By Jeffrey Snider at Alhambra
What the liability side of the PBOC’s balance sheet expresses is, in basic, orthodox terms, “money” being “destroyed” inside China
There are times when you can distill the utterly complex into something elegantly simple. This is one of those times, as there really should be no doubt as to “what” and “why” about December so far. From repo to crashing EM’s to crude oil, the common theme is both eurodollar and Asian “dollar.” In that sense, it might be fair to craft the simple equation of; eurodollar = source; Asian “dollar” = destination. The eurodollar banks create global liquidity that ends up in Asia, largely China. In December that is the case only in reverse and only in continuation of these overriding trends in bank balance sheet behavior (contraction and withdrawal).
Again, this is quite simple even if how it actually and exactly got from A to B is dauntingly multifarious:
Continue reading China ‘Dollar’ Simplicity
Buy the news! Euro sports a Draghi
Who was short the Euro on Draghi Day? For that matter, who was long Uncle Buck? I mean I am long plenty of Uncle Bucks because I have a high cash position. But who was trying to game the ECB?
Come on, admit it boyz and girlz.
We had noted the wedge (or ending diagonal, as EW’s might say?) on USD in an NFTRH update yesterday. Here’s the daily UUP equivalent. Uncle Buck is in a bull market, though a correction was likely because this is the market that wants to put all robotic, automatic thinkers off sides occasionally just to keep things interesting.
Here is a monthly chart of USD we have used in NFTRH. The bull market began back in 2011 as the last inflation hysteria blew out. The key rally came in spring/summer of 2014 when a majority were still touting the death of the dollar and the rise of the euro. At that time I had targeted the euro to extinguish at around 140 +/- (it topped at 139.93 in early 2014, close enough for government work) using monthly charts but had no idea how strong the dollar would then become.
We charted its early rally by daily charts and then made kind of a big deal about it when it broke out above the first support level (then resistance) noted below. This went hand in hand with strengthening signals in the economy. USD has since gone on to establish new support levels and currently targets 105 (+/-) by holding support levels to its big breakout pattern. All good, yeh?
Yeh. Except that the economy is now ‘servicing itself’ as we have shown that health services, leisure and entertainment services and various other services, i.e. the back end of the economy, are doing all the lifting now. Manufacturing is flagging, exports too. The question is how long can this be sustained?
Under a certain scenario, the US dollar will run with the gold sector. That is why, while maintaining a bearish stance on the sector, I certainly do not fear the strong dollar as a gold bug. We are in the process of weeding out the charlatans, the easy answer brigade, the “Chindian Love Trade” promo and all the other noise. When the relentlessly strong USD wears at the economy and stock market, the right scenario will be in play. Here is a cute little chart we showed in NFTRH 369…
As gold rises vs. silver amid global economic stress, the US dollar is naturally supported because it is after all, the other Horseman.
Draw your conclusions. I’ve already rambled beyond what I thought would be a quickie chart update. Dinner’s ready.
It is time to think about a world with a new King Dollar, same as the old King Dollar. It is time to think about the vast services economy that boomed the payrolls report (see awesome graphical breakdown at NFTRH.com), manufacturing be damned. It is time to think about expanding consumer credit that is part of the mechanism booming the services. It is time to think globally and domestically about how to be allocated in such a situation.
NFTRH 369 is going to take what its writer is thinking about and try to make some sense of it all, because I think there are some beneficiaries (as with the Goldman/Banks post earlier) and there are some whipping boys (as with precious metals and commodities). But again, there is spiking consumer credit so even if allocated correctly, bulls are asked to temper themselves and at least understand where the fuel is coming from.
Anyway, here’s the Uncle Buck
ETF  UUP replaced with actual USD chart…
Yes, by all means let’s raise interest rates because well, we have to be perceived as willing to normalize. But let’s keep QE 4 in our back pocket just in case because the US dollar, which we have been obsessing about lately must be contained somehow against Draghi’s European devaluation and others. Mustn’t it?
As to the post’s title, here is Faro getting destroyed today on its (lack of) earnings results. This company, unlike the 3D Printing scam, is indeed viable as a unique and high quality supplier to US and global manufacturers of all kinds. I have it categorized under the machine tools umbrella (though it’s really a special interest in multi-axis automated measurement), which we have shown again and again is in trouble. Most recently Machine Tool Orders Slip Again… Who’s Surprised? Didn’t Think So…
So it is not just the scams and the weak links that are falling down. Faro is a great company with a great product aimed at many different industries.
The current situation, where services are still going strong, echoes the run up to 2000 doesn’t it? Back then we had ‘King Dollar’, did not need manufacturing, had all kinds of great internet and optical networking companies ready to change the world (well, they did but…) and new economy. It is not sustainable.
By Elliott Wave International
Did USD Just Bottom? Did EUR Just Top?
Find out free — now, during Forex FreeWeek at elliottwave.com
Late last week — and then again on Monday — EURUSD, the world’s most traded forex pair, fell sharply. In fact, the euro lost almost 200 pips, or two cents, against the buck.
Here’s a chart of that decline, copied from our Currency Pro Service (partial Elliott wave labels shown):
Our Currency Pro Service editor, Jim Martens, just posted a new video for FreeWeek participants where he explained why he’s bullish on the USD. So this reversal certainly fits the “big picture.”
Continue reading Did USD Just Bottom?
Ever since the Emerging Markets tanked below last ditch support in August, we have been watching for a rebound to what is now major resistance. On EEM that is around 36. At 36.20 we are there.
It had looked like a no brainer shorting opportunity, but a funny thing happened along the way; the USD got very wobbly and the Fed has started mentioning poor old Uncle Buck’s name a lot lately in their policy meetings. See this post for charts of USD, Euro and a great graphic culled from out there on the Twitter machine showing USD mentions by our fearless but maybe a little uncomfortable monetary leaders.
Back to the post’s main theme, a breakdown in USD would further instigate commodities and the likes of the EM’s. So the tenuous state of the dollar should be watched closely now since many other markets are going to take their cues from it.
By Monetary Metals
We’re going to be introducing some new formats. One of them is quick article links, with the good ones labelled Pure Gold and the bad ones labelled Soggy Dollars.
When a Fed-induced boom turns to bust: “In the lynch-mob atmosphere that inevitably follows the bust cycle of Fed-induced business cycles, it was not hard to convince Americans that the corporate bankruptcies and the subsequent recession were the handiwork of criminal executives.” Of course, this sentiment prevails today too. Look for the coming “corporate crime wave“.
A Soggy Dollar
The headline reads, “China Bought Gold With Proceeds From Record Sale Of US Treasurys”. It’s been in the news for a while: China is selling Treasurys (i.e. dollars). The PBoC is forced to sell dollars and buy yuan, to prevent a yuan crash as people are selling yuan. However, many mistake this for China “de-dollarizing” in favor [of] gold.
According to this article, China sold $83B of Treasurys (i.e. dollars). And how much gold did they buy? Less than $600M, or 0.7%.
By Alhambra Investment Partners
July Closes With Same ‘Dollar’ Rampage
The “dollar” has ended the month much the way it started. Despite headlines suggesting the dollar is “down” today, it is very much proving to be disruptive across every proxy. Gold was down to $1,080 at the AM fix before rebounding. Commodities were sold broadly, with copper back near $2.359, down almost $0.02 at some parts of the futures curve; oil is down too, with WTI in the front back close to $47.
Continue reading …Same Dollar ‘Rampage’