Traders See Bailout as Inflationary and Dollar-Negative
Sep 23rd, 2008 | By Doug Casey | Category: Financial News, US Dollar & Forex TradingIn the currency market, the dollar took a savage beating vs. the euro. Late Monday, the euro was trading at $1.4804 vs. $1.4481 on Friday. Traders obviously had little enthusiasm for Comrade Hank’s bailout, which was cobbled together over the weekend and presented to Congress with a very hard sell about the severity of the consequences if it isn’t enacted.
That lack of enthusiasm seems warranted, considering that the Treasury Secretary is essentially asking for kinglike powers, giving him the authority to buy $700 billion in mortgage-related assets over the next two years, with no oversight, review or possibility of being overruled by the courts. Sound a little creepy?
The proposal would also raise the statutory limit on the national debt from $10.6 trillion to $11.3 trillion, and allow the Fed to buy agency discount notes from primary dealers, acting as a backstop when and if money-market funds want to sell their assets.
But, “Concerns about the financing of the bailout plan of $700 billion and whether foreign investors will continue to aggressively buy Treasuries as the national debt increases to above 70% of the [gross domestic product] weighed on [the] U.S. dollar,” said Matthew Strauss, of RBC Capital Markets.
In addition, “Part of the pressure is coming from market positioning. The speculative community had amassed a fairly sizeable long dollar position in recent weeks,” wrote Marc Chandler, of Brown Brothers Harriman.
“Part of the dollar’s slide has reflected a bout of long liquidation, with some momentum traders playing the dollar from the short-side,” Chandler added.
And in yet another stunning development, Paulson’s old Wall Street firm, Goldman Sachs (GS), joined Morgan Stanley (MS) in morphing into a bank holding company. The move allows the two venerable investment banks access to the Federal Reserve emergency loans, using all types of collateral that can be pledged at the Fed’s primary credit facility for depository institutions.
That access comes at the cost of greater scrutiny by regulators and more stringent capital requirements, but the tradeoff was obviously worth it to Goldman and Morgan.
Source: Dollar hammered vs. euro – Traders see bailout as inflationary and dollar-negative.
Advertisement
On March 30th, there'll be an announcement of FDA results for a new drug that could become the bestselling pill in the history of medicine.
One medical source says, "It could tap the largest pharmaceutical market ever." Even more exciting, early investors could make as much as $195,600, overnight... by getting in immediately.
Click here for the full details.
Doug Casey is a contrarian investor, sought-after public speaker and author of several books. His work "Crisis Investing" held the position of # 1 bestseller on the New York Times list for 26 consecutive weeks. Doug's unusual views on the economy - and just about everything else - have gained a huge following in the investment community, and it certainly helps that his stock recommendations of undervalued junior exploration companies have made his subscribers millions. Now in its 27th year, Doug's monthly newsletter, the International Speculator, is one of the most established and esteemed publications on gold, silver and other natural resource investments. Together with the Casey Energy Speculator, it covers a broad range of carefully selected stocks with the very real potential of double- and triple-digit returns within 12 to 24 months.