The world currency markets are in a free fall right now

[ziggy]

The Kiwi has dropped over $0.03 in the last several hours.  The Euro is getting blasted.  The Pound is getting blasted.  Flight to quality.  The Japanese are selling their carry trade positions in a massive sell off (straight from the mouth of my trader).  Fascinating to watch.

[westkoast]

Ziggy the republicans told me that everything is perfect all around the world when it comes to economies.

I won't even pretend to understand everything that goes on with currency world wide but what's going on exactly?

[ziggy]

Ziggy the republicans told me that everything is perfect all around the world when it comes to economies.

I won't even pretend to understand everything that goes on with currency world wide but what's going on exactly?

I really don't know, but this happened about 1 year ago, when the beginning of the financial liquidity crisis hit.  Japanese traders started selling their Uradishi Bonds, with the plan to move from high yielding currencies (Kiwi, Aussie, Icelandic etc) to US treasuries.  My guess is that there some some serious liquidity issues happening, and people are getting out, getting out of debt and into cash.

Looks like it is starting to correct right now, but it may just be a temporary lull.

The Chinese have been buying US$ like mad lately to stave off a serious slow down in China (I posted something on this about a week ago).

One thing to remember wk, the US$ is getting stronger relative to everyone of these falling currencies.  So perhaps things aren't as bad in the US as they are elsewhere.

[rickortreat]

There is and has been massive intervention in the dollar, at least based on past history. The sudden upswing in the dollar bear market was unexpected and extremely steep.  In any market price spikes often lead to reversals, but timing is everything and until the trend breaks a stronger dollar means lower oil prices and lower prices for commodities.

There has been a flight from US Agency Debt to US treasuries from foreign accounts at their accounts at the Fed. Why they prefer a strong dollar is that it enables them to continue to sell goods to us. This is really dumb, trying to prop up an indebted population by pretending the money they have left is worth more!

There is no reason for the dollar to rise.  The US spends far more than it takes in through taxes. We buy more from other nations than they buy from us. We have been doing this for so long the actual debt appears impossible to pay off, let alone service. When a country spends more than it earns it gets poorer, and that is usually reflected in the currency declining in value.

Even bear markets have counter-trend rallies, however, and the Dollar has certainly been long overdue for a correction. This past July the dollar was at 71.31 on it's trade-able index. As of today it is at 78.64, which is a substantial rise.  On a technical basis, the dollar is still on a buy signal. There is resistance above at 79 and 80, but the Dollar has already gone through several potential resistance levels with only slight hesitation.  Keep in mind, however in Dec. of 2006 the Dollar was at 92 on that index which is still considerably lower than it was during the end of the Clinton years.

It should be noted, however, that stocks are still being sold off and today the indu's were down sharply, 344 points!  The downward bias in the market is still present and quite strong. Another 190 points and the Dow will be below 11,000.

I don't understand how Republicans think everything is fine, they have to represent more than the 1% that control 90% of the wealth. I wonder how they avoid getting hurt on a day like today, when their dollars are up, but their holdings in the market are down severely. I guess they have so much they don't even notice.

[ziggy]

I won't even pretend to understand everything that goes on with currency world wide but what's going on exactly?

From the currency guy I deal with, he is pretty plugged in


The global stock index dropped to a fresh 2-year low, US treasury bonds are
up and the 10-year Treasury yield has dropped to 4.23% from 4.50% two weeks
ago.  Positions adjustments are afoot.  FX rates are very unstable but
seeing two-way traffic.  The euro dropped as low as 1.4197 before
recovering to 1.434 after the US employment [unemployment] report.  The
euro sell-off begin with as the US market was closing down around 5pm EST.
Russia reportedly was in selling euro and dollars for yen and Swiss which
makes some sense given that we were seeing Swiss Banks in selling euro,
buying yen.  Russia does like to use Swiss banks.   In addition, hedge fund
losses, led by Ospraie Management's big commodity hedge fund, may have
encouraged a quasi-traditional flight to quality, meaning selling the
commodity currencies like A$ for yen and US$.  The A$ fell to as low
as .8030 from an opening yesterday around .8375.  The yen firmed to as
strong as 105.55.

