View Full Version : Dollar intervention: Facts versus ideology
http://www.itulip.com/images/marketvsgovernment.jpgDollar intervention: Facts versus ideology
Governments influence markets. Is it worth denying the evidence in the recent case of dollar intervention to score points with readers by reinforcing ideology-based misconceptions?
So very few people are aware of the ESF - the Exchange Stabilization Fund of the U.S. Treasury. Every major central bank or country has a similar facility. The ESF was started in 1934 partially in response to perceived prior dollar manipulation by the Bank of England and others earlier in the decade.
The ESF home page (http://www.treas.gov/offices/international-affairs/esf/) contains this relatively simple explanation of what they can do and what their purpose is:The legal basis of the ESF is the Gold Reserve Act of 1934. As amended in the late 1970s, the Act provides in part that "the Department of the Treasury has a stabilization fund …Consistent with the obligations of the Government in the International Monetary Fund (IMF) on orderly exchange arrangements and an orderly system of exchange rates, the Secretary ..., with the approval of the President, may deal in gold, foreign exchange, and other instruments of credit and securities."
In simple terms, the ESF can not only deal in foreign currencies,but also in gold and "other instruments of credit and securities," totally legally. The ESF can serve a valid purpose by helping to stabilize the value of the dollar, too. It's not my purpose here to discuss whether it's right or wrong, but to show that it happens and how it works.
So, what about the nitty gritty details on the recent dollar intervention? Officially, all we really know is that the now approximately $7 billion dollars has been placed (per the most recent press release at the U.S. International Reserve Position (http://www.treas.gov/press/international-reserve-position.html) page) and directed into something called "other (foreign currency assets invested through reverse repurchase agreements)" which is a very fancy way of saying "loan." For those who want more detail, a full definition is here (http://www.investorwords.com/4267/reverse_repurchase_agreement.html).
That does tell us that it's probably in Euro based repos, but since the classifications are not terribly specific and we do know that governments have been known to not always be fully open and above board about what they're doing, we really don't know for sure what it is.
A close up of the period from Sept 2007 through early August 2008:
http://www.nowandfutures.com/download/dollar_intervention_bart.png
The actual timing and dollar details of the recent intervention are as follows:
As of the reporting weeks ending June 13th & June 20th, $6.381 billion dollars in the Euro account were sold by the ESF for dollars.
During that first week, the value of the dollar index moved from 72.39 to 74.15 and then back to 73.43 the following week.
The reporting of the ESF actions from the weeks ending June 13th & June 20th was not made public until July 14th.
The dollar index closed at 71.87 on July 15th, which was the recent low.
The actual facts show that the ESF intervention preceded any other significant factor to the dollar move, to the best of my knowledge.
Regarding the many previous red dots on the chart that show probable intervention prior to June 2008, the almost perfect match between the Euro ESF balance and the Euro value lines should tell the story of how well the various small operations worked. Even more, the two lines converge quite well between September 2007 and May 2008 and are strong evidence of the very probable small ESF interventions. Note also that the algorithm to determine probable intervention is proprietary... and feel free to ignore or disbelieve it in spite of the evidence of the closing gap. Also note that currency intervention can be done in both directions. And also note this quote, which is key in understanding interventions in general:...dollar holdings of foreign governments and central banks rose by $41 billion in 1986 and kept rising this year; that represents their intervention in currency markets. Hence, at the exchange rates that prevailed last year, private capital inflows to the United States were not enough to finance its current-account deficit. "Without official intervention," Mr. Perry said, "the dollar would have fallen even further than it has." -- New York Times, 1987 (See FIRE Economy and the Dollar Ratchet, iTulip Select, August 13, 2008
(http://www.itulip.com/forums/showthread.php?p=43523#post43523)As an aside, one of the oddest items about the ESF is that as best we can tell, about 70% of its $2.8 billion initial funding in 1934 came from proceeds of F.D.R.'s confiscation of gold and subsequent revaluation of gold from $20 to $35/oz.
Dubious Journalism
The following is commentary on dubious blogging and quasi journalism, specifically on the topic of dollar intervention as covered by Mike "Mish" Shedlock in his recent blog about intervention. He specifically referred to my work as posted on iTulip (http://www.itulip.com/forums/showthread.php?t=4759). I don't usually comment on this kind of thing, so you may want to skip over it, but something needs to be said.
First, a definition: Dubious Journalism: Journalism that exploits, distorts, or exaggerates the news to sensationalize facts to attract readers.
This is my chart as he posted it in his blog. Both the dark blue trend line and the dark blue oval are his additions to my chart.
http://www.nowandfutures.com/download/dollar_intervention_mish.png
His first comment was "Assuming one buys the story, what stands out is 13 consecutive alleged interventions that all failed."
"Assuming one buys the story" and also using the word "alleged" shows disregard of the facts of what the ESF did and what the facts and effects were and are. Translation: spin.
It also shows an attempt to distort what actually happened, as noted in points 1 through 4 above.
The trend line he draws on my chart shows that he did not read and fully understand, intentionally or not, my original statement "...recent data about the drop was delayed for almost three weeks before it was made public" per points 3 and 4 above. Yet another distortion or at least shoddy work and very poor assumptions on his part, at best.
To characterize the most recent intervention as a "failure" and without noting any time period when the actual evidence shows an almost perfect match between the bottom on July 15th and the ESF public announcement (as well as an actual huge subsequent move in the dollar index) is mind boggling.
Refer to the 1987 above quote from the New York Times regarding intervention and its many possible purposes, as well as the actual evidence of the closing gap between the ESF Euro balance and the Euro value, and again we have a major issue with Mish's "all failed" assertion... and more sensationalism and distortion of the actual facts. To fail to see that the resources of a country's treasury department and its central bank can affect that's country's currency value is almost ludicrous in my opinion.
Later on, Mish notes "failed 13 consecutive times before there was a success" which directly contradicts the first statement about them all failing - yet another distortion and significant inconsistency.
Most importantly, and the reason why I bring this up, is that when I offered to show him the full facts, to defend my work against his "critique" as partially detailed above in points 1-4, he refused it.
Then we have his statement on intervention, either from GATA or the AP. The source was neither clear nor linked.
"It would take great sums of money to make any difference. The foreign exchange market is the largest in the world, with over $1 trillion traded each day."
$6.3 billion is very far from an insignificant amount of money, and yes, in the context of prior ESF interventions, its also massive as my original post noted.
The move in the dollar index was 1-2 cents during the initial two week non public period (2 cents during the first week where the main amount of $6.246 billion was committed).
It completely disregards that there are many others in the investing community, especially large banks and funds, that do watch the ESF and are affected by it both via sentiment and via practicing "don't fight the Fed or central banks" maxim. To fail to take that and a number of other factors into account or even mention them, and just assert a quote as if it proves the point, is again a very significant failure to understand what happens in the real market - at best... and massive self serving distortion & sensationalism etc. too.
Although there is no definitive proof one way or the other, I also note that if derivatives of any sort had been used, leverage of up to 100:1 is available, which could turn $6.3 billion into $630 billion. So much for "great sums of money".
Having used the word conspiracy in both the blog heading and text about an actual and real government entity called the ESF, whose actual legal purpose includes attempting to control the value of the dollar, shows a failure to even acknowledge actual reality. Distortion and exaggeration again - at best.
Later on, we have Mish's comment,"A Look At Japan's Intervention in 2003-2004" along with the following chart and this text: "If ever there was proof of the absurdity of currency interventions there it is. Ironically the Yen started plunging shortly after Japan stopped trying to force down the value of the Yen."
http://www.nowandfutures.com/download/yen_intervention_mish.png
As noted above, there are many reasons for intervention other than to raise or lower the value of a currency, politics and geo-politics being just two of the major ones.
The truly odd part is that Mish actually admits that the yen plunged after the alleged intervention, but with a lag. And this is supposed to be proof that intervention doesn't ever work?
There are many factors that affect the value of a given currency and ignoring the very large amount of money creation (plus the normal time lag it takes for it to impact an economy or currency, etc.) that the Bank of Japan did in 2002-2004 and that it did both move their CPI from negative to positive and also arrested the decline in the Nikkei... and that allaged intervention may have been used to slow the increase until a sort of equilibrium was back, and as actually happened as per his very own chart - well, again we have an incomplete picture being presented, and that's also known as distortion. Whether it was willful or not, I don't know, but it wouldn't surprise me that it was. It sure does exaggerate and distort the full picture. It's unwise to an extreme to take one factor and try and prove something out of the full context of an economy and world economy and political areas, etc., and is not a practice of real professionals.
I also note that the only link and proof was not to the Bank of Japan but rather to another site, who also had no links to the actual data proving intervention was attempted. I also note that article was from 2005, discussing events in 2003, as opposed to data direct from the ESF and only a week or two out of date. Perhaps intervention did actually occur... but facts and proof are completely missing that intervention did occur.
Does intervention work all the time - of course not.
Does intervention always have the purpose of stopping the value decline of a currency - of course not.
Intervention should never be taken out of a full financial and economic and political context.
Lastly, we have the section in Mish's post, "The Primary Trend Cannot Be Suppressed," the first sentence of which is "The primary trend in currencies cannot be suppressed and even a cyclical countertrend move cannot be suppressed."
Pure and arrogant horse puckey, if for no other reason than no trend or counter trend continues forever.
The primary trend of the hard asset bull market in the '70s was interrupted by huge corrections, including in the dollar index. In early 1975, it was under 94 and by mid 1976 was over 1.07 which erased over 50% of its losses since 1971. Gold lost almost 50% of its value in the same period. If one loses 50% of their net portfolio (or more if any leverage is involved like in miners), its virtually zero comfort to know that a primary trend can't be suppressed.
It's well known that Mish will not admit that any behind-the-scenes manipulation actions can possibly occur, regardless of any proof presented (like the ESF, ECB gold manipulation/control, or even that no other futures contract except silver has *ever* has the commercials only short), so I'll only just point it out. It can be and usually is very dangerous to one's financial wealth and health to categorically reject actual facts.
His statement that "No one ever bothers to mention that for every short there is a long," implies that because they're balanced, prices never move - more horse puckey.
