USD 02 (Oct 09 - Sep 10)

[kennynah]

GBP - UK GDP is set to be negative this year

may i know the reason/s for your above statement?

[BreakoutTrader]

Now more bonds are set to be sold due the policy financing and lesser demand for it. London is slowly dropping out as a bussiness hub due to the unfavorable tax imposed on the rich.

In fact , plenty of bussiness are moving back to US and other countries like hong kong and singapore.

[winston]

The Nine Chinese Men Who Control the Fate of America By Dr. Steve Sjuggerud

Nine politicians in China control the fate of the United States of America.

I'm not kidding. The implications are scary. Let me explain...

These nine men are the Standing Committee of the Communist Party of China. They control the value of China's currency.

Fortunately, it's easy to forecast what a politician will do... He will do whatever it takes to keep his job.

The story is remarkably simple...

In China, the goal of these nine politicians is to keep the Communist Party in power. The way to accomplish that goal is for the masses to stay employed. Right now, China keeps the people working by exporting cheap goods. In order to make sure those Chinese goods stay cheap, the Standing Committee sets the currency exchange rate artificially low. And that is the crucial part of the story...

How do these nine politicians keep the exchange rate low? They buy U.S. dollars. Importantly, these nine men don't just sit on stacks of dollar bills... They invest those dollars in U.S. Treasury bonds.

It's gotten out of hand. China owns nearly $1 trillion worth of U.S. debt. China's holdings have increased dramatically every year... They've grown nearly tenfold since the end of 2000:

China* Treasury Bond Holdings
2000 $99 billion
2001 $127 billion
2002 $166 billion
2003 $209 billion
2004 $267 billion
2005 $350 billion
2006 $451 billion
2007 $529 billion
2008 $804 billion
2009 $941 billion
*includes Hong Kong

And China's soon-to-be trillion dollars of U.S. government debt is not the end of the story. It's the beginning...

In order for other Asian countries to compete with China, they have to artificially keep their own exchange rates low. And that's exactly what they're doing. They're doing it the same way China does... They're buying mountains of U.S. Treasury bonds, too.

At this point, foreigners now own half of the U.S. Treasuries outstanding (of the ones that are not held by the U.S. government). And they're buying more... Most importantly, there's enough demand for U.S. debt from foreigners that the U.S. government can finance its deficits for years to come... all by simply selling Treasury bonds to foreigners.

Would you lend money to the U.S. government at 3.5% interest for 10 years? I sure wouldn't. I really can't name anyone who thinks 3.5% in government bonds is a good deal. The foreigners aren't buying to earn 3.5% interest. They're buying to keep the value of their currencies down.

India is an interesting example... Earlier this year, when India spent $6.7 billion buying gold from the IMF, it was all over the news. What WASN'T reported was that India bought far more U.S. Treasury bonds than gold. India has increased its stake in Treasuries by over $22 billion since last summer – increasing its Treasury bond holdings more than 200%.

So, yes, there's a mountain of demand for U.S. dollars – Treasury bonds – from all over the developing world. The important thing is demand will last. It will last as long as the nine men on China's Standing Committee don't change their minds.

So what does all this mean?

It means the U.S. dollar will not crash right now.

Most investors believe the U.S. dollar is about to crash. But the facts are clear... The dollar has ready buyers of hundreds of billions of dollars worth of Treasuries. While the dollar might lose ground against gold, the reality is, no other paper currency has a tailwind of hundreds of billions of dollars of buying waiting in the wings like the U.S. dollar does.

Eventually, the dollar bears will be right. The U.S. will have to face all its debt one day. But that story is not in my True Wealth Script for 2010.

Source: Daily Wealth

[winston]

A Major Uptrend Is Just Getting Started in This Hated Asset By Tom Dyson, S&A Penny Trends
January 4, 2010

I monitor a list of 87 exchange-traded funds (ETFs). As part of my Penny Trends service, I calculate the three-month performance for each ETF and rank the list by performance each week. This list immediately tells me where the big trends in the world are... both the strongest and the weakest.

For the last two months, commodities and commodity countries have been at the top of my Big Trend leaderboard. They've shown the strongest returns.

