Regular Guest on Money Talks, and one of  Michael Campbell’s favorites Jack Crooks of Black Swan Capital is offering Exclusively for readers and listeners of MoneyTalks a very SPECIAL OFFER. When looking at investments or the Economy – “Its all about the price of currencies” – Michael Campbell

In Today’s Currency Currents….

FX Trading – Fed Wednesday.  It might be interesting. 

 

Quotable
“Credit expansion is the governments’ foremost tool in their struggle against the market economy. In their hands it is the magic wand designed to conjure away the scarcity of capital goods, to lower the rate of interest or to abolish it altogether, to finance lavish government spending, to expropriate the capitalists, to contrive everlasting booms, and to make everybody prosperous. The final outcome of the credit expansion is general impoverishment.”  –  Ludwig von Mises

FX Trading – Fed Wednesday.  It might be interesting.

Quiet so far this morning in front of the Federal Reserve Bank’s pronouncement on all things monetary due out later this afternoon.  We wait to hear how Mr. Bernanke & Co. will decide to save us from ourselves yet again.   

One of the questions on the minds of traders everywhere might be: When will Mr. B and Co. decide it’s time to start removing some of the hooch from the punch bowl?  We are not sure we will get an answer today, but maybe the Fat Lady of the Fed is warming up. Yesterday, we saw a story indicating as such:  

“The Federal Reserve has started talks with bond dealers about withdrawing the unprecedented amount of cash injected into the system the last two years, according to people with knowledge of the discussions,” Bloomberg News reported yesterday.   

Of course, as you read further on in the story, the same people with “knowledge of the discussions” say there are no plans to do this anytime soon.  I guess the Fed is just getting a brush up from dealers about the arcane process known as reverse purchase agreements—a process used to drain reserves from the system.  Heck, the Fed hasn’t drained reserves for so darn long it likely has forgotten how to do it.

Even if Mr. B wants to drain some reserves from the system, most of which are simply sitting un-loaned on banks’ balance sheets anyway, we wonder if Barney Frank will allow it?   

But, should the Fed provide some inclination that it’s actually getting ready to act, it might throw some cold water on the idea the dollar is now the carry trade currency of choice, thanks to super low short-term interest rates and US Treasury benign neglect of the dollar.  We think there is a lot more to a carry trade currency that meets the eye than just low rates, but we save that view for later today. 

We all know there is a wall of momentum, spurred by excess dollar reserves, booting up asset markets here and abroad (whether a bubble or not depends ultimately on a revival of global demand or not).  And we all know the “Stimulator of Last Resort’ (US government) is big on the wealth effect i.e. juicing asset markets to try to juice consumer confidence to try to juice global demand, so they seem quite happy with stocks going up.  

So if the Fed doesn’t do something to suggests if might mop up something soon, it may be taken as green lighting the seeming US government implicit weak dollar policy as a tool that will continue as long as said dollar falls in an “orderly” matter—bada-bing- bada-boom.  

Net, net, this post meeting commentary might actually be interesting.

Jack Crooks

Black Swan Capital LLC
www.blackswantrading.com

 

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Futures, Forex and Option trading involves substantial risk, and may not be suitable for everyone. Trading should only be done with true risk capital. Past performance either actual or hypothetical is not indicative of future performance.

Black Swan Capital newsletter services are strictly informational publications and do not provide individual, customized investment advice.  The money you allocate to futures or forex should be strictly the money you can afford to risk.  Detailed disclaimer can be found at http://www.blackswantrading.com/disclaimer

Step by step, with little fanfare and great complacency, we are witnessing a fundamental, global shift that’s rapidly transforming the investment scene:

The forces of deflation are temporarily receding; and in the meantime, the forces of inflation threaten to roar back with a vengeance.

They are everywhere. They could be overwhelming. They must NOT be ignored …

Inflationary Force #1
Never-Ending, Out-of-Control
U.S. Federal Deficits

As Larry Edelson explained here one week ago:

• Through August, the federal deficit hit $1.38 trillion, or three times last year’s all-time record deficit of $454.8 billion. And in September alone, the administration expects another $200 billion in red ink, bringing the total for the year to $1.58 trillion.
• The U.S. government’s official debt is now at an all-time high of $11.8 trillion, or over $100,000 for each and every household in America.
• Both the administration and its opponents agree that, over the next 10 years, the cumulative federal deficit will be another $9 trillion, driving the burden per household up to $177,000.
• The Federal Reserve is also in hock up to its eyeballs, with more than $2 trillion in liabilities on its balance sheet. That brings the total burden up to $194,000 per household.
• Perhaps worst of all, the government’s unfunded obligations for Social Security, Medicare, and Federal pension payments are also ballooning higher and now stand at an estimated $104 trillion, or $886,000 per household.
• Total burden per household: More than $1 million!