Another beauty is, "Here's the deal for dollar bears: The dollar rallied because it was damn good and ready to rally. Those with their eyes open spotted fundamental reasons in advance. Those who did not, blamed intervention." The main reason I sent Mish the link to my chart to post in the first place was to allow as many readers as possible to be aware of it. He not only completely missed the point but instead used my chart to ridicule the ideas it conveys and he played the "blame game" card besides. His comments ludicrously ignore that there are other factors besides fundamentals at work in dollar rallies and give early and factual warning. Exploiting plain, simple, and proven facts and using them in a self serving way via distortions, exaggerations, sensationalism without giving the author the opportunity to respond is not journalism.
Does intervention work all the time or forever? Of course not.
Does intervention always have the purpose of stopping the decline in value of a currency? Of course not.
Do virtually all fiat currencies head towards zero value over time? Of course.
Intervention should never be taken out of a full financial and economic and political etc. context. To do otherwise does nothing but prove one can't see the forest for the trees - at best.
Can intervention create massive havoc in portfolios - of course. And to ridicule it is ludicrous at best, given the actual historical facts – and the actual facts that show the ESF intervention preceded any other significant factor to the dollar move.
There's also the roughly $55 billion swap agreement that the Fed has with the European Cental Bank and about another $10 billion with the Swiss Central Bank, both of which were ignored. The details of both are not public, but they do exist and are likely being used in other behind the scenes – by definition – operations.
Also, neither the European Central Bank nor the Bank of Japan were mentioned, and to imply by virtue of omission that central banks don't cooperate during periods of crisis is both ridiculous and again displays a large lack of understanding of the real world.
Tanta at Calculated Risk also observed some issues with Mish's incorrect conclusions about "evidence of walking away" and his theory on foreclosure timelines recently at Walking Away and Reading Delinquency Reports (http://calculatedrisk.blogspot.com/2008/03/walking-away-and-reading-delinquency.html) - another example of "issues" with Mish's analysis and treatment of facts.
Some may consider that this is a rant, and fair enough. But I maintain that the way Mish treated the actual facts and did not truly or fully explore the full details and facts etc. is less than wise to say the least, and is also actual evidence of dubious financial journalism and blogging. Additionally, an actual refusal to look at and admit to the actual facts is very far from a professional attitude and approach.
And to express the conclusion another way and turn the volume up, Mish blew it big time and heinously as he has before by not only failing to obtain and properly analyze all the facts and data, but also compounding those errors by exploiting, distorting and exaggerating the actual facts to sensationalize facts to attract readers. Be very wary of any conclusions or analysis he makes - it could easily be quite dangerous to your wealth since he is apparently more interested in readership than the actual facts.
Mish's motto: "Pay no attention to that man behind the curtain." (http://www.nowandfutures.com/grins/oz_curtain.wav)
My motto: "Ignore the man behind the curtain at your peril."
Editor's note: See also Bart's response to Mish's response to this article. (http://itulip.com/forums/showthread.php?p=43864#post43864)
iTulip Select (http://www.itulip.com/forums/showthread.php?t=1032): The Investment Thesis for the Next Cycle™
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Bart,
great post!
As of the reporting weeks ending June 13th & June 20th, $6.381 billion dollars were sold by the ESF for Euros (approx. 9.8 billion Euros).
Wouldn't $6.381 billion equal €4,25 billion? And if so, do you have an idea where the other half to the €10 billion went that I conclude from the drop in ESF euro holdings in your chart?
Thanks for sharing details and insight,
-digger
bart,
do have any evidence or even speculations about:
1: jim sinclair's recent assertion that the rise in the fed's custodial holdings of treasuries for foreign entities represents the fed swapping treasuries from its own balance sheet for FOREIGN-HELD junky debt? [i.e. performing for foreign financial entities the same wonderful service it provides banks and brokers here at home]
2. sinclair, arguing off ambrose evans-pritchard's recent blog at the telegraph on the structural weakness of the euro and its relationship to gold's future, points to the fact that the ecb is constitutionally forbidden from carrying out the kind of rescue the fed did for bear stearns. thus, this duty will necessarily fall to the fed. the fed, then, will end up not only with all the junky debt held by domestic institutions, but all the junky debt held by european institutions as well.
3. evans-pritchard believes that political pressure from the pigs [portugal-italy-greece-spain], especially spain, will eventually force the ecb to cut. this will be the official starting gun of beggar-thy-neighbor currency manipulation.
4. finally, is it possible that the purchase of euros is tied to the rise in custodial holdings and/or an intervention in support of some european entity?
phirang
08-16-08, 09:23 AM
The noise I hear is that Europe, because of energy and gov budget issues, is far deeper in the shyte than the US...
I think the difference is that Germany, while it may face a recession, will not see the collapse of collateralized (domestic) assets that US faces.
http://www.itulip.com/images/marketvsgovernment.jpgDollar intervention: Facts versus ideology
Governments influence markets. Is it worth denying the evidence in the recent case of dollar intervention to score points with readers by reinforcing ideology-based misconceptions?
So very few people are aware of the ESF - the Exchange Stabilization Fund of the U.S. Treasury. Every major central bank or country has a similar facility. The ESF was started in 1934 partially in response to perceived prior dollar manipulation by the Bank of England and others earlier in the decade.
The ESF home page (http://www.treas.gov/offices/international-affairs/esf/) contains this relatively simple explanation of what they can do and what their purpose is:The legal basis of the ESF is the Gold Reserve Act of 1934. As amended in the late 1970s, the Act provides in part that "the Department of the Treasury has a stabilization fund …Consistent with the obligations of the Government in the International Monetary Fund (IMF) on orderly exchange arrangements and an orderly system of exchange rates, the Secretary ..., with the approval of the President, may deal in gold, foreign exchange, and other instruments of credit and securities."
In simple terms, the ESF can not only deal in foreign currencies,but also in gold and "other instruments of credit and securities," totally legally. The ESF can serve a valid purpose by helping to stabilize the value of the dollar, too. It's not my purpose here to discuss whether it's right or wrong, but to show that it happens and how it works.
So, what about the nitty gritty details on the recent dollar intervention? Officially, all we really know is that the now approximately $7 billion dollars has been placed (per the most recent press release at the U.S. International Reserve Position (http://www.treas.gov/press/international-reserve-position.html) page) and directed into something called "other (foreign currency assets invested through reverse repurchase agreements)" which is a very fancy way of saying "loan." For those who want more detail, a full definition is here (http://www.investorwords.com/4267/reverse_repurchase_agreement.html).
That does tell us that it's probably in Euro based repos, but since the classifications are not terribly specific and we do know that governments have been known to not always be fully open and above board about what they're doing, we really don't know for sure what it is.
A close up of the period from Sept 2007 through early August 2008:
http://www.nowandfutures.com/download/dollar_intervention_bart.png
The actual timing and dollar details of the recent intervention are as follows:
As of the reporting weeks ending June 13th & June 20th, $6.381 billion dollars were sold by the ESF for Euros (approx. 9.8 billion Euros).
During that first week, the value of the dollar index moved from 72.39 to 74.15 and then back to 73.43 the following week.
The reporting of the ESF actions from the weeks ending June 13th & June 20th was not made public until July 14th.
The dollar index closed at 71.87 on July 15th, which was the recent low.
The actual facts show that the ESF intervention preceded any other significant factor to the dollar move, to the best of my knowledge.
Regarding the many previous red dots on the chart that show probable intervention prior to June 2008, the almost perfect match between the Euro ESF balance and the Euro value lines should tell the story of how well the various small operations worked. Even more, the two lines converge quite well between September 2007 and May 2008 and are strong evidence of the very probable small ESF interventions. Note also that the algorithm to determine probable intervention is proprietary... and feel free to ignore or disbelieve it in spite of the evidence of the closing gap. Also note that currency intervention can be done in both directions. And also note this quote, which is key in understanding interventions in general:...dollar holdings of foreign governments and central banks rose by $41 billion in 1986 and kept rising this year; that represents their intervention in currency markets. Hence, at the exchange rates that prevailed last year, private capital inflows to the United States were not enough to finance its current-account deficit. "Without official intervention," Mr. Perry said, "the dollar would have fallen even further than it has." -- New York Times, 1987 (See FIRE Economy and the Dollar Ratchet, iTulip Select, August 13, 2008
(http://www.itulip.com/forums/showthread.php?p=43523#post43523)As an aside, one of the oddest items about the ESF is that as best we can tell, about 70% of its $2.8 billion initial funding in 1934 came from proceeds of F.D.R.'s confiscation of gold and subsequent revaluation of gold from $20 to $35/oz.
Dubious Journalism
The following is commentary on dubious blogging and quasi journalism, specifically on the topic of dollar intervention as covered by Mike "Mish" Shedlock in his recent blog about intervention. He specifically referred to my work as posted on iTulip (http://www.itulip.com/forums/showthread.php?t=4759). I don't usually comment on this kind of thing, so you may want to skip over it, but something needs to be said.
First, a definition: Dubious Journalism: Journalism that exploits, distorts, or exaggerates the news to sensationalize facts to attract readers.
This is my chart as he posted it in his blog. Both the dark blue trend line and the dark blue oval are his additions to my chart.
http://www.nowandfutures.com/download/dollar_intervention_mish.png
His first comment was "Assuming one buys the story, what stands out is 13 consecutive alleged interventions that all failed."
"Assuming one buys the story" and also using the word "alleged" shows disregard of the facts of what the ESF did and what the facts and effects were and are. Translation: spin.
It also shows an attempt to distort what actually happened, as noted in points 1 through 4 above.
The trend line he draws on my chart shows that he did not read and fully understand, intentionally or not, my original statement "...recent data about the drop was delayed for almost three weeks before it was made public" per points 3 and 4 above. Yet another distortion or at least shoddy work and very poor assumptions on his part, at best.
To characterize the most recent intervention as a "failure" and without noting any time period when the actual evidence shows an almost perfect match between the bottom on July 15th and the ESF public announcement (as well as an actual huge subsequent move in the dollar index) is mind boggling.
Refer to the 1987 above quote from the New York Times regarding intervention and its many possible purposes, as well as the actual evidence of the closing gap between the ESF Euro balance and the Euro value, and again we have a major issue with Mish's "all failed" assertion... and more sensationalism and distortion of the actual facts. To fail to see that the resources of a country's treasury department and its central bank can affect that's country's currency value is almost ludicrous in my opinion.
Later on, Mish notes "failed 13 consecutive times before there was a success" which directly contradicts the first statement about them all failing - yet another distortion and significant inconsistency.
