USD 02 (Oct 09 - Sep 10)

[kennynah]

i think, i think..... but it is only i think ok....

dollar index may rally only when the market starts pre-empting fed rates increase...which maybe at least 1 Qtr away...

[winston]

Investors in Treasuries, Dollars Defy Common Sense: David Pauly
Commentary by David Pauly

Oct. 2 (Bloomberg) -- The U.S. should lose its golden credit rating. Bankers and investors around the world should dump dollars. Read any economics textbook and you come to that conclusion.

Total government debt at the end of 2008 was $10.7 trillion, compared with $5.53 trillion 10 years earlier. A bit of nostalgia: In 1978, the debt was $789 billion, with a “b.”

There’s little relief in sight. The latest budget deficit forecast for the new fiscal year that began yesterday is $1.4 trillion, according to the Congressional Budget Office.

While the recession has curbed the U.S. appetite for foreign goods, Americans still spend more overseas than they sell, as they have consistently since World War II ended in 1945. The deficit in July was $32 billion.

Using an index based on how much business the U.S. does with other countries, the value of the dollar has plunged about 13 percent since March 4.

The double whammy of soaring Treasury sales and the decline of the dollar should stop governments such as China and Saudi Arabia from investing large chunks of their trade-earned dollars in U.S. securities.

Instead, they are buying more. Foreign investors bought 43 percent of the $1.41 trillion of Treasury notes and bonds issued so far this year versus 27 percent of the $527 billion sold in the same 2008 period.

China more than once has said it might move away from Treasuries. Still, its purchases have increased by 10 percent this year and it now owns $800 billion of Treasuries, the most of any foreign country.

Pacific Investment Management Co.’s Total Return fund, the world’s biggest bond fund, has increased its holding of government-related securities to 44 percent of its total investments, up from 27 percent in July. Bill Gross, the fund’s boss, says he views the move as protection against deflation, prices actually declining.

http://www.bloomberg.com/apps/news?pid= ... GCQtq7jyiE

[winston]

TOL:-

Most traders are short the USD..

And when there's a rebound, do you think they would be covering their position or shorting some more ? If they cover, it would be a very sharp rebound ...

And what will cause that rebound in the USD ?

1) A collapse of stock prices in the Emerging Markets ? And why would the stocks of Emerging Markets collapse ? Profit-taking ? Exports to the US, Europe and Japan is less than expected ?

2) China buying more USD ? Why ? To protect their existing USD holding ? To kill the shorts ?

What else ?

[kennynah]

i think...it is not wrong to short usd in the long term....

[winston]

Disaster Could Push Investors Back to Dollar, AQR’s Brown Says
By Thomas R. Keene and Matt Townsend

Oct. 8 (Bloomberg) -- Investors betting against the dollar should prepare for a possible reversal if another event increases the greenback’s safety appeal, according to a risk manager at a hedge fund.

“If there’s another disaster, there could be another run to the dollar,” said Aaron Brown, risk manager for AQR Capital Management LLC in Greenwich, Connecticut. “This could absolutely be the perfect storm to kill people.”

“The dollar is going lower, but the path there could be very bumpy and surprising,” said James Haskel, senior portfolio strategist for Bridgewater Associates Inc. in Westport, Connecticut.

“The fact that it is a crowded trade, there could be some vicious reversals that if people aren’t watching how much risk they’re taking could result in some serious losses and instability.”

http://www.bloomberg.com/apps/news?pid= ... zYOFi8x8Ws

[millionairemind]

Dollar Reaches Breaking Point as Banks Shift Reserves (Update1)
By Ye Xie and Anchalee Worrachate

Oct. 12 (Bloomberg) -- Central banks flush with record reserves are increasingly snubbing dollars in favor of euros and yen, further pressuring the greenback after its biggest two- quarter rout in almost two decades.

Policy makers boosted foreign currency holdings by $413 billion last quarter, the most since at least 2003, to $7.3 trillion, according to data compiled by Bloomberg. Nations reporting currency breakdowns put 63 percent of the new cash into euros and yen in April, May and June, the latest Barclays Capital data show. That’s the highest percentage in any quarter with more than an $80 billion increase.
http://www.bloomberg.com/apps/news?pid= ... TmsmEQpY6A

[winston]

Global Central Banks Dumping U.S. Dollars By: Dan Weil

For months, governments around the world have threatened to diversify their currency reserves away from the dollar.

Now, they are putting their money where their mouths are.

Central banks increased their foreign currency holdings by $413 billion, or 6 percent, last quarter.

That was the biggest rise in at least six years, according to Bloomberg News.

And for the countries that reveal how they allocate that money, 63 percent of the fresh cash went into yen and euros during the second quarter, soaring from 37 percent 10 years ago, according to Barclays Capital.

“Global central banks are getting more serious about diversification, whereas in the past they used to just talk about it,” Steven Englander, a former Federal Reserve researcher who is now chief U.S. currency strategist for Barclays, tells Bloomberg.

“It looks like they are really backing away from the dollar.” He thinks the trend accelerated last quarter.

The central bank moves represent part of a vicious cycle for the dollar.

The Dollar Index has dropped to a 14-month low amid concern over the mushrooming U.S. budget deficit and debt burden.

That decline has led central banks to diversify, and their diversification moves could push the dollar down further. Meanwhile, gold continued its record-breaking run to nearly $1,064 an ounce in late trading Tuesday

“The dollar is a terribly flawed currency” investment legend Jim Rogers tells Moneynews.com.

“Everybody in the world knows that, including the head of the World Bank. . . even though he’s an American citizen.” Rogers was referring to Robert Zoellick.