This is, by far, the largest federal deficit in U.S. history — in proportion to household income … in comparison to the nation’s population … or even as a percent of the total economy (other than during major World Wars).

It drives the Fed to print money without restraint. It pumps up demand for scarce goods. And in the months ahead, it’s bound to be the single most powerful pressure point on public policy, financial markets, the U.S. dollar and … inflation.

Inflationary Force #2
New Lows in the U.S. Dollar

Last week, the U.S. dollar sunk to a new, one-year low against a basket of major currencies.

It’s just five points away from its lowest level in history.

And, as Mike Larson detailed this past Friday, the U.S. dollar is now being driven lower by a new, unprecedented factor:

For the first time since 1933, it is now cheaper to borrow dollars than Japanese yen. Indeed, the three-month London Interbank Offered Rate (LIBOR) on the U.S. dollar has slumped to a meager 0.292 percent, while the equivalent rate on the Japanese yen is 0.352 percent.

This means that, instead of using Japanese yen to finance the carry trade — borrowing low-cost money to buy high-yielding investments — international investors will now start using U.S. dollars to finance the carry trade.

It means that, instead of the dollar being a magnet for frightened money, it is becoming precisely the opposite — a source of financing for the risk trade.

Most important, it means that, instead of buying dollars, they have every incentive to borrow dollars and promptly SELL them in order to purchase the higher yielding instruments.

End result: More momentum to the dollar’s decline.

Inflationary Force #3
U.S. Household Wealth
Now Expanding Again

For nearly two years, U.S. households were continually losing wealth. They lost trillions in stocks, bonds, insurance policies, real estate. And these losses, in turn, emerged as a major deflationary force, driving consumer price inflation to zero or lower.

Now, however, in the second quarter of 2009, that trend has reversed.

According to the Fed’s Flow of Funds released just last week, in just the last three months, U.S. households have enjoyed wealth gains of

• $1.1 trillion common and preferred stocks
• $494 billion in mutual funds
• $157 billion in real estate

These gains are still far from enough to recoup the peak asset levels of 2007. But the change in trend is enough to rekindle inflation, and that inflation is likely to take most economists by surprise.

Inflationary Force #4
Exploding U.S. Money Supply

Money pouring into the economy and chasing scarce goods is the classic cause of inflation.

But throughout 2007 and much of 2008, there was no growth whatsoever in U.S. money supply (M1).

During that period, despite the Fed’s efforts to shove interest rates down to practically zero, the total amount of money outstanding remained under $1.4 trillion — another deflationary force.

Now, however, as you can see in this chart provided by www.Shadowstats.com, the outlook has changed dramatically:

Since mid-2008, money supply has exploded beyond $1.65 trillion, with more rapid growth on the way.

Is Deflation Dead?

No. It will return.

But at this juncture, inflation is the primary concern, with far-reaching consequences on how you invest, when and where.

In the days ahead, my team and I will give you step-by-step instructions on how to protect yourself — and profit.

But first, I want to clear up a few basic points. Although we may sometimes disagree on the specific timing and magnitude of particular market moves, we are unanimous in our views about a few fundamental issues:

First, until and unless there is a dramatic change in these inflationary forces, it should be clear that the U.S. dollar’s decline will accelerate in the months ahead.

Second, despite its decline, the U.S. dollar will continue to be a viable, widely traded currency. It will not, as some seem to fear, simply disappear from the face of the earth.

Third, it is both impractical and unreasonable to abandon U.S. Treasury bills and other conservative dollar-denominated investments. They continue to provide U.S. citizens and residents the best safety and liquidity in the world today.

Fourth, the best way to protect yourself from a falling dollar is with contra-dollar investments such as precious metals, natural resources and assets tied to strong foreign currencies.

Stand by for more details in upcoming emails from key members of our team, including myself, Larry Edelson and Mike Larson.

Good luck and God bless!

