Dollar dives as US slump spreads

The Telegraph ^ | 10/19/07 | Ambrose Evans-Pritchard and Joe Moulds

[bruinbirdman]

The dollar has plummeted to all-time lows against both the euro and a basket of global currencies amid growing fears of a disorderly rout as the US property slump spreads to the broader economy.

The greenback dived after the US 'Philly' business index dropped 10.9 to 6.8 in October, with a shock fall in new orders and inventory, raising the chances of further rate cuts by the Federal Reserve this month.

The dollar has reached all-time lows
against the euro

David Page of Investec Securities also noted that sales of toys and games were high due to fears that stocks would not meet Christmas demand following Mattel's toy recalls. Shoppers seem to have shrugged off any impact of the recent market turmoil, prompting economists to speculate that the Bank of England may wait until next year to cut interest rates.

Other data lent support to this view. Bank of England figures showed that growth in the country's broad money supply, which can fuel inflation, cooled in September but stayed high at 12.8pc.

Growth in total lending by banks and building societies, known as M4 lending, appeared entirely unaffected by the credit crisis, rising from 12.3pc to 13.1pc. Vicky Redwood of Capital Economics said: "With inflationary pressures still strong and retail sales figures supporting evidence that the economy grew more strongly in the third quarter than the Monetary Policy Committee expected, interest rates look likely to stay on hold until next year."

The housing market, however, showed signs of cooling. Data from the Council of Mortgage Lenders revealed a stark 12pc decline in mortgage lending over the month, around twice the average fall in August.

Separately, the ONS released data giving a gloomy picture of the state of the public finances, in a fresh blow for new Chancellor Alistair Darling.

Public sector net borrowing, the Government's preferred measure of the public finances, rose to £7.4bn last month, the highest September borrowing on record and above expectations of £6bn.

Howard Archer of Global Insight said: "With slowing growth, a softening housing market and substantially lower City bonuses all likely to weigh down on tax revenues, the prospects for the public finances look worrying."

[Travis McGee]

"Well, then for the same reason as buying gold, you might as well by used bricks, gravel, copper, cords of wood, rubber bands, or whatever."

So sayeth Mr. Super Financial Genius. ROTFLMAO.

[Freedom4US]

What is the byproduct of gold. Is it earnings, dividends, interest? No?

No, no no - the entire point of a diversified portfolio or benefits of asset allocation correct? In some way its absurd - investing in money? Isn't that what gold is? Or currency speculation, then. But wait - excepting gold isn't money anymore, which is presumably why banks keep it locked up underground. Hm. Being nominally stripped of any monetary role, then I suppose it is pointless to try and make 100 per cent sense out this (ha ha) To be fair it should be pointed out that gold certainly paid interest far longer than not. It was only upon the US leaving a coin standard in the 30s (along with everyone else) though it was actually illegal for Americans to posess monetary gold. "Gold Bonds" became illegal as well. Presumably it is lawful to pay gold interest or enter into contracts payable in gold. What people are saying when they want to "invest in gold" is essentially saying they want to keep their money in a form other than USD or EU or YEN or whatever. Stupid, maybe, but it's not really an investment as such. What we are talking about, stripped of the jargon, is the unit of account, so that a transaction/contract has meaning over time in particular. "I'm investing in the metric system" is just as valid a statement in that sense. The conspiracy nutjobs jump the shark, not because they are necessarily mistaken about some aspects of modern finance, but simply because they are reneging on debts they have already contracted for, which is bad form no matter what! There's an interesting story that you can look up on findlaw: "On June 27, 1917 John Trostel entered into a lease agreement with Morris and Jacob Joseph for commercial property in Des Moines, Iowa.(1) The second paragraph of the lease set the amount of annual rent at $12,000 for the first five years of the lease, $15,000 for the next 49 years, and $18,000 for the remaining 45 years. It also provided that "at the option of the lessor, all payments under this lease shall be made in gold coin of the United States of America, of or equal to the present standard of weight and fineness." "In a separate paragraph, ninety days written notice was required as a condition precedent to the right of the lessor to demand payment in gold. Prior to the Depression era, gold clauses such as this were often included in long term rental agreements as a sort of price- indexing mechanism to protect a lessor from the effects of inflation." The plaintiff or whatever won - somebody paid attention to the lease, the fine print - $18,000 yearly rent for an entire building isn't quite the same today as it was in 1917, is it? In this instance, gold acted perfectly in maintaining the gist of the contract don't you agree?

