Quote of the Week on Greece's Financial Future; And Thoughts on the Euro and USD

Bloomberg.com is carrying a quote that I believe provides a cogent prediction of Greece's future in Merkel Sets Greek Aid Terms, Sees IMF-EU Tandem as Last Resort. To wit:

“The German strategy for the next couple of months is very simple: provide just enough positive rhetoric that investors continue to purchase Greek bonds,” said Peter Zeihan, an analyst at Stratfor, a geopolitical risk consultancy in Austin, Texas. “On the flip side, they want to make sure via rhetoric that there’s just enough doubt that the markets demand a much higher spread than the Greeks are hoping for. The Germans want to make very sure that the Greeks are punished.”

Sound a bit like World War II at the end. Yawohl?

David Kotok's Cumberland Advisors has been predicting for a few months that the Euro will hold but would show further weakness but would then become a "buy" vs. the U. S. dollar. So far that prediction has been looking - well- prescient.

The idea that the USD would strengthen because little Portugal is downgraded with a governmental deficit of about 9% of GDP, when U. S. deficits are worse, is odd.

The "DXY" tide may be with the USD, but that is a narrow index. The more relevant, broader index of the value of the dollar in the real world is the Trade Weighted Exchange Index. This chart shows essentially a stable dollar lately. The rally in the DXY that may have persuaded some to reprice gold downward is a fake-out. The current financial crisis began in America. The idea that the extend and pretend solution here in the financial community ends with triumph because some small countries in Europe tried to play our game of massive deficit finance without access to their own national printing press strikes me as naive.

The Bushbama policy of socializing the financial losses cannot be good for the USD. Right now sentiment is being whipped up against the Eurozone countries. Sitting here, we are being tipped off by various media statements that the U. K. is next up to be attacked by speculators. I am not so sure. The next attackee, should there be one, could be right here. Just as the Germans thought that the attack onto the mainland was coming elsewhere, this talk could be misdirection. A good buying opportunity in the Euro may be coming relatively soon. If so, one would suspecct that gold prices would move up in USD terms as well.

Copyright (C) Long Lake LLC 2010

Too Many Loud Voices of Support for the Dollar for Comfort

Skeptical minds are questioning the implications inherent in the Bloomberg.com article, Russia’s Kudrin Signals No Alternative to Dollar Global Status. Please consider all the following from the article:

Russian Finance Minister Alexei Kudrin said the dollar is in “good shape,” further affirming that there’s no substitute for the world’s reserve currency.
Kudrin rushed to reassure investors of Russia’s confidence in the dollar just days after his boss, President Dmitry Medvedev, questioned its global status, joining China’s central bank Governor Zhou Xiaochuan in suggesting the world may need another benchmark for settling international debts.
“It’s too early to speak of an alternative,” Kudrin said in an interview two days ago in Lecce, Italy after meeting officials from the Group of Eight nations. . .

“At this point there’s no alternative to the U.S. dollar in terms of deep liquid markets and trading 24-7 globally,” Michael Woolfolk, senior currency strategist at the Bank of New York Mellon in New York, said yesterday in a telephone interview. “Nothing even comes close to the dollar in terms of reserve status.” . . .

The dollar got some support last week when Japanese Finance Minister Kaoru Yosano said his country’s confidence in U.S. Treasury securities is “unshakeable,” signaling the second- biggest foreign holder of the securities will keep buying them.
“We have complete trust in the fact that the U.S. views its strong-dollar policy as fundamental,” Yosano, 70, said in an interview in Tokyo on June 10 before attending the G-8 meeting of finance ministers in Italy. “So our trust in U.S. Treasuries is absolutely unshakable.”

Over the past two years, it has become clear that the United States has committed a fraud upon the rest of the world by creating securities tied to loans on the value of housing in the U. S. These loans, called mortgages, were "packaged" in inscrutable ways and are defaulting at ridiculous levels despite allegedly high-class U. S. rating agencies having blessed these securities as "AAA". Other AAA and less highly-rated U. S. loans have proven unsound, as well.

Furthermore, the Bushbama Continuity has perpetuated the malinvestment here in homes, rather than directing investment to export-oriented industries in which the U. S. actually has a competitive advantage.
These industries include medical technology, information technology, agricultural know-how, and even- somewhat oddly- financial services knowhow.

The more the U. S. continues to bail out homeowners and especially the holders of the mortgages, the weaker the dollar will trend.

All the above expressions of support for the dollar only serve to demonstrate its weakness. It's obvious who Charles Atlas is when lined up against the 97-pound weakling. Right now, the U. S. is Charles Atlas in the advancing stages of a wasting disease, and the former weaklings are continuing to bulk up.

The only safe way to make money from a continuation of this trend is to own the once and possible future currency known as gold, though only with a very long-term horizon. Owning BZF (the Brazilian real) on pullbacks continues to make sense.


Copyright (C) Long Lake LLC 2009

Why Citigroup Should Not Be Called a "Bank"

Marketers and revolutionaries are among the few who recognize how very important language is in winning public debates. EBR believes that financial writers are inadvertently contributing to the victory of the "banksters" by using language that helps them.

Uppermost in the mind of Econblog Review in this regard is the widespread use of "bank" to refer to giant holding companies that own a bank. Here is the definition of a financial bank (as opposed to a riverbank, e.g.) from Merriam-Webster on-line:

an establishment for the custody, loan, exchange, or issue of money, for the extension of credit, and for facilitating the transmission of funds.

Clearly, a "bank" is defined as exactly what the average Joe thinks it is: a plain vanilla commercial depository institution, that with its deposits makes loans (extends credit); provides wiring of funds (facilitates the transmission of funds). A "bank" per this (correct) popular definition does not meet the description of Citigroup as listed on its website:

Citi is organized into four major segments – Consumer Banking, Global Cards, Institutional Clients Group, and Global Wealth Management.

Only the first of the above is what people think of when they think of a "bank" in relation to Citigroup. And of course Citigroup deliberately confuses the issue by calling both itself and Citibank "Citi" whenever it can.

The average citizen hears President BushBama and Treasury Secretary HankTimothy GeithPaulson, and their allies and acolytes talk about bailing out the "banks", and hears that terminology repeated even by staunch opponents of these bailouts in general and/or specific bailout policies, and thinks that this is somehow different from bailing out ExxonMobil when oil prices and demand may plummet because, these are BANKS.

The average person has no idea that when money goes to Citigroup, it goes to a corporation that owns Citibank N.A. and other banks in foreign countries, but that mostly tries to make money doing other things, such as trading for its own account, advising companies on takeovers, etc.

Econblog Review believes that over time, the public needs to think of companies such as Citigroup as Big Finance (or some similar term), just as it thinks of ExxonMobil and its brethren as Big Oil. Once this terminology is used, it will be easier to make the case for reinstatement of a modernized version of Glass-Steagall and for the numerous other reforms required to prevent recurrent systemic financial crises.


Copyright (C) Long Lake LLC 2009