11/28/04 Fortune Favors the Brave The Daily Reckoning Weekend Edition
November 27-28, 2004
Baltimore, Maryland
By Addison Wiggin and Tom Dyson
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*** London calling…with predictions for the euro, the yen and the
pound…
*** Gold breaks $450…and the gnashing of teeth resonates…
*** A list of twitches…what do the Indonesians, the Chinese, the
Russians, the English and a handful of American banks all have in
common?
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MARKET REVIEW: FORTUNE FAVORS THE BRAVE
Your Baltimore-based editor received a phone call from London this
morning.
"Bit of excitement in the markets last week, eh, Tom?"
It was an analyst from a major pension fund in the City. He was
calling to chat about the currency markets.
"Have you seen what cable's doing? UBS just lowered their forecast
for the dollar…I just wanted to see how your long-dollar position
was holding up. You must be slightly nervous?"
Cable is trader-slang for the dollar/sterling exchange rate. On
Friday, sterling spiked to $1.9037, the highest it's been in 9 months
and three ticks short of a new 13-year record against the dollar.
Here's why:
Last week, UBS, Merrill Lynch and JPMorgan all cut their predictions
for the dollar.
UBS marked the yen up to 103 by March, and the euro to $1.36.
JPMorgan put the yen at 96 and the euro at $1.37 in the same time
frame.
Merrill Lynch matches the yen prediction, but puts the euro at
$1.39.
Together, the three firms account for 22 percent of the $1.9
trillion-a-day currency market.
Then there are the Russians. Here at the DR HQ, we've been following
the Russian dollar-dumpers very closely…
Readers will recall Oleg Mozhaiskov, former deputy chairman of the
Russian Central Bank, pushing for gold as a an alternative to
Russia's dollar reserve.
Readers will also recall Senior Deputy Finance Minister Alexey
Ulyukayev. On Monday, he discussed "the possibility to change the
reserve structure."
Then on Friday, Deputy Chairman Konstantin Korishchenko said the
Russian Central Bank was moving away from the 'dirty' float of the
ruble against the dollar.
The Russians are not alone. On Thursday, Bank of England Chief
Economist, Charles Bean, threw his hat into the ring. "At some stage
action will have to be taken to close the U.S. fiscal deficit and,
when that happens, the real value of the dollar will have to fall if
a sharp slowdown is to be avoided," Bean told an audience of business
leaders.
And the Indonesians…on Friday the FT reported that they too might
cut their dollar holdings if it keeps sliding. Indonesia holds $35
billion in dollar-denominated reserves.
Finally, a respected professor of economics and a member of the
central bank's monetary policy committee in China, was quoted on
Friday as saying Beijing had cut the proportion of foreign exchange
reserves held in dollars. The markets panicked and dumped both the
dollar and bonds so suddenly that our flustered bureaucrat was forced
to deny the statement. "I think the Chinese monetary authorities are
very clever and they must already have taken action," Prof. Yu said.
"But I have no information whatsoever about what they are doing."
As anxious as a group of sprinters crouching in their blocks, these
men, and the organizations they represent, are all getting ready to
race for the door at the same time.
In anticipation, bond yields moved higher for the fifth consecutive
week. The 10-year Treasury climbed 4 basis points to yield 4.24%, the
highest since August.
Oil, the other thorn in the stock market's side, also moved higher,
moving briefly above $50 a barrel. The goo closed at $49.44 up $1 on
the week.
But despite the rising energy and interest rates, stocks eeked out an
up-week. The Dow gained 65 points to close Friday's session at
10,520. The Nasdaq and the S&P both managed small gains as well.
Gold's holding its own. It breeched $450 for the first time in 16
years and now sells for $452 an ounce.
"They're saying cable could hit $2.30…and the euro could go all the
way to $1.50," goaded the analyst on the phone.
These projections, as insane as they seem, will probably be reached;
but for now we stand stubbornly in the doorway, waiting to be
trampled by a panicking herd of central bankers. "It's a pretty
aggressive play, and yes, nerve-wracking too," we replied, trying to
justify our short position in Japanese yen. "But as long as we can
hear gnashing teeth and people are seriously considering the
possibility of a 'crash,' we'll keep buying dollars."