Yesterday as US trading was shutting down around 5pm NY time and only
   New Zealand traders cranking up their monitors, we had a significant
   sell-off of the euro, pound and Aussie for the yen and the dollar.  The
   move held up in Asian trading where the euro fell as low as 1.4197 after
   opening in NY yesterday around 1.4475.  The yen firmed to as strong as
   105.55 from 108.05 and the A$ plunged down to .8030 from .8375.
   The Russian central bank may have ignited the move as it was reportedly
   in selling euro and US$ for yen and Swiss as a strategy change for
   reserve holdings, which sounds like much more of a political policy move
   than an economic or monetary adjustment strategy.  The action may have
   got other players off the sidelines to take on yen positions at the
   expense of the high yielders [Reverse Carry Trade].  There was a comment
   this morning that European Central Bank President Jean-Claude Trichet?s
   remarks yesterday acknowledging the weakness of the European economy
   were surprising.  The big exchange rate shift to some extent may be a
   move out of the currencies which had the highest appreciation in the
   past two years [euro, pound, A$, NZ$] because now it is clear that these
   countries are being greatly affected by the global slowdown.

   ?  Investors appear to be exiting leveraged carry trades, or positions
   funded by borrowing yen at low rates to buy higher yielding currencies
   and commodities.  This trading pattern has until recently boosted the
   dollar too as U.S. investors liquidate holdings of foreign assets and
   repatriate funds back home.  Creating more uneasiness for investors,
   traders cited talk of more hedge funds going under after news that
   Ospraie Management LLC, the world's biggest commodities hedge fund, was
   forced to close its flagship fund this week. Bill Gross, chief
   investment officer at PIMCO, the world's largest bond fund, said on
   Thursday that the U.S. government should give Treasury authority to buy
   debt and other assets to halt a "financial tsunami".

I have some money invested with Pimco and Bill Gross, and our Profit Sharing trust does as well.  He is the king bond trader.  Starting last summer he was pounding and pounding and pounding on the idea of a Fed rate cut.  In Feb/Mar PIMCO took a huge position is distressed debt.  By June/July he was calling for rate hikes.  I am glad I have money invested with Gross and PIMCo, but to be honest he and they can be highly self serving.

[ziggy]

Ziggy the republicans told me that everything is perfect all around the world when it comes to economies.

Westkoast,
Take this for whatever you think it is worth.
http://online.wsj.com/article/SB122039890722392873.html?mod=opinion_main_commentaries

It is written by a Brit Mr. Keith Marsden, a fellow of the Centre for Policy Studies, was formerly an adviser at the World Bank and a senior economist in the International Labor Organization. 
The Centre for Policy Studies is a British think tank started in the 1970's by among others Lady Thatcher.
The World Bank you know about.
The International Labor Organization is a UN group focused on international labor rights, hardly of bastion of free market economics.

[Lurker]

From the above article...

The main risk is that, if elected, Barack Obama will pursue a "social justice" strategy. This would encompass higher taxes on entrepreneurs, savers and investors, more direct government intervention in the economy, and protectionist policies (including revoking existing trade agreements) aimed at safeguarding the jobs of his union backers in "old" industries and public services. If so, the pain is likely to be more widespread and prolonged.

It isn't Obama that would pursue it but the Democratic leaders of Congress (Reid/Pelosi) and this is what I mean when I say Obama is a lemming.  He will follow the Democratic leadership right off the cliff.

[msc]

From the above article...

The main risk is that, if elected, Barack Obama will pursue a "social justice" strategy. This would encompass higher taxes on entrepreneurs, savers and investors, more direct government intervention in the economy, and protectionist policies (including revoking existing trade agreements) aimed at safeguarding the jobs of his union backers in "old" industries and public services. If so, the pain is likely to be more widespread and prolonged.

It isn't Obama that would pursue it but the Democratic leaders of Congress (Reid/Pelosi) and this is what I mean when I say Obama is a lemming.  He will follow the Democratic leadership right off the cliff.

Exactly, Lurker.  The thought of Reid and Pelosi no longer having a system of checks and balances in place to counter their socialist ways scares the be-jesus out of me.  Obama's proposed income and business tax hikes alone are enough to cripple our currently fragile economy (and they will).  His proposed capital gains tax hike will be even more devastating.   