But today, the top ETFs in the world have stopped breaking out to new highs... and they aren't rising as fast as they were. The momentum behind the stock-market rally is waning.

Also, while commodities are still leading the pack, gold, silver, and platinum have dropped back. Gold was at the top of my leaderboard just six weeks ago. Now it's in 29th place. Same with silver. It's languishing in 65th place right now.

The U.S. dollar, on the other hand, has been falling for months. It's been among the dregs of my ETF list all year... never moving far from the bottom. The U.S. dollar bottomed at Thanksgiving and has exploded higher. The PowerShares Dollar Index Bullish ETF (UUP) is currently breaking out to new three-month highs.

It's time to get on board the dollar trend.

Today's headlines are universally pessimistic on the dollar. The trillion-dollar debt and free-spending ways of the government give people the idea the dollar should keep losing its value. Make no mistake: These issues will be a problem at some point in the future. But where it concerns your money right now, they're a trap. Don't pay attention to these stories.

The dollar has just begun a powerful rally.... and it's set to continue for at least a year.

This chart shows the dollar index, an index of the dollar's value measured against a basket of major currencies like the euro, the yen, and the pound.

The top chart shows the dollar's value over the last 20 years. As you can see from the chart, the dollar was in a bull market in the late '90s and a bear market between 2001 and 2008. Last year, the dollar surprised the market with a strong rally. This year, it reversed again, erasing most of last year's gains.

Technicians call the bottom chart (in blue) the 250 ROC chart. There are 250 trading days in a year. ROC stands for Rate of Change. At any point on the chart, the line shows how much the dollar has fallen or risen over the previous year.

For example, at the beginning of 2009, the ROC was measuring over 20%. This meant the dollar had risen over 20% in the previous 12 months. In November, it was reading negative 15%... meaning the dollar had fallen 15% over the last 12 months.

The most the dollar has ever fallen in a year is 18%, between 2002 and 2003. It was after the "tech wreck." Greenspan launched one of the most aggressive interest-rate cutting campaigns in American history, and the dollar plunged. Since 1989, the dollar has fallen 12.5% or more in a year only seven times.

As the chart shows, whenever the dollar plunges 12.5% or more in a year, you need to buy it. These plunges always mark the start of multiyear rallies in the dollar. The only time this trade didn't produce a large profit was after the signal in 2003. (You would have broken even two years later.)

In sum, the dollar has just completed a 15% crash in the last 12 months. Whenever the dollar falls this fast, it's always a good bet to buy. The ROC is already back up to negative 6%.

The move is just getting started.

http://www.growthstockwire.com/archive/ ... jan_04.asp

[winston]

‘Keep the Faith’ on Gains by the Dollar Index, Westpac Says By Daniel Tilles

Jan. 14 (Bloomberg) -- Investors should maintain bets that the Dollar Index will gain on expectations of “further positive growth data in coming weeks,” Westpac Banking Corp. said.

“Keep the faith,” Sean Callow, a senior foreign-exchange strategist in Sydney, wrote today in a report. “Despite the disappointing U.S. December employment data, we retain our bullish first-quarter U.S. view and believe it will translate to Dollar Index gains.” Westpac predicts the measure will increase to 80, Callow said.

The Dollar Index, which tracks the greenback against currencies of six trading partners including the euro, yen and pound, slipped 0.1 percent to 76.761 as of 7:08 a.m. in London.

http://www.bloomberg.com/apps/news?pid= ... cMm_IPiiEo

[winston]

Dollar Crisis Looms if US Doesn't Curb Debt: Experts

The United States must soon raise taxes or cut government spending to curb its debt, and failure to act will risk a crippling dollar crisis as investor confidence ebbs, a panel of experts said on Wednesday.

"It has got to be done. It will be done some day. It may be done with enormous pain. Or it may be done more rationally," said Rudolph Penner, a former head of the nonpartisan Congressional Budget office who co-chaired the 24-strong Committee on the Fiscal Future of the United States.

President Barack Obama's administration will present his budget for fiscal 2011 early next month amid intense pressure to live up to election campaign promises not to raise taxes on middle class Americans, while confronting a record deficit.