Most importantly, and the reason why I bring this up, is that when I offered to show him the full facts, to defend my work against his "critique" as partially detailed above in points 1-4, he refused it.
Then we have his statement on intervention, either from GATA or the AP. The source was neither clear nor linked.
"It would take great sums of money to make any difference. The foreign exchange market is the largest in the world, with over $1 trillion traded each day."
$6.3 billion is very far from an insignificant amount of money, and yes, in the context of prior ESF interventions, its also massive as my original post noted.
The move in the dollar index was 1-2 cents during the initial two week non public period (2 cents during the first week where the main amount of $6.246 billion was committed).
It completely disregards that there are many others in the investing community, especially large banks and funds, that do watch the ESF and are affected by it both via sentiment and via practicing "don't fight the Fed or central banks" maxim. To fail to take that and a number of other factors into account or even mention them, and just assert a quote as if it proves the point, is again a very significant failure to understand what happens in the real market - at best... and massive self serving distortion & sensationalism etc. too.
Although there is no definitive proof one way or the other, I also note that if derivatives of any sort had been used, leverage of up to 100:1 is available, which could turn $6.3 billion into $630 billion. So much for "great sums of money".
Having used the word conspiracy in both the blog heading and text about an actual and real government entity called the ESF, whose actual legal purpose includes attempting to control the value of the dollar, shows a failure to even acknowledge actual reality. Distortion and exaggeration again - at best.
Later on, we have Mish's comment,"A Look At Japan's Intervention in 2003-2004" along with the following chart and this text: "If ever there was proof of the absurdity of currency interventions there it is. Ironically the Yen started plunging shortly after Japan stopped trying to force down the value of the Yen."
http://www.nowandfutures.com/download/yen_intervention_mish.png
As noted above, there are many reasons for intervention other than to raise or lower the value of a currency, politics and geo-politics being just two of the major ones.
The truly odd part is that Mish actually admits that the yen plunged after the alleged intervention, but with a lag. And this is supposed to be proof that intervention doesn't ever work?
There are many factors that affect the value of a given currency and ignoring the very large amount of money creation (plus the normal time lag it takes for it to impact an economy or currency, etc.) that the Bank of Japan did in 2002-2004 and that it did both move their CPI from negative to positive and also arrested the decline in the Nikkei... and that allaged intervention may have been used to slow the increase until a sort of equilibrium was back, and as actually happened as per his very own chart - well, again we have an incomplete picture being presented, and that's also known as distortion. Whether it was willful or not, I don't know, but it wouldn't surprise me that it was. It sure does exaggerate and distort the full picture. It's unwise to an extreme to take one factor and try and prove something out of the full context of an economy and world economy and political areas, etc., and is not a practice of real professionals.
I also note that the only link and proof was not to the Bank of Japan but rather to another site, who also had no links to the actual data proving intervention was attempted. I also note that article was from 2005, discussing events in 2003, as opposed to data direct from the ESF and only a week or two out of date. Perhaps intervention did actually occur... but facts and proof are completely missing that intervention did occur.
Does intervention work all the time - of course not.
Does intervention always have the purpose of stopping the value decline of a currency - of course not.
Intervention should never be taken out of a full financial and economic and political context.
Lastly, we have the section in Mish's post, "The Primary Trend Cannot Be Suppressed," the first sentence of which is "The primary trend in currencies cannot be suppressed and even a cyclical countertrend move cannot be suppressed."
Pure and arrogant horse puckey, if for no other reason than no trend or counter trend continues forever.
The primary trend of the hard asset bull market in the '70s was interrupted by huge corrections, including in the dollar index. In early 1975, it was under 94 and by mid 1976 was over 1.07 which erased over 50% of its losses since 1971. Gold lost almost 50% of its value in the same period. If one loses 50% of their net portfolio (or more if any leverage is involved like in miners), its virtually zero comfort to know that a primary trend can't be suppressed.
It's well known that Mish will not admit that any behind-the-scenes manipulation actions can possibly occur, regardless of any proof presented (like the ESF, ECB gold manipulation/control, or even that no other futures contract except silver has *ever* has the commercials only short), so I'll only just point it out. It can be and usually is very dangerous to one's financial wealth and health to categorically reject actual facts.
His statement that "No one ever bothers to mention that for every short there is a long," implies that because they're balanced, prices never move - more horse puckey.
Another beauty is, "Here's the deal for dollar bears: The dollar rallied because it was damn good and ready to rally. Those with their eyes open spotted fundamental reasons in advance. Those who did not, blamed intervention." The main reason I sent Mish the link to my chart to post in the first place was to allow as many readers as possible to be aware of it. He not only completely missed the point but instead used my chart to ridicule the ideas it conveys and he played the "blame game" card besides. His comments ludicrously ignore that there are other factors besides fundamentals at work in dollar rallies and give early and factual warning. Exploiting plain, simple, and proven facts and using them in a self serving way via distortions, exaggerations, sensationalism without giving the author the opportunity to respond is not journalism.
Does intervention work all the time or forever? Of course not.
Does intervention always have the purpose of stopping the decline in value of a currency? Of course not.
Do virtually all fiat currencies head towards zero value over time? Of course.
Intervention should never be taken out of a full financial and economic and political etc. context. To do otherwise does nothing but prove one can't see the forest for the trees - at best.
Can intervention create massive havoc in portfolios - of course. And to ridicule it is ludicrous at best, given the actual historical facts – and the actual facts that show the ESF intervention preceded any other significant factor to the dollar move.
There's also the roughly $55 billion swap agreement that the Fed has with the European Cental Bank and about another $10 billion with the Swiss Central Bank, both of which were ignored. The details of both are not public, but they do exist and are likely being used in other behind the scenes – by definition – operations.
Also, neither the European Central Bank nor the Bank of Japan were mentioned, and to imply by virtue of omission that central banks don't cooperate during periods of crisis is both ridiculous and again displays a large lack of understanding of the real world.
Tanta at Calculated Risk also observed some issues with Mish's incorrect conclusions about "evidence of walking away" and his theory on foreclosure timelines recently at Walking Away and Reading Delinquency Reports (http://calculatedrisk.blogspot.com/2008/03/walking-away-and-reading-delinquency.html) - another example of "issues" with Mish's analysis and treatment of facts.
Some may consider that this is a rant, and fair enough. But I maintain that the way Mish treated the actual facts and did not truly or fully explore the full details and facts etc. is less than wise to say the least, and is also actual evidence of dubious financial journalism and blogging. Additionally, an actual refusal to look at and admit to the actual facts is very far from a professional attitude and approach.
And to express the conclusion another way and turn the volume up, Mish blew it big time and heinously as he has before by not only failing to obtain and properly analyze all the facts and data, but also compounding those errors by exploiting, distorting and exaggerating the actual facts to sensationalize facts to attract readers. Be very wary of any conclusions or analysis he makes - it could easily be quite dangerous to your wealth since he is apparently more interested in readership than the actual facts.
Mish's motto: "Pay no attention to that man behind the curtain." (http://www.nowandfutures.com/grins/oz_curtain.wav)
My motto: "Ignore the man behind the curtain at your peril."
iTulip Select (http://www.itulip.com/forums/showthread.php?t=1032): The Investment Thesis for the Next Cycle™
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Superb! OUTSTANDING!!
I had read Mish's post and was almost buying it, THANK YOU IMMEASURABLY FOR THE SAVE!
bart,
do have any evidence or even speculations about:
1: jim sinclair's recent assertion that the rise in the fed's custodial holdings of treasuries for foreign entities represents the fed swapping treasuries from its own balance sheet for FOREIGN-HELD junky debt? [i.e. performing for foreign financial entities the same wonderful service it provides banks and brokers here at home]
2. sinclair, arguing off ambrose evans-pritchard's recent blog at the telegraph on the structural weakness of the euro and its relationship to gold's future, points to the fact that the ecb is constitutionally forbidden from carrying out the kind of rescue the fed did for bear stearns. thus, this duty will necessarily fall to the fed. the fed, then, will end up not only with all the junky debt held by domestic institutions, but all the junky debt held by european institutions as well.
3. evans-pritchard believes that political pressure from the pigs [portugal-italy-greece-spain], especially spain, will eventually force the ecb to cut. this will be the official starting gun of beggar-thy-neighbor currency manipulation.
4. finally, is it possible that the purchase of euros is tied to the rise in custodial holdings and/or an intervention in support of some european entity?
1. I very strongly hesitate to disagree with anything that Jim Sinclair says. I haven't seen evidence of it in anything I track though, and that very much does not mean that it doesn't exist. I just plain don't know.
2. That's true about the ECB and the constitution, but that also doesn't mean that the ECB can't help. You may recall me commenting on how much larger (on a percentage basis and after GDP size adjustments) ECB Open Market Operations than Fed ones, and its my belief that the ECB *is* actually involved in rescue actions. I have no proof though.
3. I think that's the most likely scenario, unless there are big changes in inflationary expectations (little evidence of that, either here or there) or some black swan like war happens.
On the inflation front, here's an alternate US inflation prediction/guess that I don't think I've ever posted here before.
http://www.nowandfutures.com/images/predict_inflation_m3.png
4. With central banks almost anything is possible, and my research is woefully incomplete on other central banks. I doubt that custodials are involved with the Euro and dollar moves though.
Keep in mind too that the problems in the EC are not at all a surprise - the trends and actual data have been showing problems for over a year, and there was even a yield curve inversion in the EC early last year... that virtually no one mentioned, including US media.
Some EC spaghetti for you, and especially note the GDP (the brown or burgundy line) trend.
http://www.nowandfutures.com/images/ecb_money_short_term.png
No comments on Mish and his top quality dubious journalism? ;)
Superb! OUTSTANDING!!
I had read Mish's post and was almost buying it, THANK YOU IMMEASURABLY FOR THE SAVE!