[dennisw]

"Well, then for the same reason as buying gold, you might as well by used bricks, gravel, copper, cords of wood, rubber bands, or whatever."

"professional' is oblivious. Gold is unlike anything else. You hold a gold coin in your hand and you feel a little zing. For thousands of years other people have felt this same zing. Gold ain't top of the heap for nothing

I'd love to own $50,000 worth of oil futures or pork bellies or copper. But gold is quite a bit different except to the oblivious. Not in denial, just totally oblivious to gold down through human history

[Travis McGee]

Yep, gold and silver are just the same as gravel and bricks, only more compact. They have no other inherent value.

That's probably why FDR banned the private possession of gravel and bricks in 1933.

“I, as President do declare that the national emergency still exists; that the continued private hoarding of gravel and bricks by subjects of the United States poses a grave threat to peace, equal justice, and well-being of the United States; and that appropriate measures must be taken immediately to protect the interest of our people. Therefore, pursuant to the above authority, I hereby proclaim that such gravel and brick holdings are prohibited, and that all such coin, bullion or other possessions of gravel and bricks be tendered within fourteen days to agents of the Government of the United States for compensation at the official price, in the legal tender of the Government. All safe deposit boxes in banks or financial institutions have been sealed pending action in the due course of the law. All sales or purchases or movements of such gravel and bricks within the borders of the Untied States and its territories, and all foreign exchange transactions or movements of such rocks across the border are hereby prohibited...” - Proclamation by President Franklin D. Roosevelt, April 5, 1933

OTOH, unbacked paper fiat currency has a 6,000 year history of always holding its value. That's why French Assignats and German Weimar d-marks are worth so much today.

[dennisw]

Read up on old man Bush and his ($15 million IRRC) insider deal in Barrick gold mines with Brian Mulroney. These “free trade” con men are hedged up the wazoo with gold and other hard assets

________________

First you had gold and silver
Then you had paper money that was backed by gold and silver to varying degrees
Then we entered the age of plastic credit cards. This created even more “money”
Now money exists on bank ledgers as electronic notations

We get further & further away from “real money” you can hold in your hands instead of relying on promises of others as to what your “money” really is

[dennisw]

More of George Bush and Barrick mining
First time I read about this was Forbes maybe 10 years ago

http://www.snopes.com/politics/business/pascualama.asp

http://www.google.com/search?num=100&hl=en&rlz=1T4GGIH_enUS242US242&q=Barrick+++%22george+Bush%22

[RightWhale]

The $US has nearly reached its low against the $EU of a month ago. The thesis of the essay fails.

[OregonRancher]

"Yes, I can tell" ...I've been humbled by the market. I've blown out two trading accounts. What I've learned over the years is that whatever made us successful in our chosen occupations becomes a handicap when trading the markets. "I don't want the cheese, I just want to get out of trap"-- Spanish proverb

We have a winner! We both seem to have shared similar experiences, and humble is a weak word for what I've felt at times.

[Travis McGee]

Barrick is a perfect example. I didn’t know the Bushes were into the deal.

[Professional]

I’m oblivious for not getting the “zing”? With all due respect, doesn’t your explanation make my point? Gold is just an object. Yes, it is pretty, and also makes people kind of crazy.

An ounce of gold generally just maintains purchasing power.

But hey, I’ll admit, that for a portion of someone’s entire net worth, that is necessary/or one way of doing it?

[Professional]

I’ll be happy to admit that there is literally no better way than buying gold, to maintain your purchasing power. For a portion of your investments, you want to keep at zero, not have inflation or currency loss, yes, it makes a perfect investment.

Certainly you will not grow wealth with it, unless you buy it when it is artificially low, sell when artificially high? Of course, what normally happens, is they buy at the highest price in decades, then sit on it for years, contemplating why on earth they ever bought it.

[Barnacle]

Somewhere between Chicken Little and Pollyanna is rationality.