Meanwhile, traders are selling short-term Treasuries to brace themselves for an interest rate hike by the Federal Reserve. Many pundits are screaming for such an increase sooner, rather than later, to stave off inflation and save the dollar from collapse.

Once the Fed raises rates, of course, short-term Treasuries will drop. The Fed has kept its federal funds target rate at zero to 0.25 percent for months to insure an economic rebound.

But Fed officials have started talking about the ultimate need for a reversal in policy, though none has suggested that it’s coming imminently.

There also have been several reports that the Fed is running tests with banks to drain cash from the financial system.

Fed officials are worrying about the inflationary impact of explosive increases in the budget deficit and government debt burden.

The two-year note yield has risen 10 basis points to about 1 percent in the past week, though it still remains well below a 2009 high of 1.45 percent on June 8.

"The front end of the Treasury (market) is up against the wall," David Ader, head of government-bond strategy at CRT Capital Group, told The Wall Street Journal.

Treasury traders are going to be very nervous about the Fed, he says. “There is going to be a great deal of volatility."

He doesn’t expect a plunge in short-term Treasury prices, with official rates so close to zero.

Still, “the short end of the Treasury curve has the most to lose on a relative basis,” William O’Donnell, a bond strategist for RBS Securities, wrote in a note to clients.

Source: Newsmax

http://moneynews.newsmax.com/headlines/ ... 71753.html

[winston]

Dollar to Hit 50 Yen, Cease as Reserve, Sumitomo Says (Update1) By Shigeki Nozawa

Oct. 15 (Bloomberg) -- The dollar may drop to 50 yen next year and eventually lose its role as the global reserve currency, Sumitomo Mitsui Banking Corp.’s chief strategist said, citing trading patterns and a likely double dip in the U.S. economy.

“The U.S. economy will deteriorate into 2011 as the effects of excess consumption and the financial bubble linger,” said Daisuke Uno at Sumitomo Mitsui, a unit of Japan’s third- biggest bank. “The dollar’s fall won’t stop until there’s a change to the global currency system.”

http://www.bloomberg.com/apps/news?pid= ... A5nqmw9Dq8

[winston]

The Only Sure Thing We Know About Gold and the U.S. Dollar
By Jeff Clark, Casey's Gold & Resource Report

In August, the U.S. dollar celebrated its 38th anniversary as a fiat currency.

When Roosevelt issued his infamous 1933 presidential diktat, forcing delivery (confiscation) of gold owned by private citizens to the government in exchange for compensation, gold was $20.67 per ounce. In January 1934, the price was raised to $35 per ounce. The U.S. government pocketed the difference – and essentially devalued the dollar by 69%.

Yet the dollar remained convertible, and foreign central banks could redeem their dollar reserves for gold. This presented no problem when the U.S. was running trade surpluses and foreigners didn't have many dollars to exchange for gold. But in 1965, France's President Charles de Gaulle started aggressively exchanging his country's dollars for gold and loudly encouraged other countries to do likewise. That year, U.S. gold holdings fell to a 26-year low.

Several schemes were tried to stop the drain on the U.S.'s hoard, including lifting the price to $42 per ounce early in 1971, but nothing worked. The run on the dollar did not abate.

With the U.S. unable to eliminate its trade deficit, Nixon was faced with the stark reality of another dollar devaluation. He opted instead to close the gold window on August 15, 1971, ending dollar-for-gold convertibility. The dollar was suddenly off the gold standard, and half of U.S. gold holdings had disappeared. The greenback began to "float," meaning it wasn't tied to any standard and could be printed at will.

So how's it done since then?

The following chart tracks what has happened to the purchasing power of the dollar and gold since the gold standard ended in 1971. After adjusting for inflation, you can plainly see the erosion of a dollar bill, now able to purchase only 18 cents of what it did in 1971, vs. an ounce of gold, which has not only stood up but increased in purchasing power.

There are two overriding conclusions from this chart:

The dollar has consistently lost value since coming off the gold standard.

While gold's price has fluctuated, its purchasing power has endured. This fact will not change and is the reason you should own physical gold. It's what I call the four Ps: your Personal Purchasing Power Protection.

At Casey Research, we believe the dollar must go lower over the coming years. Since the end of August 2008, the past year, the U.S. monetary base (coins, paper money, and central bank reserves) has swelled from about $800 billion to $1.7 trillion. This is the largest expansion in history and a staggering devaluation of the dollar.

And as you already know, we're also taking on unprecedented amounts of debt. Year-to-date government spending is $2.9 trillion, while tax revenue is only $1.6 trillion. But that's nothing compared to the massive unfunded liabilities (meaning, they are not covered by an asset of equal or greater value) of Medicare, Medicaid, Social Security, and prescription drugs. Liabilities from this trio total $105.7 trillion.

Taking on debt is like getting a tattoo: It doesn't go away, and it's pretty painful to get rid of. The only way the U.S. government can get rid of its tattoos is by paying them off with greatly diluted dollars.

There are a lot of uncertainties about how this situation will play out. But the future purchasing power of gold is not one of them.

[winston]

Will the US Dollar Lose "Reserve Currency" Status? by Gary Halbert

IN THIS ISSUE:
Most Americans Are Dollar Indifferent/Oblivious
How the Dollar Became the Reserve Currency
Long-term Swings in the US Dollar's Value
Global Calls for Reserve Currency Replacement
Editorial: The "Dump-the-Dollar" Conspiracy
Conclusions – No Change Likely Anytime Soon

http://www.investorsinsight.com/blogs/f ... tatus.aspx