[msc]

Ziggy the republicans told me that everything is perfect all around the world when it comes to economies.

Really? I've missed that somehow.  Unless you're referring to Bush, who IMO hardly qualifies as a real Republican. 

[westkoast]

From the above article...

The main risk is that, if elected, Barack Obama will pursue a "social justice" strategy. This would encompass higher taxes on entrepreneurs, savers and investors, more direct government intervention in the economy, and protectionist policies (including revoking existing trade agreements) aimed at safeguarding the jobs of his union backers in "old" industries and public services. If so, the pain is likely to be more widespread and prolonged.

It isn't Obama that would pursue it but the Democratic leaders of Congress (Reid/Pelosi) and this is what I mean when I say Obama is a lemming.  He will follow the Democratic leadership right off the cliff.

Which is why I can't understand this talk that Obama is going to usher in major change or McCain is this maverick reformer or his VP is this barracuda who eats federal spenders alive.  They are still going to follow what their party is telling them to do on a lot of major issues.  

Right now what the Republicans have managed to do has hurt all these types of people he is naming.   I don't see how bringing in Obama would effect it as much as he was making it out to be.  Not saying it would help.  Just saying that those people are not doing as well as they could be right now either.  There is a link broken in the chain.  If Obama comes in will it just be in another spot?  Sounds like maybe this issue is a little bit bigger then just the president.......

Ziggy the republicans told me that everything is perfect all around the world when it comes to economies.

Really? I've missed that somehow.  Unless you're referring to Bush, who IMO hardly qualifies as a real Republican. 

Of course you missed it.  Everything is in such good shape they failed to even address it as much as they should have.

[jemagee]

Ziggy the republicans told me that everything is perfect all around the world when it comes to economies.

Really? I've missed that somehow.  Unless you're referring to Bush, who IMO hardly qualifies as a real Republican. 

Isn't that the knock on McCain, he's not a real republican?  I'm curios as to who the 'real' republicans are? 

[westkoast]

Ziggy the republicans told me that everything is perfect all around the world when it comes to economies.

Really? I've missed that somehow.  Unless you're referring to Bush, who IMO hardly qualifies as a real Republican. 

Isn't that the knock on McCain, he's not a real republican?  I'm curios as to who the 'real' republicans are? 

Ronald Regan and Richard Nixon.

[Ted]

Isn't that the knock on McCain, he's not a real republican?  I'm curios as to who the 'real' republicans are? 

I look back to the "contract with America" Congress and what they were able to do with Clinton. Both sides deserve credit for balancing the budget and creating a surplus. George Bush spends money like a drunken sailor in Bangkok. He IS NOT a conservative republican.

By the way, can the economic bulls or bears of a nation this size really come down to what a President does or doesn't do. Can a President really do that much by himself? Doesn't it seem like you can lay a recovery and a recession at the feet of nearly every two-term president? Does Congress, which signs any federal budget measure into law, not play some part?

[Ted]

Ronald Regan and Richard Nixon.

Well, except for the Iran Contra and the spying on the DNC parts. 

[Lurker]

Isn't that the knock on McCain, he's not a real republican?  I'm curios as to who the 'real' republicans are? 

Ronald Regan and Richard Nixon.

Talk about divergence.  Nixon was very much a moderate...as was Ford.  They were Republican by party affiliation but were very close to the middle ideologically.  Nixon may not have won his first presidency if it weren't for the incompetency of the incumbent VP (Humphries) at distancing himself from a unpopular president (Johnson).  In some ways a very comparative point in history to now...an unpopular war and a party in charge of both Congress and the White House.  Only difference was that it was the Dems and not the Republicans.

Reagan forged a coalition of fiscal conservatives and socio-cultural conservatives.  What is happening to the Republican party right now is a split of those factions.  The socio-cultural conservatives (for the most part the "moral majority") are for stricter immigration laws and imposing Christian beliefs as the standard for our country (think abortion and public prayer).  The fiscal conservatives want small government - little regulation, low taxes, smart spending, reduced deficits.  McCain is struggling with holding onto the socio-cultural wing of the party while trying to convince undecideds that he is firmly in the fiscal conservative camp.  The problem lies in that the more he tries to paint himself as a moderate the more skittish the far right becomes.  The more he tries to please the right then the moderates get scared.