You're most welcome, glad you liked it. :D
And stay tuned for another "commentary" about Mish and his spin, etc. :rolleyes: ;)
Here the commentary for today:
Never believe conspiracy theories... (http://www.itulip.com/forums/showthread.php?t=4810)
No comments on Mish and his top quality dubious journalism? ;)
i read a few columns by mish 2-3 years ago iirc, and felt he had nothing to say beyond what i was learning elsewhere, and that he was mostly marketing his management services by trying to scare his readers. [a common approach.] so i never got into reading his stuff.
ldgirod
08-16-08, 08:53 PM
A close up of the period from Sept 2007 through early August 2008:
http://www.nowandfutures.com/download/dollar_intervention_bart.png
The actual timing and dollar details of the recent intervention are as follows:
As of the reporting weeks ending June 13th & June 20th, $6.381 billion dollars were sold by the ESF for Euros (approx. 9.8 billion Euros).
During that first week, the value of the dollar index moved from 72.39 to 74.15 and then back to 73.43 the following week.
The reporting of the ESF actions from the weeks ending June 13th & June 20th was not made public until July 14th.
The dollar index closed at 71.87 on July 15th, which was the recent low.
Many thanks for the great post -- and condolences on having your work mangled in interpretation.
However, I am still a bit confused though about this, and I am hoping someone can clear up where I am going wrong.
If the ESF sold dollars and bought euros, I would expect that to increase the relative value of euros. Why does it have the opposite effect?
Are the units reversed? That would also explain the other confusing statement, $6.38 = 9.8 E. Or, does this have to do with the fact that the operation was in the form of a loan?
Help ! :confused: brain imploding!
L
Many thanks for the great post -- and condolences on having your work mangled in interpretation.
However, I am still a bit confused though about this, and I am hoping someone can clear up where I am going wrong.
If the ESF sold dollars and bought euros, I would expect that to increase the relative value of euros. Why does it have the opposite effect?
Are the units reversed? That would also explain the other confusing statement, $6.38 = 9.8 E. Or, does this have to do with the fact that the operation was in the form of a loan?
Help ! :confused: brain imploding!
L
You're most welcome, Idgirod, and I wish that Mish would just have admitted that he blew it right away.
Here's where I wish I had EJ's skill in communication.
The chart is correct. I thought that changing the left scale from Euros to dollars would help but it obviously didn't. Its appears that too much brevity got me.
Perhaps re-stating item #1 like this helps?
1. As of the reporting weeks ending June 13th & June 20th, a $6.381 billion dollar valued ESF Euro balance was sold by the ESF for dollars (the actual amount expressed in Euros being approx. 9.8 billion). Euros were sold and dollars were bought.
The ESF data and balances are expressed in dollars, but the Euro portion is actually held in Euros, much as the Yen portion is held in Yen.
ldgirod
08-17-08, 04:07 AM
You're most welcome, Idgirod, and I wish that Mish would just have admitted that he blew it right away.
Here's where I wish I had EJ's skill in communication.
The chart is correct. I thought that changing the left scale from Euros to dollars would help but it obviously didn't. Its appears that too much brevity got me.
Perhaps re-stating item #1 like this helps?
1. As of the reporting weeks ending June 13th & June 20th, a $6.381 billion dollar valued ESF Euro balance was sold by the ESF for dollars (the actual amount expressed in Euros being approx. 9.8 billion). Euros were sold and dollars were bought.
The ESF data and balances are expressed in dollars, but the Euro portion is actually held in Euros, much as the Yen portion is held in Yen.Hi Bart,
Thanks for the clarification.. I think I understand this now, but there is still an inconsistency.
Check the chart against the numbers in the treasury report:
http://www.treas.gov/press/releases/200871417174922597.htm
The number on this date (post sale) is 9.8B. In the previous report the number was 16.2B. The legend states:
Official reserve assets and other foreign currency assets (approximate market value, in US millions)So, if that is correct, then that valuation of the assets sold is 6.4B dollars, or 4.3B euros. So you could instead write:
1. As of the reporting weeks ending June 13th & June 20th, a 4.3 billion ESF Euro balance (valued on the chart at 6.4 billon dollars) was sold by the ESF for dollars. Euros were sold and dollars were bought.
But if this is the case, this means your chart is wrong -- maybe you applied the euro->dollar conversion to a value already in $?
Regardless, I think the implications of the analysis hold.
Hi Bart,
Thanks for the clarification.. I think I understand this now, but there is still an inconsistency.
Check the chart against the numbers in the treasury report:
http://www.treas.gov/press/releases/200871417174922597.htm
The number on this date (post sale) is 9.8B. In the previous report the number was 16.2B. The legend states:
So, if that is correct, then that valuation of the assets sold is 6.4B dollars, or 4.3B euros. So you could instead write:
1. As of the reporting weeks ending June 13th & June 20th, a 4.3 billion ESF Euro balance (valued on the chart at 6.4 billon dollars) was sold by the ESF for dollars. Euros were sold and dollars were bought.
But if this is the case, this means your chart is wrong -- maybe you applied the euro->dollar conversion to a value already in $?
Regardless, I think the implications of the analysis hold.
The ESF data on the chart is direct from those reports, and all I do is total the two numbers representing the Euro balance in dollars.
The A(a)($9.797) and A(i)($14.579) figures from your link total to about $24.4 billion and that's what the chart shows. That's why I changed the scale from Euros to dollars - it avoids any issues or confusions with conversions.
I always get a chuckle out of Mish's never ending quest to use any info as evidence of deflation no matter how unfitting the evidence is! The lastest example is Mish's new article "Gold and Silver and the Great Unwind" At first he says the drop in slv and gld is a perfect example of the US entering Deflation! He then quickly covers his ass by saying "Another factor to consider is gold and silver seasonality. August through January is generally a very favorable timeframe from gold and silver, so that might (or might not), slow or even reverse the effects of the unwind."
HAHAHAHAAH What a JOKER!
metalman
08-17-08, 11:51 AM
I always get a chuckle out of Mish's never ending quest to use any info as evidence of deflation no matter how unfitting the evidence is! The lastest example is Mish's new article "Gold and Silver and the Great Unwind" At first he says the drop in slv and gld is a perfect example of the US entering Deflation! He then quickly covers his ass by saying "Another factor to consider is gold and silver seasonality. August through January is generally a very favorable timeframe from gold and silver, so that might (or might not), slow or even reverse the effects of the unwind."
HAHAHAHAAH What a JOKER!
we all know he's inconsistent and doesn't do his homework. the fact that he's popular is no surprise either... so's jim cramer. what bugged me about this episode is that he has this bully pulpit he uses to bash bart's analysis without giving bart a chance to defend his work. that's just low... :mad:
Jim Nickerson
08-17-08, 12:00 PM
Anybody, explain something to me, or try to: why spend time reading things that discredited individuals write, say or are quoted as saying?
Examples of some people I just don't spend time reading: Greenspan, Paulson, Shedlock.
What am I missing with my lack of curiosity regarding these people's opinions?
we all know he's inconsistent and doesn't do his homework. the fact that he's popular is no surprise either... so's jim cramer. what bugged me about this episode is that he has this bully pulpit he uses to bash bart's analysis without giving bart a chance to defend his work. that's just low... :mad:
One of the many examples and proof of his dubious journalism. In a way, I blew it too. I should have just written a full article and submitted it here and elsewhere.
No worries - the sharper people understand and don't buy into much of what Mish adds to and spins from the comments and observations of others.
That may sound like sour grapes to some, but I submit that they're the ones to whom Mish's fixed ideology appeals and who will also very likely have much poorer long term portfolio performance than folk here.
Most of his blog is simply the creative work of others with his own comments and spin added in. At least one can find a few gems in his links to others - real professionals like Roubini, Kasriel, Faber and Rogers etc. - who have also been mentioned here numerous times. Many others who Mish will never or seldom mention or credit also are linked and referenced here, like Harry Schultz or Sinclair or even EJ, who have very good long term track histories and are not wedded to one fixed approach and ideology.
Eventually, people grow out of Mish and his limited ideology, and see his opportunistic basic operating views.
Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway.
-- Warren Buffett
Managers should never forget one of Abraham Lincoln's favorite riddles: “How many legs does a dog have if you call his tail a leg?” The Answer: Four, because calling a tail a leg does not make it a leg.
-- Warren Buffett
Anybody, explain something to me, or try to: why spend time reading things that discredited individuals write, say or are quoted as saying?
Examples of some people I just don't spend time reading: Greenspan, Paulson, Shedlock.
What am I missing with my lack of curiosity regarding these people's opinions?
I don't think you're missing anything.
Reasons to read folk like that are to see what the most recent spin is, or to use them for measures of contrary opinion of sentiment, or even to see who the most "trendy" are in a sort of 15 minutes of fame way.
The saddest part is summed up in the losses that come from following spin and partial truths. All anyone can do is point them out in as straightforward a way as possible and let the chips fall where they may.
As the old saying goes... Time wounds all heels... ;)
donalds
08-17-08, 01:01 PM
Bart says:
"Exploiting plain, simple, and proven facts and using them in a self serving way via distortions, exaggerations, sensationalism without giving the author the opportunity to respond is not journalism."
My question: since when is blogging journalism? Trivial question, some might think, but still worth posing . . . in my opinion.
Throughout your piece, Bart, you refer to Mish's ideology. You seem to be suggesting that this ideology is reflected in his tendency, as you see it, to slant, distort, etc.
However, that does not constitute an ideology. Mish's ideology is Libertarian. While I find this aspect of his work naive at best and plain dumb at worst, I nonetheless also find his work valuable, worthy of my time. So . . . while I don't always agree with him, I read his work nonetheless. I can say the same about iTulip, especially EJ's writing, though it is worth noting that EJ too, if I'm not mistaken, is of the Libertarian variety. (Nice to see Libertarians, who I consider as one of the more ideologically confined to a straight jacket kind out there, to differ among themselves.)
In any case, to assert that the rise in the dollar can be attributed to the manipulation you point to is somewhat speculative itself, is it not? Perhaps I'd be more correct to say that . . . if one can derive consensus as to the manipulation, one is still left speculating as to quantification/degree of effect this may or may not have had.
And, for what its worth, in reading this, I found it difficult at times to follow your argument. On the one hand you make your case based on facts, while on the other hand you make your case by severely doubting your opponents integrity and authenticity. So, I find your dispute a bit slippery, shifting back from one to the other.
In any case, to assert that the rise in the dollar can be attributed to the manipulation you point to is somewhat speculative itself, is it not? Perhaps I'd be more correct to say that . . . if one can derive consensus as to the manipulation, one is still left speculating as to quantification/degree of effect this may or may not have had.