As a result, Obama is expected to focus on long-term fiscal discipline, while maintaining policy support for an economic recovery in the near-term as the country rebuilds after its worst recession since the Great Depression.

The two-year study by the panel, assembled by the highly respected National Research Council and the National Academy of Public Administration, said that the White House had some time on its side to restore growth, but must then act.

"In the next year or two, large deficits and more borrowing are unavoidable given the severity of the economic downturn. However, action ought to begin soon thereafter," they said.

The national debt has risen above 50 percent of GDP (gross domestic product) from 40 percent two years ago, and within 20 years will blow past a previous record above 100 percent of GDP set after World War Two without stern official steps.

Mounting debt could sap investor confidence in the economy, and the nation's ability to honor its obligations, pushing up interest rates and causing a steep fall in the value of the dollar as international creditors seek safer returns elsewhere.

Cut Health Care

The committee identified curbing Medicare, Medicaid and Social Security spending as the top challenge, and had a lukewarm assessment of cost containment in health care reform currently before Congress that Obama hopes to sign soon.

Committee co-chair John Palmer said the reforms might lay the foundation for improvements in the future, but he was skeptical about presumed saving levels and said that "passage would not change in any substantial way our analysis."

The committee, which included three former heads of the CBO, outlined a range of options to lower the ratio of the national debt to 60 percent of the size of the economy.

The 60 percent threshold of debt to GDP, a target that is also used by the nations sharing the euro common currency, was a "judgment choice", said Penner, who is a senior fellow at the Urban Institute, a Washington think-tank.

He said it was deemed to be the most that could be borne without incurring debt levels that would drive up long-term interest rates, and the least that was politically feasible in terms of reductions in government spending.

At one end of the options, the committee reviewed a policy mix based on low spending and low taxes. This envisaged payroll and income tax rates staying as they are, around 18-19 percent of GDP, but healthcare and retirement program costs sharply curtailed and defense and domestic spending cut 20 percent.

The other end of the scale looked at a high spending/high taxes policy mix that would maintain the projected growth in Social Security and allow higher spending on federal programs.

However, this would see taxes rise above 40 percent of GDP, or in the neighborhood of Denmark or Sweden, in order to hold the national debt to 60 percent, unless a value added sales tax was also introduced to augment government revenue.

Between the two were several intermediary solutions relying on a blend of higher taxes and lower spending. The committee made no recommendations but warned there was no time to waste.

"If action is taken soon, the country has a wide choice of options to help achieve fiscal sustainability. All are difficult; but if action is postponed, the options will be fewer and the choices even more difficult," they said.

http://www.cnbc.com/id/34848783

[winston]

Contrarian Play #1: Everybody Doesn't Hate the Dollar Anymore

Six months ago, I was a pretty lonely man.

That's because I was one of the only people suggesting that the U.S. dollar would rebound.

Rather than spell out all the reasons why, check out this pro-dollar article

from my colleague, Alexander Green. He's decided to buck conventional wisdom with me and sums up the argument very neatly.

And it's notable that other respected investment gurus have followed suit. Wall Street legends like Byron Wien and Jim Rogers, of all people.

When it comes to Rogers, he revealed he's recently been buying dollars in recent months in anticipation of a near-term rebound. And a quick glance at the chart below from Bespoke Investment Group indicates that the dollar could be poised for a sustained rally, based on the technicals.

Could the Dollar be Poised for a Rally?

In making my pro-dollar argument, I indicated that the prospects for the dollar were strongest against the euro, since currencies trade in relation to each other.

And we can thank Greece's near-default for opening up everyone else's eyes to this fact, too.

But there are other fundamentals working against the euro. Namely, the winding down of government stimulus measures in the eurozone.

Once they end, demand will certainly suffer. And it will also draw attention to a key weakness of many European companies: They didn't cut costs as aggressively as their American counterparts during the recession, so their bounce back to profitability will be subdued.

In addition, a strong earnings season for U.S. companies in relation to their European counterparts should accelerate the dollar's rise and the euro's fall.

Source: Investment U

[winston]

Why the Dollar Should Surge in 2010 by Alexander Green

Consider that...

