Thread: Structural Weakness of US Dollar Means Rally Will Not Last

Structural Weakness of the US Dollar Means Rally Will Not Last

Stock-Markets / Financial Markets 2010
Mar 10, 2010 - 09:56 AM
By: Bob_Chapman

Every important factor we see is working against the dollar and we believe that trend is irreversible. That means the present dollar rally probably cannot endure and it could well be the time to short the USDX.

Most observers discuss Europe’s problems and the plight of the euro, pound, and the Danish and Swedish koronas. They believe these European currencies will plunge lower versus the dollar and that the dollar will maintain, even after a dollar rally from 74 to 81 on the USDX. As we have said before the euro was unnatural creation born of a desire to usher in a world currency. As we shall see in the future the euro will fail.

In spite of that the dollar is certainly no bargain, because next year America will be totally bankrupt. As a result of the terrible conditions among currencies, gold makes great gains. Last year and so far this year gold is up 10% to 24% against many major currencies. This kind of action of course proves again that gold is the world’s strongest currency. We might add here that we believe that it is only a matter of time before the LBMA, or Comex, or the ETFs, GLDs and SLVs are enveloped in scandal. As so often has happened in history fiat currencies have collapsed. Thus, it will happen again. Those of you not in gold and silver related assets will lose most of what you have worked for your entire lives.

The collapse of currencies and nations won’t happen overnight, because their demise has been planned, and a subtle collapse is in process. Our guess is that next year is when the collapse will finally take place followed by one of the greatest deflationary depressions of all time. During the last 2-1/2 years all the toxic investments have been and will continue to be transferred from the Illuminist banks, brokerage houses, insurance companies and transnational conglomerates to the public. The Federal Reserve is the repository for this junk, which includes Treasuries and Agencies. That means the public foots the bill. Every government and bank in the world will be affected. This magical game of 3-card-Monte will never work and the Illuminists know it won’t work. That is why they have war on demand to distract the public and to escape punishment for the devastating thing they have brought upon mankind. What we are facing is as bad if not worse than the collapse of the Lombard system in Venice in 1348, the year of the plague and the collapse of the Hanseanic League in the 1600s, the creation of the Medici’s. For starters we already have 19 bankrupt or near bankrupt major countries and many others that will be pulled into the vortex of financial and economic calamity. In each country we see the Illuminists doing their evil work, legends in their own minds, in a system that they know cannot survive. They are waiting for orders to pull the plug in each and every country. These masters of the universe all know that prosperity cannot be created by printing money and issuing credit indefinitely. They know full well that such a system cannot survive.

Overall the issuance of bank credit declined $470 billion, or about 5% y-o-y. Loans to individuals and small to medium sized companies fell some 20%. We do not interpret this as deflationary, but it sure doesn’t reflect a growing economy. These small to medium sized companies are the ones that create 80% of the jobs. Fed mantra has been save the banks and NYC and then we’ll see what we can do for the 21-1/8% of unemployed. At the same time Fed holdings of MBS was $69 billion. Today it is $1.027 trillion. This was not done to save the public or their homes, but to bail out banks and allow the taxpayer to pay for it.

The sales of bonds are booming at record low interest rates. Buyers obviously think rates are going to stay low forever. Just last week investors bought $2.6 billion in global bond funds. This has been going on for more than a year. Buyers are left with slight gains and small yields, risks hardly worth taking. At the same time gold and silver and related shares rose more than 24%. What could they be thinking about? In the meantime debt prices have held in spite of the disruption in Europe over Greece and the euro. Then the international elitists oversubscribed Greece’s bond offering by three times. The yield was 6-3/8%, but Greece is bankrupt and has been for years.

All this considered inflation is still strongly in place at least for another year and perhaps beyond. A lot depends on how quickly, financial conditions deteriorate among the 19 nations, in the financial system. All indications are that liquidity is being removed. If this continues one year to 1-1/2 years down the line things will freeze up.

Presently the dollar carry trade moves relentlessly onward, but not at its previous pace. A higher dollar impedes such activity. This is why presently the 19 current basket cases can continue to float along. There is still plenty of liquidity out there.

Just to show you how far from the world of reality the Fed is, last week Fed of Richmond President Jeffrey Lacker told us the central bank was being made a scapegoat to satisfy anger over bailouts as Congress seeks to limit its consumer-protection and bank-supervision powers. This just doesn’t wash. There is no question that the Fed was at the center of the problem. It blatantly was to save the financial sector and screw the public.

We conclude that the Fed will continue to provide low interest rates and vast liquidity to the US and world financial systems. The Volcker Ruleâ€

In February, the number of unemployed persons, at 14.9 million, was essentially unchanged, and the unemployment rate remained at 9.7 percent.

In February, the civilian labor force participation rate (64.8 percent) and the employment-population ratio(58.5 percent) were little changed.

The number of persons working part time for economic reasons (sometimes referred to as involuntary part-time workers) increased from 8.3 to 8.8 million in February, partially offsetting a large decrease in the prior month. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.

This pushed the U-6 to 16.8% from 16.5%.

U-6 Not-Seasonally Adjusted is unchanged at 17.9%, barely above the record 18% set in January.

US corporations have cut millions of workers to part-time status in order to avert large-scale layoffs. This has kept the headline unemployment number from being far worse.

Due to the huge number of part-time workers (8.8m) & temporary workers (2m) when the economy starts to improve materially, firms will not hire a significant number of workers until millions of part-time employees regain their full-time status. [Heed IRS tax data to discern the bounce.]

The average workweek for all employees on private nonfarm payrolls declined by 0.1 hour to 33.8 hours in February. The manufacturing workweek for all employees dropped by 0.4 hour to 39.5 hours, and factory overtime decreased by 0.2 hour…the average workweek for production or nonsupervisory employees on private nonfarm payrolls fell by 0.2 hour to 33.1 hours. [This clearly refutes ISM and PMI claims, doesn’t it?]

In February, temporary help services added 48,000 jobs…temporary help services employment has risen by 284,000…In February, employment in the federal government edged up. The hiring of 15,000 temporary workers for

Census 2010 was partially offset by a decline in U.S. Postal Service employment.

The Household Survey shows an increase of 308,000 jobs, but the BLS did not report this in the preamble to the report [see above]. Most of the gain is due to 233,000 gain in ‘Men 20 years and older’.

‘Men 16 year and older’ account for 297,000 of the 308,000 jobs gain in the Household Survey!

Last month, ‘Women 20 years and older’ produced 529,000 of the 541,000 job gain. ‘Men 20 years and older’ lost 1,000 jobs. This is absurd!

For February, ‘Women 20 years of age and older’ increased only 11,000.

Why is there such a ridiculous and improbable imbalance between the genders in employment for January and February? Someone is getting very careless with the ‘adjustments’. Self-employed workers increased 22,000.

The ‘Exhaustion Rate’ of unemployment benefits hit a record 54.11% as of January 31, 2010.

Gallup: Underemployment 19.8% in February, on Par With January

A majority of the underemployed are not hopeful about finding work.

Gallup estimates that nearly 30 million Americans continue to work less than their desired capacity, and the majority of these remain unhopeful that they will find work in the next four weeks.