Call it assertion as much as you like but the facts are as they are - the ESF intervention preceded any other significant factor to the dollar move, to the best of my knowledge.
Feel free to interpret those facts any way you like, as well as ignore all the other issues with Mish's position on intervention (that it doesn't work, in spite of the facts and my points above) as well as all the other factual points that you failed to address in any meaningful or substantive way.
Ignoring and avoiding the actual definition of journalism and its direct relationship to blogging adds less than zero to your position too. Trying to color or divert from the actual facts and issues gets you no points, unless one counts logical fallacy attempts.
Same with a similar attempt on the word ideology, for which I believe the applicable definition is "A set of doctrines or beliefs that form the basis of a political, economic, or other system." It has nothing to do with Libertarianism, but is yet another diversion attempt away from the actual facts and points.
Dubious journalism it was, and dubious journalism it still is.
And, for what its worth, in reading this, I found it difficult at times to follow your argument. On the one hand you make your case based on facts, while on the other hand you make your case by severely doubting your opponents integrity and authenticity. So, I find your dispute a bit slippery, shifting back from one to the other.
As I said, the facts are as they are. When logic and facts are ignored or ridiculed etc. as he does and did, there is no other way to describe it other than as being related to integrity or authenticity etc. - aka, dubious journalism.
But again, feel free to characterize that as slippery. It says way more about you and your argument and points than you probably realize.
babbittd
08-17-08, 01:41 PM
Bart, thanks for writing this. it has helped me to understand the issue quite a bit more.
Reasons to read folk like that are to see what the most recent spin is, or to use them for measures of contrary opinion of sentiment, or even to see who the most "trendy" are in a sort of 15 minutes of fame way.
And sometimes, Jim, Bart they do lay everything on the line.
Remember this?
October 17, 2000 - The Third (and final) Gore-Bush Presidential Debate (http://www.debates.org/pages/trans2000c.html)
MEMBER OF AUDIENCE: What would you make -- what would make you the best candidate in office during the Middle East crisis?
BUSH: ...A leader also understands that the United States must be strong to keep the peace. Saddam Hussein still is a threat in the Middle East. Our coalition against Saddam is unraveling. Sanctions are loosened. The man who may be developing weapons of mass destruction, we don't know because inspectors aren't in. So to answer your question, it requires a clear vision, a willingness to stand by our friends, and the credibility for people both friend and foe to understand when America says something, we mean it.
The question was about Israel vs Palestine, not Iraq, if I'm not mistaken.
Bart not meaning to sidetrack the thread here, just a quick comment.
Pretty much, Bush meant what he said right there, but no one that I know of in the public sphere picked up on it.
donalds
08-17-08, 01:47 PM
One man's fact is another man's poison.
Bart, you assert fact - as objectively concrete - beyond dispute, and those who do dispute are biased, lacking in credibility, etc.
But be wary of implied claims of empiricist truth, they can come back to bite you (based as it is on the erroneous value vs. fact divide).
My point is that correlation doesn't quantify causation, so I'd suggest you not confuse my points with your highly charged dispute with Mish.
Basing one's claims on implied fallibility of others psychological state often reveals more of the one making that claim than it does of the one who is the target of that claim. Of course, that is what you are suggesting regarding my points, so we go in circles.
My suggestion to you: take a deep breathe, perhaps a cold shower, for this too will pass.
Bart, thanks for writing this. it has helped me to understand the issue quite a bit more.
Reasons to read folk like that are to see what the most recent spin is, or to use them for measures of contrary opinion of sentiment, or even to see who the most "trendy" are in a sort of 15 minutes of fame way.
You mean I sometimes inadvertently make sense? :eek: :eek: ;)
(seriously, you're welcome - glad it helped)
Bart not meaning to sidetrack the thread here, just a quick comment.
Pretty much, Bush meant what he said right there, but no one that I know of in the public sphere picked up on it.
No problem - the relationship of your comment and observation is clear.
Few know or picked up on the ESF intervention, and some who did even egregiously mis-interpreted it.
My suggestion to you: take a deep breathe, perhaps a cold shower, for this too will pass.
I see you again fail to deal with all the points in any substantive manner, also ignoring that actual causation always includes correlation etc., but rather stoop to a personal attack - and with a comment that's virtually identical to what Mish said while ignoring those self same facts.
**yawn**
The actual facts show that the ESF intervention preceded any other significant factor to the dollar move, to the best of my knowledge.
Deal with it and the rest of the factual points... or continue not to, just like Mish. At least you can't ban me from this forum, like Mish did on his SI forum when I tried to present the actual facts.
donalds
08-17-08, 02:31 PM
Bart,
If you were to re-read my comments, you might see that I am not supporting Mish's assertion against your claims. Fact is, it doesn't really matter all that much to me, when considering the big scheme of things, and this from someone who has taken a beating in my weakening dollar funds as of late.
Added to this, I don't see how you interpret my words addressed to you as a personal attack. Perhaps I'm just not seeing it. Still, if that is the effect of my words, I'd like to respectfully offer my apologies.
I don't doubt for a moment that the government stepped in and exercised some ESF intervention that effectively forced the dollar to rise. My thought is rather that a multitude of factors (and I admittedly didn't make this clear), likely played into this rise in the dollar (which you perhaps fully agree with). How much of that might be attributed to intervention is simply my inquiry.
Perhaps my additional commentary served to muddy things up, and was therefore less than useful.
Bart,
If you were to re-read my comments, you might see that I am not supporting Mish's assertion against your claims. Fact is, it doesn't really matter all that much to me, when considering the big scheme of things, and this from someone who has taken a beating in my weakening dollar funds as of late.
Added to this, I don't see how you interpret my words addressed to you as a personal attack. Perhaps I'm just not seeing it. Still, if that is the effect of my words, I'd like to respectfully offer my apologies.
I don't doubt for a moment that the government stepped in and exercised some ESF intervention that effectively forced the dollar to rise. My thought is rather that a multitude of factors (and I admittedly didn't make this clear), likely played into this rise in the dollar (which you perhaps fully agree with). How much of that might be attributed to intervention is simply my inquiry.
Perhaps my additional commentary served to muddy things up, and was therefore less than useful.
Cool, apology accepted, and its possible I mis-interpreted some of what your actual opinions are. I'm glad you now seem to agree that Mish blew it.
When someone insinuates that I'm being hot headed or overly emotional with phrases like "take a shower" and then doesn't deal with the actual facts as presented, and also uses words like ideology and journalism in ways far different from their actual definitions and how they were used, etc., my responses should not be surprising in any way.
I also must admit that it confuses me quite a bit why you would post so many times, while also stating that it "doesn't really matter all that much to me".
We do also agree that the ESF intervention is very far from the only reason that the USDX has moved so much, as I'd hoped was clear from this section of the original post as well as others:
Does intervention work all the time or forever? Of course not.
Does intervention always have the purpose of stopping the decline in value of a currency? Of course not.
Do virtually all fiat currencies head towards zero value over time? Of course.
Intervention should never be taken out of a full financial and economic and political etc. context. To do otherwise does nothing but prove one can't see the forest for the trees - at best.
To state it another way, I in no way believe that the ESF intervention was and is the only reason and cause for the move to date... while also pointing out that:
Mish never had the common decency to ask what my opinions were
Mish never even asked for the facts, even after I offered them
Mish was wrong about his facts, as shown in the trend line he drew
Mish was wrong about the yen intervention in the sense that he took it way out of a full context, and also to this date has no proof that Yen intervention even occurred as he alleged
... and many other things as noted in post #1 on this thread, aka both dubious journalism and very significant issues about facts vs. ideology, and even vested interests effects.
My overall points since day one of my initial post ( Dollar intervention (http://www.itulip.com/forums/showthread.php?t=4759) ) is that the ESF did intervene, virtually no one picked it up, virtually no one is even aware of the ESF itself, the correlations with all the ESF events and the start of the USDX move are extremely high as noted in post #1 on this thread... and of course that there are major issues with Mish and his dubious journalism, as well as his fixed ideology coloring his blogging and therefore leading to incorrect conclusions by his readers.
Mish has not only mis-represented my actual opinions and data about the ESF, and M3 beforehand, but also consistently ridicules anything in the "conpsiracy" area, regardless of the source. Another example is the ECB gold interventions, as detailed in Gold price manipulation/control proof (http://www.itulip.com/forums/showthread.php?t=4640) . Note again that all I did in both the ESF and ECB posts or articles is present actual facts from major institutions, with as small an adjustment to the actual facts as possible in order to more clearly present them. The ECB data was in Euro valued gold, so I converted it to ounces to make the actual relationship more clear... and was accused on multiple instances of being a conspiracy nut. Great dubious journalism on Mish's part - again.
And it also really does boil down to:
Mish's motto: "Pay no attention to that man behind the curtain." (http://www.nowandfutures.com/grins/oz_curtain.wav)
My motto: "Ignore the man behind the curtain at your peril."
So, if that is correct, then that valuation of the assets sold is 6.4B dollars, or 4.3B euros.
...
Regardless, I think the implications of the analysis hold.
You & digger are indeed correct, and I just edited the original to remove the math error about Euro conversion. Thanks.
It does indeed not change any of the actual conclusions or facts.
Lukester
08-17-08, 11:07 PM
Bart -
You are "standing in for EJ" (I know, it's just me who has arbitrarily elected you here) at this late hour on a Sunday night, so give this your best shot. In the light of the present universe of factors weighing on the dollar, what probability would you assign to seeing a USD rally proceed *really significantly* past 80, before flaming out as we proceed into the new year? Assume it has all the time it requires going into 2009 and factor the averaged weight of all the charting you've pulled together in the past year to six months. The "average" of all that charting - does it point to a ceiling being out there somewhere on this USD up-move, or can you in any rational world see a channel busting move in the dollar coming out of this and last years developments? And what to your understanding does EJ conclude as an "averaged" bet looking out six months from now. Possible to get above 82-83-84 on the dollar index going into 2009?
Calling El Bartos. Come in please. [ Has this humble question displeased the Bart, to be so ignored? :( ]
Jim, I actually started my path to Itulip via Mish and finding other similar blogs. I still read him as 1) he at least sees a train wreck coming 2) I am on the fence about de/inflation (I know I'll probably be shunned for life). I see clearly that inflation is the best thing for Bernanke and to avoid depression but inflation seems to screw the banks so how do they sit still for that?