Don’t underestimate the significance of this very real and serious indicator... Unless you’re accustomed to ignoring red lights on your dashboard.

[bruinbirdman]

A while back on this thread, Professional asked a poster for stock symbols or other information to verify the validity of claims, even offering to run some numbers on his own. The Prof looks like a numbers cruncher guy.

If the question were posed to myself, I would have no problem. My portfolio is at my finger tips. A click of the mouse and I have my asset allocation in percents.

I can copy and past any symbol on my spreadsheet. A click of the mouse and I can isolate any asset, tell you its last trade, open and close. What percent of the portfolio that asset is.

Another click and I can isolate any asset and rreport every single transaction: buy, sell, split, reinvest. I can give you the date.

I can give you an entire capital gain/loss history for every transaction, realized or unrealized.

Now, you don't know me from Adam. Everything I post might be fantasy. But at least I would be able to give you an almost instant answer to your questions and you would by more liable to consider my posts a little more reliable than someone who does not.

Everyone here is anonymous. They can try and fake anything. It is easy to spot the phoneys.

yitbos

[Freedom4US]

Agreed, it’s been a lousy “investment” for a long time.

Most of the rise in the last 6 or 7 years is just the dollar tanking against other currencies. I’m not a gold-bug as such, there is no rational reason to use gold as a proxy or anything, but I would like to see some sort of objective unit of account. How this can be done in the 21st century, I have no idea. What good is a 5 per cent bond when inflation is running 6? All those tables, graphs, and charts presuppose a some sort of rational substrate, at least I hope so. Inflation robs savers especially, and those on fixed incomes - the elderly in particular. Great way to spend retirement, watching ones’ savings evaporate, huh.

[Professional]

Hey, in Japan their bonds are only like sub 3 percent! Makes you scratch your head, wonder why anyone would buy them. I guess the yen is the reason, as they anticipate it going higher?

And the japanese probably like japanese stocks about as much as a root canal...

And every time they, japs, invest in foreign stocks, the market gains are eaten by the loss of currency values in the country they invest.

See how Japan got screwed from not trading fairly? They wound up with a rising currency. Imagine if your mortgage got more and more expensive? Same for biz loans. This is why I think China is going to get what’s coming.

[ozzymandus]

Higher crop prices! Yay!!

[Lloyd227]

This is fun to watch. I sell automotive electronics and performance equipment online and exports are soaring!

Best thing that's happened for American business in the last 3 decades

[bruinbirdman]

"I sell automotive electronics and performance equipment online and exports are soaring!"

A first person testimony of the value of a shrinking dollar value vis a vis foreign currency.

Note I didn't say "plunging dollar" or "crappy dollar value".

Some would say it is a strong dollar for exporters.

yitbos

[Professional]

Exactly.

A buddy of mine sold some really nice binoculars, for more than what he paid for them, to a guy in Europe. He had them for like 10 years.

If the dollar gets any weaker, you’ll see high end euros traveling to NY, Miami, Boston, to do Christmas shopping and back to school.

I’d be willing to bet, that right now, during the w/e, shopping malls by the Canadian and Mexican border are being flooded by shoppers. Ask those retailers what they think about the “weak” dollar.

At some point, the absurdity kicks in to the point where VALUE and BARGAINS kick in.

[Freedom4US]

Well that’s just it. Their banking and markets are nowheres near as “mature” or robust as the West. I read somewhere that the equivalent of a city the size of Chicago, with all the necessary raw materials - concrete, asphalt, steel, lumber, copper, glass, etc, everything - is being built every TWO WEEKS. But I’e also read it’s a boom that is out of control - some of the skyscrapers sit empty, even, things like that. The market boom is even more out of control.

When they have a hiccup, the whole world gets the flu? But getting back to inflation/cost of living - Everyone knows that governments have to inflate the currency, and pay off future obligations with “dollars” that are worth less. But lets hope not worthless! It’s just not possible, not the USA. For a lark, I just watched a YouTube of Nixon on Aug 15th, 1971 - the day he closed the “gold window” to foreign central banks. He mentioned that speculators were attacking the dollar, and this would put an end to that. He also slapped a 10 per cent tariff on imports, mentioning that his concern was with American jobs, etc.