* Japan and Western Europe are both growing more slowly than the United States.

* Both are also more socialistic - with bigger imbalances down the road.

* Many foreign nations are in worse fiscal shape than the United States. Our budget deficit as a percentage of GDP, for example, is only one-third as big as Japan's.

In addition, the United States is likely to outperform these other economies in 2010 and the Fed is likely to start raising short-term rates toward the end of the year. That's a catalyst for a surge in the dollar.

Despite the fundamentals, though, sentiment still weighs heavily against the dollar. In fact, there's almost an air of disbelief when you talk to knowledgeable investors about the potential for a rising dollar. (These are the same smart guys, incidentally, who thought Internet stocks were a "new paradigm" and residential real estate values were a one-way street.)

And it's this sentiment - as much as the fundamentals - that makes the case that the dollar should be a wonderful contrarian investment in 2010.

Source: Investment U

[winston]

Morgan Stanley: Undervalued Dollar to Soar 10 Percent By: Julie Crawshaw

Morgan Stanley currency analyst Sophia Drossos says the dollar is very undervalued and will rise significantly.

“We forecast the USD to rally 10 percent against other developed market currencies in 2010, with most of these gains concentrated against other G4 currencies,” Drossos writes in a note to investors.

“For the dollar to remain weak, U.S. data would need to continue to disappoint versus other major economies,” she notes.

“However, we do not expect this will be the case. Instead, the outlook for the U.S. economy is brightening while other major economies appear lackluster.”

The prospect of a U.S. economic recovery that will be relatively stronger than other major developed nations means that the dollar is most likely to rally against the euro and yen, Drossos says.

“In that vein, two of our favored strategic trades for 2010 are short EUR/USD and long USD/JPY.”

Drossos’ currency model shows that downside risks for the U.S. dollar have fallen substantially as of late.

“The cyclical tailwinds from a US recovery should offset ongoing structural concerns, especially as these are well known and much bad news is already in the price,” she says.

“Indeed … the trade- weighted US dollar is currently two standard deviations below our projected fair value.”

Spot gold has continued to slip with the strengthening of the U.S. dollar, Benzinga.com reports.

http://moneynews.com/StreetTalk/Morgan- ... /id/346827

[winston]

France's Sarkozy "We Need A New Bretton Woods System" by Tyler Durden

Sarkozy is quoted as demanding what is certainly the Fed's greatest nightmare: a return to Bretton-Woods. He furthermore notes, logically, that undervaluation of currencies counters trade, and that the financial system can not tolerate monetary dumping.

More from the WSJ:

"The G20 prefigures the planetary governance of the 21st century," Mr. Sarkozy said, taking particular care to single out the new global accounting rules being worked out under the auspices of the G20.

Mr. Sarkozy's comments come amid concern the reforms promised by G20 members are beginning to lose momentum as the economic crisis recedes. They also come less than a week after U.S. President Barack Obama announced plans to reform the U.S. banking system which appeared to threaten the consensus forged in G20 meetings in London and Pittsburgh last year. However, Mr. Sarkozy said he supports Obama's plans.

Elsewhere in his speech, which departed frequently and extensively from a prepared text distributed locally, Mr. Sarkozy renewed his attacks on "monetary manipulations" in general and the supremacy of the dollar in particular.

"It cannot be that...we have a multipolar world and a single world currency," Mr. Sarkozy said. "We need a new Bretton Woods," he added, in a reference to the system of fixed but variable exchange rates established after the Second World War.

Mr. Sarkozy also repeated that France would place the quest for a new global monetary order at the center of its agenda in its chairmanship of the Group of Eight next year. The undervaluation of "certain currencies," Mr. Sarkozy said is bad for fair trade and competition could result in protectionism. "We will not allow monetary dumping," he said.

The French leader's comments come as the euro, whose perceived over valuation has angered most French governments in recent history, hit its lowest level in nearly a year against the dollar, as fears for the sustainability of the euro zone increased in the wake of Portugal's announcement that its budget deficit had topped 9% of gross domestic product.

http://www.zerohedge.com/article/france ... ods-system