"Fortune favors the brave, Tom…shame you're such a wimp! Talk to
you later…"
Click.
Regards,
Tom Dyson
The Daily Reckoning
P.S. The analyst is an old friend, so he was just messing. But the
dollar's bear market is real. We've been saying it for years.
There's a number of ways to profit from the move…short dollars,
short bonds, buy foreign currencies, or gold even.
But perhaps the surest way to make a killing from the dollar's swoon
might surprise you. It's commodities, and some of the smartest
investors in the world are snapping them up while they're still
cheap. Take Jim Rogers for example. He was so convinced by the case
for commodities, he set up his own index!
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returned over 150% in a matter of days following an earthquake in
Columbia, or the devastating OJ calls that jumped 36% when a second
hurricane pummeled Florida's orange groves, check out veteran trader,
Kevin Kerr:
The Resource Trader
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------------------------
THIS WEEK in THE DAILY RECKONING
INTERVIEW WITH A DAY TRADER 11/26/04
By Bill Bonner
"…I had one woman on Tuesday. Nice green eyes. Reddish hair. And a
thick Irish accent. She said she had lived in Ireland all her life.
Even had an Irish passport. But I could tell- Russian
Intelligence…"
http://www.dailyreckoning.com/body_index3.cfm?id=10897
THANKSGIVING 11/25/04
By Bill Bonner
"Beirne hails from Mississippi. And while Mississippians will sit
down with the rest of the nation…and tuck into their turkeys with
equal relish…perhaps only substituting Bourbon Pecan pie for the
sweet potato or pumpkin pie enjoyed in Maryland…it was not always
so. Somewhere deep in the most primitive part of his medulla
oblongata, the part of the brain where race memories are stored,
Beirne resists Thanksgiving. It is, after all, a Yankee holiday."
http://www.dailyreckoning.com/body_index3.cfm?id=10894
EXPORT DEPENDENCE 11/24/04
By Gary Shilling
"Asian countries are also concerned about the strength of their own
currencies against the dollar and the resulting negative effects on
their exports-specifically, their exports to the United States since
the lion's share of their exports, directly or indirectly, end up in
America."
http://www.dailyreckoning.com/body_index3.cfm?id=10889
GOLD AND GRAVITY 11/23/04
By Dan Denning
"I made the enhanced liquidity argument myself - about a year and a
half ago, when gold was much less popular. Today is different. Gold
is 'hot'. But is it 'hot' in the way that, say, Britney Spears in a
skin-tight red rubber suit is 'hot?' Or is gold warming up because
it's at the centre of a major shift in investor sentiment about asset
allocation and the need for diversification?"
http://www.dailyreckoning.com/body_index3.cfm?id=10863
A FINANCIAL FIASCO 11/22/04
By The Mogambo Guru
"And then we cruise on over to the actual banking side of the system
and note that they ALSO bought up a lot of government debt last week,
if you are the kind of person who thinks that $5.1 billion is a lot.
I am, personally, one of those old-fashioned guys who still thinks
that 5.1 billion of anything is a lot, and especially if that 5.1
billion of anything is accumulated in one crummy week."
http://www.dailyreckoning.com/body_index3.cfm?id=10855
----------------------
HEADLINE, NEWS And INSIGHT:
Treading Carefully in China
by Christopher Mayer
"This brings me to an interesting point. Emerging market investing is
cyclical and fraught with peril. While China presents enormous
opportunities, it also brings specials risks as well. Emerging
markets can experience gut-wrenching peaks and valleys."
http://www.dailyreckoning.com/body_headline.cfm?id=4292
The Bush Recession?
by John Mauldin
"Social Security must be reformed. Now. Let's be realistic. If we do
have a serious recession, it is quite possible we will see a Democrat
in the White House in 2008. That means 2012 at the earliest for any
real reform, and it will cost hundreds of billions (if not a few
trillion) more. This is one we must do for the kids."
http://www.dailyreckoning.com/body_headline.cfm?id=4285
----------------------
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