No End in Sight for Dollar Slump
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Editor’s Note: There’s a lot of confusion about the direction of the dollar and commodity prices, says Chuck Butler in The Daily Reckoning. Hank Paulson is talking up a strong dollar. Analysts are calling commodity prices a bubble. But the trend is clear. The dollar is in a slump. Commodities such as oil and gold are off the dial. And there is nothing to suggest a turnaround in the near future…
BIS Disses the Dollar
By Chuck Butler
Front and Center this morning, we have the euro climbing above 1.58, and the Aussie dollar hitting a 25-year high! The dollar is getting sold again, as the negativity toward the dollar grows strong again. We also have The Bank for International Settlement (BIS) talking about how a disorderly decline in the dollar can’t be ruled out completely, while U.S. Treasury Sec. Paulson is talking about how a strong dollar is a good thing for the U.S.
We also have conflicting stories on Commodities, as some are saying the Commodities bubble is bursting, and our old friend, and investment guru, Jim Rogers, says to; “avoid U.S. dollars at all costs, buy commodities instead.” I’ll pin my colors to Jim Rogers mast for sure on that one!
Oh… And the Black Gold, Texas T, Commodity of Oil… Has reached $143 overnight. UGH!
You should have seen the currency screens light up on Friday when: 1. the U. of Michigan Consumer Confidence report printed… We had already seen U.S. Income soar, on the tax checks that will be taxed next year (but don’t let that get in the way of a feel good story!), and the markets were feeling pretty cocky… But then the U. Of Michigan report printed and the dollar bulls quickly cowered back into their corner. The report dropped to a new low since beginning to report in 1980. And analyst that reviews this report said that; “It looks as though the U.S. Consumer is about as depressed as they could possibly be”… But I’ve got news for him… This is going to get even uglier…
And 2. The Weekly Jobless Claims rose to 380K… This report keeps inching toward that 400K per week job loss that we saw during the last recession…
With Friday being a holiday here in the U.S. (4th of July), the Jobs Jamboree will move to Thursday… The report in recent times has been quite depressing, with negative job creation the past 3 months. I fully expect job losses to print around 100K in June, marking the 4th consecutive month of job losses. I would also look for the Unemployment rate to rise to 5.6% (from 5.5%), which would be a high in a month of Sundays… The Bureau of Labor Statistics (BLS), which as you know, I don’t hold in high regard, will have the final say on the number that the media picks up… I still say -100K…
Ty sent me a note on Friday afternoon of a story that appeared in the Telegraph (U.K.)… And instead of explaining the story, I’ll just let it speak for itself! “Barclays Capital has advised clients to batten down the hatches for a worldwide financial storm, warning that the US Federal Reserve has allowed the inflation genie out of the bottle and let its credibility fall “below zero”.
“We’re in a nasty environment,” said Tim Bond, the bank’s chief equity strategist. “There is an inflation shock underway. This is going to be very negative for financial assets. We are going into tortoise mood and are retreating into our shell. Investors will do well if they can preserve their wealth.”
Last week I told you about a similar warning from the Royal Bank of Scotland… Maybe these guys are all Pfennig readers? HA!
Anyway, with the stock market in a tailspin, the Japanese yen is back in the atmosphere… It now trades with a 105 handle… And Swiss francs have a hop in the step this morning too! And remember last week, when I said in the Pfennig (Thursday, June 26th) “Gold, which sold off big time earlier this week, is still below $900… Wink, wink…?” Well… Even since that morning, Gold has taken off! And is now trading at $934! It has not looked back at the sub $900 number since I gave you the “wink… Wink”…
The European Central Bank (ECB) meets this week (Thursday), and they just received some very bad news for anyone thinking the ECB might delay a rate hike this week… Eurozone CPI (inflation) printed this morning at double the ECB’s ceiling target of 2%… A 4% print in CPI won’t make the ECB happy, and pretty much puts the chances of a rate hike on Thursday at the equivalency of a slam dunk for Shaq! It’s a done deal folks…
And, I’ll finish coming full circle on an item I mentioned in at the top… The Bank for International Settlements (BIS), issued a report last night that really dissed the dollar… Let’s listen in… “A plunge in the currency may happen even after is remarkably orderly 14% slide against the euro in the past year. Foreign investors in the U.S. dollar assets have seen big losses measured in dollars, and still bigger ones measured in their own currency. While unlikely, indeed highly improbable for public-sector investors, a sudden rush for the exits cannot be ruled out completely.”
Remember, a few months ago when G-7 said “no mas” regarding dollar weakness? The dollar rallied for a short time afterward… But, as time goes on… The dollar slowly sold off again, and again, and again, till we’re about right back to where we were when G-7 met… I guess, as always, always, I tell you, Tutor Turtle, words mean nothing without action! Help Mr. Wizard!
Source: BIS Disses The Dollar!
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Tags: Chuck Butler, Crude Oil Prices, Gold Prices, investing in gold, Jim Rogers, US dollar, US recessionAbout the Author
Chuck Butler, is the author of The Daily Pfennig, which is republished at The Daily Reckoning. His respected analysis is frequently quoted in or referenced by: the Wall Street Journal, U.S. News and World Report, CBS Market Watch, USA Today, CNNfn, the Chicago Tribune and many other publications.
The Daily Reckoning offers a "uniquely refreshing" perspective on the global economy, investing and the ability to live well in uncertain times. You will learn what you can expect from today's markets and how to prosper in the face of uncertainty.