Still learning ...
Orion,
Inflation screws the banks if they are profitable, but it helps them if they have lots of bad debt.
We're in the latter situation now.
The only reason we're not at 50% inflation is the dual threat of foreigners pulling out of the dollar and the population going up in arms.
My personal thesis is that we're going to get the maximum possible inflation without either of the above 2 events happening - thus the iTulip view of 100% over 5 years is very reasonable.
Thank you c1ue, good comment. I am very interested to see what China and Japan do as we try to trash the dollar. Do they not buy bonds and drive up interest rates (saving dollar) but will hurt US economy or let us go so they can continue to export more junk. I guess the question is when does China become self sufficient or is that even possible? You are probably right we'll max inflation within limits.
Thank you c1ue, good comment. I am very interested to see what China and Japan do as we try to trash the dollar. Do they not buy bonds and drive up interest rates (saving dollar) but will hurt US economy or let us go so they can continue to export more junk. I guess the question is when does China become self sufficient or is that even possible? You are probably right we'll max inflation within limits.
Orion, if we are headed for a global cooling / recession China's and Japan's exports will slow and their trade surplus will shrink. As a result there'll be less asian money to buy U.S. gov. and agency bonds with. That would leave the U.S. in a precarious situation as ever more buying is needed to finance growing U.S. deficits. Interest rates would have to rise. From that point on anything is possible from deflation to strong inflation depending on what the Fed and treasury do.
We're a little off topic here. I hope Bart doesn't mind but let's find a thread that's better suited for this discussion.
-digger
My apologies to Bart I have gotten off topic. Call it the "he who shall not be named" factor that leads to deflation talk. I must reread EJ's posts as starting a post about de vs infl will be like swimming with the sharks and I am not sure I have the swimming part down ;-)
akrowne
08-18-08, 12:52 PM
I'll probably be assailed for this, but I appreciate Mish as well. That doesn't mean I agree with every single thing he says, but frankly that goes for any blogger/analyst/writer/reporter.
Actually I think the attitude that someone should be dismissed completely because you do not agree with an element of their thesis is juvenile.
Disagreements should be considered and debated -- that is how people learn. If anything the worst offense of Mish is to censor/ignore/block critics, inasmuch as he actually does.
I think Mish is probably peerless in terms of being on-the-ball with financial sector collapse. I also agree with him on money and market fundamentals. As for inflation/deflation predictions, and whether fundamentals are being contravened by manipulation, Mish is not my source.
Jim Nickerson
08-18-08, 01:14 PM
I'll probably be assailed for this, but I appreciate Mish as well. That doesn't mean I agree with every single thing he says, but frankly that goes for any blogger/analyst/writer/reporter.
Actually I think the attitude that someone should be dismissed completely because you do not agree with an element of their thesis is juvenile.
Disagreements should be considered and debated -- that is how people learn. If anything the worst offense of Mish is to censor/ignore/block critics, inasmuch as he actually does.
I think Mish is probably peerless in terms of being on-the-ball with financial sector collapse. I also agree with him on money and market fundamentals. As for inflation/deflation predictions, and whether fundamentals are being contravened by manipulation, Mish is not my source.
I don't not read anyone because I might disagree with them. I choose to believe if individuals demonstrate a lack of honesty, as well as I can make that judgement, it then becomes a question of why waste time reading things from individuals who in my opinion are not dedicated to being truthful. I've not read every word bart has written in his comments on Shedlock, but it seems bart's opinion is Shedlock is lacking something in the way of integrity.
To my assessment Greenspan and Paulson do not know the meaning of truthfulness, so why screw away your time feigning interest is what is to be their next lie.
I'll probably be assailed for this, but I appreciate Mish as well. That doesn't mean I agree with every single thing he says, but frankly that goes for any blogger/analyst/writer/reporter.
Actually I think the attitude that someone should be dismissed completely because you do not agree with an element of their thesis is juvenile.
Disagreements should be considered and debated -- that is how people learn. If anything the worst offense of Mish is to censor/ignore/block critics, inasmuch as he actually does.
I think Mish is probably peerless in terms of being on-the-ball with financial sector collapse. I also agree with him on money and market fundamentals. As for inflation/deflation predictions, and whether fundamentals are being contravened by manipulation, Mish is not my source.
Aaron,
I'm not into assailing without actual facts etc., and don't believe iTulip or EJ is either.
I appreciate and understand your sentiments, and even agree with most of them. As I have stated numerous times, Mish does come up with some decent stuff and can be useful. I am also in no way dismissing him - do note the title of the thread - "Dollar intervention: Facts versus ideology". Its both about intervention and manipulation, as well as facts vs. ideology and not about whether Mish is net plus or minus. He is a net plus in my opinion, in case anyone wonders.
And as you noted in your comments about inflation/deflation or manipulation and how he has blocked my comments (and likely others), you do understand many of the basic points I've been trying to make.
Disagreements are fine and expected, but the actual disregard of the facts and failure to even check the facts (as shown by the trend line he drew on my chart and other comments) is a real problem or issue in my opinion.
It truly is dubious journalism in my opinion, and he still completely refuses to admit it or deal with the points as raised in my various posts, including the actual facts and full picture about the BoJ intervention, proven "behind the scenes" actions, etc.
I submit that his worst offense is not blocking comments but rather are covered in my various points and his failure to deal directly with them - in the facts vs. ideology sense too.
More comments later about his most recent post in the area...
Bart -
You are "standing in for EJ" (I know, it's just me who has arbitrarily elected you here) at this late hour on a Sunday night, so give this your best shot. In the light of the present universe of factors weighing on the dollar, what probability would you assign to seeing a USD rally proceed *really significantly* past 80, before flaming out as we proceed into the new year? Assume it has all the time it requires going into 2009 and factor the averaged weight of all the charting you've pulled together in the past year to six months. The "average" of all that charting - does it point to a ceiling being out there somewhere on this USD up-move, or can you in any rational world see a channel busting move in the dollar coming out of this and last years developments? And what to your understanding does EJ conclude as an "averaged" bet looking out six months from now. Possible to get above 82-83-84 on the dollar index going into 2009?
Calling El Bartos. Come in please. [ Has this humble question displeased the Bart, to be so ignored? :( ]
Sorry for the delay Lukester, "life" sometimes does interfere with iTulip posting. ;)
And I do reject the EJ stand in idea even though I believe you meant it way more for grins than for real. EJ is far better at intermediate term calls than I.
As far as where the dollar is headed on the intermediate term, the best answer I have is that I don't know. I'm a short term trader and just did exit my USDX long last night, if that's any help. I'm also loathe to do those kind of projections or guesses since my primary focus is the short term, and frankly I don't think I'm good at it either... plus I dislike the guru title or general idea.
That said though, my overall framework is still about rhyming with the '70s as shown in the various charts in the That '70s connection (http://www.itulip.com/forums/showthread.php?t=4399) thread. Draw your own conclusions, and also note that one of the charts shows an alternate scenario that this is roughly 1977-78 as opposed to 1974-75.
My apologies to Bart I have gotten off topic. Call it the "he who shall not be named" factor that leads to deflation talk. I must reread EJ's posts as starting a post about de vs infl will be like swimming with the sharks and I am not sure I have the swimming part down ;-)
Good one on the "he who shall not be named" factor. :D
I'm glad the thread still remains relatively light hearted.
Mish is far from an ogre. I believe he just simply blew it on his analysis, etc.
metalman
08-18-08, 02:55 PM
I don't not read anyone because I might disagree with them. I choose to believe if individuals demonstrate a lack of honesty, as well as I can make that judgement, it then becomes a question of why waste time reading things from individuals who in my opinion are not dedicated to being truthful. I've not read every word bart has written in his comments on Shedlock, but it seems bart's opinion is Shedlock is lacking something in the way of integrity.
To my assessment Greenspan and Paulson do not know the meaning of truthfulness, so why screw away your time feigning interest is what is to be their next lie.
i'm with jim on this. it's not only that i disagree with mish but i don't read mish because i never know whether or not he believes what he's saying. he's inconsistent and frequently nonsensical, and why? i chalk it up to a combo of not knowing what he's talking about, defending positions he took back when he knew even less than he does now (eg deflation) that he's stuck in, doing the dittohead thing for his audience (gold is money!) and shilling for his paycheck. think of him as a jim cramer for bears, except driving a hundai instead of a 8 series beemer... and not because he's trying to save the environment. ;)
pru bear was years ahead of shedlock on the financial stuff. i'd reread an old noland article before reading a mish 'missive'.
Mish is apparently feeling the heat
Of course I see manipulation. Manipulation is all over the place. And I have commented on manipulations every week for months on end.
The issue here is that all of the items he has noted (and listed like the TAF and Paulson speeches, etc.) are not behind the scenes and very poorly known items like the ESF and ECB gold interventions, etc. but at least now he clearly is admitting that manipulation exists.
Stated another way, he continues to avoid not only his actual error in failing to do his homework on the ESF, but also avoiding all of the other points I noted in the initial post on this thread.
The main issue here remains this:
Mish's motto: "Pay no attention to that man behind the curtain." (http://www.nowandfutures.com/grins/oz_curtain.wav)
My motto: "Ignore the man behind the curtain at your peril."
And then we have:
However, other than a short term effect, not a single one of those accomplished a damn thing.Another odd assertion, and for at least two reasons:
He was the one that built the list of items that show some manipulation, so of course it would be expected that he would assert that nothing happened.
To assert that things like the TAF, PDCF & TSLF did not accomplish anything is just that - assertions. He cited no facts, has no examples nor did he even address what likely would have happened to the various banks which have been borrowing from those facilities if they had not existed.
Again, I submit that this is continuing evidence of actual dubious journalism.
So Much For The Manipulation Theory
On Saturday, while exchanging emails Steve pinged me with the following idea:He agrees earlier that manipulation does exist, and now implies it doesn't by citing data from August 13th... when the actual ESF data and chart shows that those interventions initially occurred in June and were made public the day before the actual USDX bottom on July 14th?
Allow me to yet again remind Mish of part of what I said in post #1 of this thread:
The actual timing and dollar details of the recent intervention are as follows:
As of the reporting weeks ending June 13th & June 20th, $6.381 billion dollars in the Euro account were sold by the ESF for dollars.
During that first week, the value of the dollar index moved from 72.39 to 74.15 and then back to 73.43 the following week.