Martin

Martin D. Weiss, Ph.D., founder and president of Weiss Research, Inc. and a leading advocate for investor safety, is a nationally recognized expert on domestic and international financial markets. With more than 35 years of experience, including many years in Latin America and Asia, Dr. Weiss has helped empower millions of investors to make better financial decisions through his monthly Safe Money and daily Money and Markets.

Dr. Weiss’ keen understanding of foreign markets and the global economy has earned him a reputation for thoughtful, in-depth analysis that investors can rely upon to make informed financial decisions. Regularly called upon by the media for his independent investing guidance, he has been featured in publications nationwide, including The Wall Street Journal, The New York Times, The Chicago Tribune, Investor’s Business Daily, and Forbes, and has also appeared on CNN and CNBC.

Throughout his career, Dr. Weiss has been an advocate for consumers and investors in the insurance, banking and brokerage industries, dedicating his time and resources to provide analysis and data for Congressional testimony, constructive proposals for reforms in the securities industry and legislation for full financial disclosure as well sound accounting and fiscal policy.  In November 2004, he launched the Sound Dollar Committee, a nonprofit organization dedicated to building a network of investors seeking to protect the nation’s future by demanding honesty in government accounting, a balanced budget and sound economic policy.

Dr. Weiss is author of The New York Times best-seller, The Ultimate Safe Money Guide, which gave baby boomers a road map to grow their wealth safely. It was listed on the New York Times Business, Wall Street Journal, and BusinessWeek best-seller lists, as well as the Barron’s Roundup for 2002.

Dr. Weiss holds a bachelor’s degree from New York University, a Ph.D. from Columbia University and is fluent in eight European and Asian languages.

A brief excerpt of the lengthy daily internet comment by Richard Russell of Dow theory Letters. One of the best values anywhere in the financial world at only a $300 subscription to get his report daily for a year. HERE to subscribe.

The argument and puzzlement goes on. Are we seeing inflation or deflation? Maybe both. The deflation trend stems from world overproduction. The M-2 money supply, wages and bank credit are contracting, all of which spells deflation. What about bank credit? Is it that the banks just don’t want to lend; they’d rather build up cash reserves? The banks claim otherwise; they say that nobody wants to borrow, which is why they’re not lending.

As for the inflation side of the argument, the inflation is in the huge Fed and Treasury borrowing. Many say (and I’m one of them) that the only way the absurd national debt can be handled is via inflation. Is this what gold is really looking at? So both forces are at work — inflation and deflation. Gold is acting erratically, trying to deal first with one force, then the other.. Meanwhile, the Chinese see the writing on the wall, and they are getting rid of dollars and accumulating gold as fast as they politely can.

In the big picture, I keep referring to American consumers. Can the government lure them into a buying and borrowing mood? I remain sceptical. I think that for the first time since World War II, US consumers have turned thrifty. Even the upper-middle class and the so-called rich are cutting back. The dreaded rumor is that wealthy people have been seen shopping at Target and Wal-mart. Is this the end of the world as we know it? Anybody see Bill Gates and Melinda having dinner at McDonald’s?

 

 

 

The 84 yr. old writes a market comment daily since the internet age began.  In recent years, he began strongly advocated buying gold coins in the late 1990’s below $300. His position before the recent crash was cash and gold.

There is little in markets he has not seen.  Mr. Russell gained wide recognition via a series of over 30 Dow Theory and technical articles that he wrote for Barron’s during the late-’50s through the ’90s. Russell was the first (in 1960) to recommend gold stocks. He called the top of the 1949-’66 bull market. And almost to the day he called the bottom of the great 1972-’74 bear market, and the beginning of the great bull market which started in December 1974. He loaded up on bonds in the early 80’s when US Treasuries where yielding 18%.

by: Martin A. Armstrong

Former Chairman of Princeton Economics International, Ltd. and the Foundaton for the Study of Cycles.

Many people assume that because I am against Marxism, that this means I advocate soaking the poor for the benefit of the rich. To really understand the trugh of trends, if you are unvilling to examine the propaganda without the personal bias, you will never see the light of day. This argument between the rich vs the poor, has been so distorted and used to further other goals hidden beneath the surface, we get a lot of heated arugments with no substance. Unfortunately, if you will not examine the facts, then you are allowing those who will manipulated the real core of the people, get away with everything.

Let us examine what has really taken place under Marxism. Putting Russia and China aside, let us look at the Western nations who adopted Marxism under the label of “Socialism” or “Progressive Movements” post 1883.

……read full thesis HERE.