>> Bernanke Created Half of 234 Years’ Worth of Money Supply

From the BigPicture:

“The U.S. turned 234 years old yesterday, and yet over half of the nation’s money supply was created since Helicopter Ben took over the flight controls four years ago. No wonder gold is in a full fledged bull market . . .”

-David A. Rosenberg Chief Economist & Strategist
Gluskin Sheff + Associates Inc.

>> The real dollar story

The dollar has been in news in the last few months, with a lot of people calling out saying "the dollar is dead" and "lets have a new reserve currency". So far:


The Dollar's Days are over?
(1) Reuters says Dollar to eventually lose grip on commodity trade

(2) The Independent had news about a "profound" financial change in recent Middle East history wherein Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar. Read more here

(3) Financial Express says gulf states considering dollar alternative for oil trade, gold jumps

(4) Even the UN says the world should ditch the dollar!


The China Perspective
(1) China not happy with the US Dollar, wants an alternative to the dollar

(2) China is also is not happy with the probable fall in the dollar!
Mike Pettis is one of the world's top economist's, and to quote him: "The Chinese are worrying about future weakness in the dollar (which hurts their reserves) while complaining about current strength (which hurts exports)!"

Here is an excerpt of a comment from Mike Pettis on why it is improbable that the Dollar will not be removed from the status of a reserve currency:
""There has been for decades talk about creating an international reserve currency and it has never really progressed," said Michael Pettis, a finance professor at Peking University's Guanghua School of Management. Managing such a currency would require balancing the contradictory needs of countries with high and low growth or with trade surpluses or deficits, Pettis said. He said the 16 European nations that use the euro have faced "huge difficulties" in managing monetary policy even though their economies are similar. "It's hard for me to imagine how it's going to be easier for the world to have a common currency for trade," he said"


Will the Fed save the dollar?
Earlier this year:
(1) On March 19th this year, the 'Rambo' Fed, determined to avoid a repeat of the great depression committed to buy as much as $300 billion of long-term Treasuries and more than double mortgage-debt purchases to $1.45 trillion. This may more than double the Fed’s balance-sheet assets by September to $4.5 trillion from $1.9 trillion! Bye-bye dollar?

(2) Also earlier this year, the Fed agreed to currency swaps earlier in the year: From this bloomberg article:
""The Federal Reserve and four other central banks announced a currency swap arrangement that will give the U.S. central bank access to as much as $285 billion in euros, yen, British pounds and Swiss francs. ""

The official purpose of such short-term agreements is to finance short-term capital flows; but swap agreements can also be misused to facilitate large interventions in foreign exchange markets. Is this the reason behind this act?

This of course has been tried before, from 1936 to the present the Exchange Stabilization Fund has participated in over a hundred credit or loan arrangements with foreign governments or central banks. What did this attempt to prop the dollar lead to? Here's what happened - the treasury was subsequently forced to issue foreign currency-denominated debt (The Roosa bonds in the 1960s and Carter bonds in 1978) to repay swap drawings.

Here are the details from the Dept. of Treasury website.

{ Recommended reading: A very good article describing this entire chain of events in detail: Fed tries to boost the dollar. }



Putting the Dollar's fall & Gold's spike this week into perspective
Oct 6, 2009: The Independent reported about a dollar alternative to set the value of oil trades. This set in motion the immediate fall of the dollar and a jump in the price of gold.

This was then officially denied by several sources.

Oct 8, 2009: Asian central banks intervened heavily in the currency markets on Thursday to stem the appreciation of their currencies against the US dollar amid fears that their exports could be losing ground against China. More detail here.

Meanwhile, Tyler Durden speculates that there could be a potential deal between US & China to let the dollar slide more slowly, more here.

Or could this all really be an organized short on the dollar? Soros had made $1 billion in 1 trade shorting the British pound in the 1990s, so the possibility remains that someone had an interest in the dollar falling; we shall know with time.


Conclusion - So What is the Dollar story?
We started out with news about calls to replace the dollar with another reserve currency. We also saw that several parties have both short-term as well as long-term interests in the fall of the dollar.

