CRB index. This was the first upswing of the commodity pendulum, and during this time the rising commodity prices passed through into consumer prices. Thus for this period (1971-80) the Consumer Price Index rose faster than the money supply. Then came the second downswing in the pendulum (1980-1999), in which commodities got even more undervalued than in 1971. This was why Reagan and Bush, Sr. were able to print so much money with only a small effect on consumer prices. The decline in commodities was undercutting the rise in consumer prices and making it smaller. Now we are in the second upswing in the commodity pendulum. It started in 1999/2001 and I estimate that it will run for about 20 years.

To get a conservative estimate of the price of gold at the end of the second upswing of the commodity pendulum, I started with the price at the end of the first upswing ($875). I calculated that consumer prices had doubled from 1980-1999 and guestimated that it would double again on the second upswing (because that is what happened in the first upswing). This meant that prices at the end of the second upswing of the commodity pendulum should be (at least) 4 times what they were in 1980. Multiplying 4 x $875, we get $3500, and this was my original projection.

But it is now clear that this was far too conservative. Barack Obama has projected a budget deficit for the coming year of $1.8 trillion. (To be honest, it seems strange to me to be using the T-word.) There is something that is not understood about budget deficits. We are always told that this is bad because it is borrowing from the future and that our children will be responsible for our debts. This, however, is an earlier-day lie. No government in history has ever been able to borrow the money for any sizable spending program from the people. The government’s deficits are simply too big and would overwhelm the credit markets of the nation. What every government has done when it faces sizable deficits is to simply print the money. If America is facing a $1.8 trillion deficit later this year, then it will probably print (another) trillion dollars to finance this. And then, as a political reality, it will be impossible to significantly cut the deficit for the next year, and the year after, etc., etc., etc. In this way, our children do not get poorer in the future. We get poorer, here and now. But we get poorer by having our dollars worth less. We have a bigger quantity of dollars but a smaller quantity of goods.

This means printing of money (the Fed prints the money and then “lends” it to the Treasury) of $500 billion to $1 trillion addition to the money supply, each year for the next several years. A few years down the road we could easily be looking at a money supply of $4 trillion to $5 trillion.. This is 3-4 times the level of a year ago.

What then can we project for the gold price at the end of the second upswing of the commodity pendulum? It might make sense to take the original $3500 and multiply it by a factor of 4. This would give a gold price of $14,000.
http://news.goldseek.com/GoldSeek/1245093603.php