The reporting of the ESF actions from the weeks ending June 13th & June 20th was not made public until July 14th.
The dollar index closed at 71.87 on July 15th, which was the recent low.
The actual facts show that the ESF intervention preceded any other significant factor to the dollar move, to the best of my knowledge.
Mish can quote any of the very fine folk for whom we both have a great deal of respect like Faber and Turk, etc. but the real point here is that none of their comments deal directly with the actual ESF data or chart or Mish's comments and problems with them as noted in post #1... and many of them even agree in public (like Mr. Turk) that intervention did occur.
I did not "concoct" the data from the ESF about their intervention (or the ECB about gold, or the U.S. Treasury about TIOs, etc) - they are all very real and major establishments, and the facts are right there. To even use a word like concoct in this context and about the ESF and another time period... well, its almost ludicrous.
Again, in my opinion we have another example of dubious journalism. Mish continues to avoid that he goofed on analysis and research of the actual facts about the ESF, and the actual existence of behind the scenes intervention, etc.
And then we top it off with:
There is simply no real evidence that a small manipulation in currencies played a significant role in the recent dollar rally or the gold decline, regardless of how loud manipulation theorists shout. Correlation is not causation, not matter how much anyone wants to believe otherwise.
Again, nothing but an assertion about real evidence and again not dealing directly with any of my points, including about the issues surrounding the BoJ intervention (for which Mish has still not cited any direct proof from the BoJ) and its purposes and actual success. And this, even after the admission that manipulation does occur and does exist.
And then we have the old tired "causation is not causation", which as I noted earlier in this thread both fails to deal with the actual facts, and also completely ignores that when there is causation, correlation is always present.
Its also a weak point at best as noted in Empirically observed covariation is a necessary but not sufficient condition for causality. (http://en.wikipedia.org/wiki/Correlation_does_not_imply_causation)
Finally, I also note that he continues to avoid all the actual well known examples where intervention does work, probably the best known of which is Paul Volcker's action in the late '70s and early '80s which broke the back of inflation.
And I do expect Mish to avoid that and the many other times where intervention does actually work, and provably so... as well as continue to protest about and ignore that behind the scenes intervention actually does exist and does work, regardless of the time period in question.
And again, intervention like from the ESF is far from the only cause of the USDX move but no one has cited anything substantial that occurred earlier in time... and my motto remains "Ignore the man behind the curtain at your peril".
More dubious journalism and issues surrounding the facts vs. ideology area.
"Only the small secrets need to be protected. The big ones are kept secret by public incredulity."
-- Marshall McCluhan
Here is a little fuel for the discussion.
I have just read this:
...
One of the things that Macro Man does in his real job is to run indicators that attempt to determine which fundamental themes are driving currencies at any point in time (don't ask, he's not going to be more specific than that.) And what's interesting about the recent dollar move is that none of the fundamental themes that traditionally drive exchange rates has been in play during this dollar move.
This morning he quantified this into a combined "thematic strength" indicator, wherein a high reading indicates that currency markets are trading very thematically, and a low reading suggests that so-called fundamentals are not driving FX.
And what we can observe is that this is the least thematic market since the summer of 2003. It appears to have been micro (idiosyncratic decisions and/or momentum), rather than macro, that has driven the recent dollar rally. So if you've struggled to understand why the buck is up, don't worry; it's taken a lot of people by surprise.
http://4.bp.blogspot.com/_eKH-tiSXFbc/SK0kCvlSnGI/AAAAAAAADBQ/lqHkufepvTM/s400/THEMATIC+STRENGTH.GIF
Big Pic (http://4.bp.blogspot.com/_eKH-tiSXFbc/SK0kCvlSnGI/AAAAAAAADBQ/lqHkufepvTM/s1600-h/THEMATIC+STRENGTH.GIF)
Please find more here:
http://macro-man.blogspot.com/2008/08/saving-financials.html
Here is a little fuel for the discussion.
I have just read this:
...
One of the things that Macro Man does in his real job is to run indicators that attempt to determine which fundamental themes are driving currencies at any point in time (don't ask, he's not going to be more specific than that.) And what's interesting about the recent dollar move is that none of the fundamental themes that traditionally drive exchange rates has been in play during this dollar move.
This morning he quantified this into a combined "thematic strength" indicator, wherein a high reading indicates that currency markets are trading very thematically, and a low reading suggests that so-called fundamentals are not driving FX.
And what we can observe is that this is the least thematic market since the summer of 2003. It appears to have been micro (idiosyncratic decisions and/or momentum), rather than macro, that has driven the recent dollar rally. So if you've struggled to understand why the buck is up, don't worry; it's taken a lot of people by surprise.
I'm sure it won't come as any surprise but I suggest that MacroMan take a look at ESF actions and other behind the scenes actions, and add them to his picture of fundamentals.
By way of update, the ESF published new data on Monday and Tuesday and now the picture since August 1st has been filled in. More interventions have occurred.
Here's the longer term picture of the ESF Euro account:
http://www.nowandfutures.com/images/esf_euro_yen.png
And a brand new chart based on ESF S.D.R. balances, also showing the very probable recent intervention:
http://www.nowandfutures.com/images/esf_sdr_usdx.png
S.D.R. stands for Special Drawing Right. It's an artificial currency invented by the IMF (International Monetary Fund) in 1969, and serves as their currency as well as for a few other international organizations. It also acts as a reserve for central banks. Its value is determined from a mix of the Euro, Yen, US dollar and the British Pound.
The IMF's SDR page (http://www.imf.org/external/np/exr/facts/sdr.htm)
As of today, 1 SDR equals about .635 dollars, but do note that the ESF SDR chart is already expressed in dollars by the ESF. The recent total SDR (alone) portion of the intervention is over $5 billion dollars.
I continue to be amazed and more that so very few are either aware of or even allow for the massive effects of the very probable ESF dollar interventions.
At least some have graduated to step one:
All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.
-- Arthur Schopenhauer (1788-1860)
Bart, did you see this?
<TABLE cellSpacing=0 cellPadding=0 width=390 border=0><TBODY><TR><TD class=secondaryTitle>http://www.ny.frb.org/newsevents/news/markets/2008/fx080814.html (http://www.ny.frb.org/newsevents/news/markets/2008/fx080814.html)
Press Release
</TD></TR><TR><TD height=10>http://www.ny.frb.org/images/spacer.gif</TD></TR><TR><TD class=pageTitleLv3>U.S. Monetary Authorities Did Not Intervene in FX Markets during the Second Quarter
</TD></TR><TR><TD height=16>http://www.ny.frb.org/images/spacer.gif</TD></TR></TBODY></TABLE><TABLE cellSpacing=0 cellPadding=0 width=390 border=0><TBODY><TR><TD class=paraNotesNoItalic width="62%">August 14, 2008
</TD><TD align=right width="38%"> </TD></TR><!--Research, Regional Outreach use Note to Editors beneath date --><TR><TD class=paraNotes colSpan=2 height=16> </TD></TR></TBODY></TABLE><TABLE cellSpacing=0 cellPadding=0 width=390 border=0><TBODY><TR><TD>NEW YORK—The U.S. monetary authorities did not intervene in the foreign exchange markets during the April—June quarter, the Federal Reserve Bank of New York said today in its quarterly report to the U.S. Congress.
During the three months that ended June 30, 2008, the dollar appreciated 0.2 percent against the euro and 6.5 percent against the yen. In this period, the dollar’s trade-weighted exchange value appreciated 0.9 percent as measured by the Federal Reserve Board’s major currencies index.
The report was presented by William Dudley, executive vice president of the Federal Reserve Bank of New York and the Federal Open Market Committee’s manager for the System Open Market Account, on behalf of the Treasury and the Federal Reserve System.
Contact:
Andrew Williams
(212) 720-6143
(646) 720-6143
andrew.williams@ny.frb.org (andrew.williams@ny.frb.org)
</TD></TR></TBODY></TABLE>
Bart, did you see this?
<table width="390" border="0" cellpadding="0" cellspacing="0"><tbody><tr><td class="secondaryTitle">http://www.ny.frb.org/newsevents/news/markets/2008/fx080814.html (http://www.ny.frb.org/newsevents/news/markets/2008/fx080814.html)
Press Release
</td></tr><tr><td height="10">http://www.ny.frb.org/images/spacer.gif</td></tr><tr><td class="pageTitleLv3">U.S. Monetary Authorities Did Not Intervene in FX Markets during the Second Quarter
</td></tr><tr><td height="16">http://www.ny.frb.org/images/spacer.gif</td></tr></tbody></table><table width="390" border="0" cellpadding="0" cellspacing="0"><tbody><tr><td class="paraNotesNoItalic" width="62%">August 14, 2008
</td><td width="38%" align="right"></td></tr><!--Research, Regional Outreach use Note to Editors beneath date --><tr><td class="paraNotes" colspan="2" height="16"></td></tr></tbody></table><table width="390" border="0" cellpadding="0" cellspacing="0"><tbody><tr><td>
...
</td></tr></tbody></table>
Yes, the Fed has been issuing those releases for years.
It's "creative" word usage in my opinion. The Fed or FOMC or "monetary authorities" didn't intervene, the ESF is part of the U.S. Treasury. Notice that the ESF is never mentioned or even hinted at.
The ESF home page (http://www.treas.gov/offices/international-affairs/esf/) contains this relatively simple explanation of what they can do and what their purpose is:
The legal basis of the ESF is the Gold Reserve Act of 1934. As amended in the late 1970s, the Act provides in part that "the Department of the Treasury has a stabilization fund …Consistent with the obligations of the Government in the International Monetary Fund (IMF) on orderly exchange arrangements and an orderly system of exchange rates, the Secretary ..., with the approval of the President, may deal in gold, foreign exchange, and other instruments of credit and securities."
The FRB of NY says (http://www.ny.frb.org/markets/foreignex.html):
The Federal Reserve Bank of New York carries out foreign exchange-related activities on behalf of the Federal Reserve System and the U.S. Treasury. In this capacity, the Bank monitors and analyzes global financial market developments, manages the U.S. foreign currency reserves, and from time to time intervenes in the foreign exchange market. The Bank also executes foreign exchange transactions on behalf of customers.