My opinion is that the calls for replacement of the dollar as the reserve currency is noise which will die out with time, there seems to be a low probability of that happening. Meanwhile I expect a slow slide in the dollar, coupled with deflation that has started to continue for some time to come.

( Why deflation? Thats a discussion for some other time :-) )

>> Part 2 - Banking Cartels Engineered Financial Crisis Endgame

Jul 11, 2009 - 07:06 AM; By: DeepCaster_LLC

We issue a word of caution to our readers. So long as The Cartel is in a very active interventional mode (e.g. as in taking down the price of Gold and Silver) do not be lured into thinking that the periodic up spikes in the prices of Gold and Silver necessarily present a "breakout" or a buying opportunity. As a practical matter, technical breakouts are sometimes a lure designed to suck in more "longs" prior to a subsequent deeper Takedown.

Nonetheless, it is essential to study the Fundamentals and Technicals even though the Interventionals can override the Fundamentals and Technicals. One must study the Fundamentals not only for all the usual reasons but also because Fundamentals somewhat constrain the timing and effectiveness of Interventions by The Cartel.

Continue reading here

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Probable? Possible? Or hogwash? Please post your comments on what you think about this article.

>> Bernanke about the Great Depression - We did it

Here are the words of Ben Bernanke at the Conference to Honor Milton Friedman at University of Chicago, Chicago, Illinois on November 8, 2002:

" Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again. "

Thats right. Bernanke himself said that the Fed indeed "created" the great depression.

Continue reading here

>> Gold Update

A friend had asked for an update on gold (http://aprioritrader.blogspot.com/2009/01/gold-makes-move-short-term-trade.html#7475612474474657231) , so here it comes :) - 

(I) $GOLD Elliot Wave Preview (Daily Chart)

Above is the slightly long-term chart of the gold continuous contract (courtesy stockcharts.com), and it seems that are in the middle of the 3rd wave of the 5th. Gold has had a nice long period of consolidation before that, and looks to be gearing to run up. $1000 will be a strong resistance, expect a correction back to $920 levels.

(II) Updated on 06/07 - Inverse H&S On Weekly Chart

Enjoy :-)

>> Fiat Currencies in motion

Major governments have been printing money over the last few months. Lets take a peek into what this is doing to the major currencies.

(I) British Pound
FXB (CurrencyShares British Pound Sterling Trust ETF) has fallen dramatically in the last few months, here is the all-revealing chart-
















(II) Japanese Yen
FXY(CurrencyShares Japanese Yen Trust ETF), meanwhile, has been on a

















(III) US Dollar

Both the UUP(PowerShares DB US Dollar Index Bullish Fund) as well as UDN(PowerShares DB US Dollar Index Bearish Fund) are at an interesting juncture.

It wouldnt be fair not to look at the $USD chart :) -

There has been a flight to the dollar despite the "weak fundamentals", however this may continue for longer than one thinks. It would be prudent to keep an eye on these charts to keep on top of an impending change in trend, short-term or long-term.

Finally, the picture is more interesting when looking at what gold does in conjunction with the USD. Take a peek into that is an older blog post : >> Gold Makes a Move - Short Term Trade?

>> Gold Makes a Move - Short Term Trade?

Gold made some smart moves this week. Lets delve into where it could be headed in the short term. This is a good time to keep an eye to see where it is headed, whether you decide to trade it or not.

(I) Gold - Continuous Contract



















(Image source : www.stockcharts.com )

Gold has broken up from a long consolidation phase which lasted the last several months. As seen in the image above, gold has pushed through its 200-day moving average as well as the nice big triangle.

Since you cannot trade the continuous gold contract, lets find a way to trade this move.



(II) GLD - The gold ETF

Lets have a peek into what the chart for this ETF looks like:















Similar chart, not suprisingly - the consolidation, the break from the triangle, the volume spike and the MACD.

Seems like GLD is headed towards 92.5-93 in the short term. As always, dont forget to keep a stop-loss if you enter this trade.

Related article - GLD's assets grew by 29% in 2008, read here.


PS - This continuation or a failure of this upmove would reveal where gold is headed in the next few weeks. We stand at a crucial juncture.