Treasury/ESF says: (http://www.treas.gov/offices/international-affairs/esf/)
The ESF can be used to purchase or sell foreign currencies, to hold U.S. foreign exchange and Special Drawing Rights (SDR) assets, and to provide financing to foreign governments. All operations of the ESF require the explicit authorization of the Secretary of the Treasury ("the Secretary").
The U.S. International Reserve Position (http://www.treas.gov/press/releases/20088191354227500.htm) is currently about $72.23 billion.
The Department of Treasury budget appendix for FY2008 says (http://www.whitehouse.gov/omb/budget/fy2008/pdf/appendix/tre.pdf) (p.849):
The Secretary of the Treasury is authorized to deal in gold and foreign exchange and other instruments of credit and securities as the Secretary considers necessary, consistent with U.S. obligations in the International Monetary Fund (IMF) regarding orderly exchange arrangements and a stable system of exchange rates. An Exchange Stabilization Fund, with capital of $200 million, is authorized by law for this purpose (31 U.S.C. 5302). All earnings and interest accruing to this fund are available for the purposes thereof. Transactions in special drawing rights (SDR’s) and U.S. holdings of SDR’s are administered by the fund. U.S. drawings from the IMF, if any, are also advanced to the fund. As required by Public Law 95–612, the fund is not available to pay administrative expenses.
_______________________
The Federal Reserve Bank New York is the one that manages the currency reserves. It also has authority to invervene in the FX markets.
The ESF is explicitely authorized to intervene but is only capitalized with a meager $200 million, hardly enough to be of any effect.
What could be achieved with the $200 million from the ESF is negligible. It certainly cannot explain a multi-billion repo. Do changes in the US Reserve position more or less reflect transactions of the FRB NY?
.
The FRB of NY says (http://www.ny.frb.org/markets/foreignex.html):
The Federal Reserve Bank of New York carries out foreign exchange-related activities on behalf of the Federal Reserve System and the U.S. Treasury. In this capacity, the Bank monitors and analyzes global financial market developments, manages the U.S. foreign currency reserves, and from time to time intervenes in the foreign exchange market. The Bank also executes foreign exchange transactions on behalf of customers.
...
.
Then don't believe any of it, or don't believe that anything can or does happen behind the scenes, or do believe that governments and central banks always tell the truth and nothing but the truth, or do believe that its all coincidence.
Also don't notice the actual ESF (or call it the U.S. International Reserve Position if you prefer) account balance changes and the correlations with the actual USDX value.
Also don't notice the changes in the SDR position, both in early 2005 and recently, when there were "mysterious" changes in the dollar index... and how well they correlate.
Not my problem.
Then don't believe any of it, or don't believe that anything can or does happen behind the scenes, or do believe that governments and central banks always tell the truth and nothing but the truth.
I don't understand your reply. I'm not a believer and this thread is not a church. I want to know and I'm on a quest for bullet proof facts and information just like you are.
Also don't notice the actual ESF (or call it the U.S. International Reserve Position if you prefer) account balance changes and the correlations with the actual USDX value.
Also don't notice the changes in the SDR position, both in early 2005 and recently, when there were "mysterious" changes in the dollar index... and how well they correlate.
My post was not about that. It was about who may call the shots, FRBNY or ESF.
I don't understand your reply. I'm not a believer and this thread is not a church. I want to know and I'm on a quest for bullet proof facts and information just like you are.
There are no such things as 100% bullet proof facts in my opinion.
And you either believe the charts and facts from the ESF or not.
My post was not about that. It was about who may call the shots, FRBNY or ESF.
Its virtually 100% inconsequential.
You either believe that there was dollar intervention or not, to start.
The ESF is explicitely authorized to intervene but is only capitalized with a meager $200 million, hardly enough to be of any effect.
What could be achieved with the $200 million from the ESF is negligible. It certainly cannot explain a multi-billion repo.
From The Exchange Stabilization Fund Slush Money or War Chest (http://www.petersoninstitute.org/publications/chapters_preview/43/5iie2717.pdf)
Budgetary Treatment
The ESF has received no appropriations since its initial capitalization in 1934. Its income—arising from interest receipts from foreign currency denominated securities, for example, and gains on foreign currency holdings— is plowed back into the capital of the account. The ESF has thus grown substantially over the years without receiving further allocations from the federal budget.
For several decades the ESF was treated wholly off the budget as a public enterprise revolving fund. That changed in 1980, when all such funds were placed on the budget. The budget, however, treats the administrative expenses very differently than it does the operations of the ESF. Expenses are allocated to the Secretary through the budget process as part of the Treasury’s annual appropriation. Operations, such as foreign exchange intervention and stabilization loans, remain unappropriated.
Loans (usually in the form of swaps) and intervention are both formally treated as an exchange of short-term monetary assets. These ESF transactions are not recorded as expenditures but rather as a ‘‘means of financing,’’ a concept that applies to other credit accounts in the budget as well. Thus, no budget authority is recorded for the ESF. Its net outlays are calculated by netting collections—interest on investments and realized foreign exchange gains—against disbursements—such as payments of charges levied by the IMF on the allocations of SDRs. The net earnings of the account are recorded in the budget and affect the balance for prior years (Penner 1984, reproduced in US House, Committee on Banking, Finance, and Urban Affairs 1984). They are also estimated in the budget for the current year. But these estimates cannot be made reliably and are thus entered into budget documents simply as straight-line extrapolations of previous years’ earnings. The income from the ESF has exceeded disbursements in most years
There are no such things as 100% bullet proof facts in my opinion..
I learned that I have to correct you early on when you (mis)quote me. Therefore: the 100% was added by you.
You either believe that there was dollar intervention or not, to start.
No, my approach is different. I first do my research and then I form my opinion. It has nothing to do with believing in intervention or not.
Well, this leads nowhere. It's probably a good idea to stop here.
.
From The Exchange Stabilization Fund Slush Money or War Chest (http://www.petersoninstitute.org/publications/chapters_preview/43/5iie2717.pdf)
Thanks Rajiv. What an interesting piece. Reading about the Mexican Peso crisis made me go back to the treasury appendix and look what I found:
E
XCHANGE STABILIZATION FUND
Program and Financing
(in millions of dollars)
Identification code 20–4444–0–3–155 2006 actual 2007 est. 2008 est.
Budgetary resources available for obligation:
21.40 Unobligated balance carried forward, start of year
(Special drawing rights) ........................................... 29,126 30,043 30,980
22.00 New budget authority (gross) .............................. 917 937 958
23.90 Total budgetary resources available for obligation 30,043 30,980 31,938
24.40 Unobligated balance carried forward, end of year 30,043 30,980 31,938
They have indeed around $30 billion at their disposal. The $200 million may refer to the initial capital in 1934?
I stand corrected. Good find Rajiv.
-digger
.
Remember also from the above article
These ESF transactions are not recorded as expenditures but rather as a ‘‘means of financing,’’.............The net earnings of the account are recorded in the budget and affect the balance for prior years
The implication is that the $30 Billion you are talking about is the net loss that they can take -- this means that the amount of currency buying and selling they can do is quite enormous -- as long as other Central banks are willing players!
I learned that I have to correct you early on when you (mis)quote me. Therefore: the 100% was added by you.
Fair enough. Then, there are no such things as bullet proof facts in my opinion.
No, my approach is different. I first do my research and then I form my opinion. It has nothing to do with believing in intervention or not.
You have obviously done a lot of research with all of those links etc., but you now seem to not want to express an opinion about whether there was dollar intervention or not?
That seems odd, considering your level of interest in the area.
I see.
Thanks again for your help.
Digger
.
You have obviously done a lot of research with all of those links etc., but you now seem to not want to express an opinion about whether there was dollar intervention or not?
That seems odd, considering your level of interest in the area.
Bart, I'm still in the process of gathering information. Nothing odd about it.
Bart, I'm still in the process of gathering information. Nothing odd about it.
I'll be interested to hear your opinion and the surrounding facts and logic whenever you finish your research, assuming you want to have your opinion be public.
I'll be interested to hear your opinion and the surrounding facts and logic whenever you finish your research, assuming you want to have your opinion be public.
Sure. This is truly a complex matter. I’m not there yet but I’m happy to share some intermediate results with you. Let’s see what information we have so far:
(a) some conspicuous movements in the U.S. Reserve Positions in the month of June.
(b) an official press release denying currency intervention in q2 by monetary authorities
(c) The NY Fed manages the U.S. foreign currency reserves and can intervene.
(d) The ESF is big enough to be used for efficient intervention in the currency markets and is explicitly designed for this purpose. The Secretary of Treasury (Paulson) has almost unrestricted control over the ESF.
So far based on the information it’s too early for me to jump to the conclusion that the ESF intervened in the month of June by selling euros. To this day I don’t know whether the admittedly conspicuous changes within the US reserve position balance reflect currency intervention or something else.
This is the data from the period in question:
Millions of $ May 30 June 6 June 13 June 20 June 27
EUR Securities: 16,028 16,192 9,797 9,967 10,090
Other CBs,BIS,IMF: 15,002 9,752 14,579 14,811 14,696
Sec. + o. CBs: 31,010 25,944 24.379 24.778 24.786
Secur.lent+Repos: - 6,375 6,518 6,817 6,817
Total: 31,010 32,319 30,897 31,595 31,603
(sorry, I don't get the table to show correctly)
Taking exchange rate fluctuations and small amounts of interest into account it is safe to say the overall EUR position has been rather stable at a little over $30 billion.
During the first week of June the holdings with other central banks dropped $6.395 billion which corresponds to overnight repos / lent securities of $6,375, an almost perfect match. The lent securities position stays on the sheet for the following weeks. During the second week of June the euro securities position dropped by about the same amount as the euro holdings with other CBs increased. The latter is now back to normal, the euro securities position is lower than usual.
This could be interpreted as a repo or a series of overnight repos that was later changed into a more long term lending of euro securities and would hint at the urgency of the transaction at that time.
The size of the transaction is about $6.5 billion or 4.2 billion euros based on a EUR/USD exchange rate of 1.55 at the time.
The only fact that we have is that euro securities in the amount of about $6.5 billion (4.2 billion euros) were lent. But the purpose of this transaction is not that clear at all. Yes, the lent securities could have come from the ESF and sold in the market for dollars which means that at one point they must be bought back. But it could also mean something different.
We know the FRBNY officially manages the US currency reserves. The foreign currency reserve positions as shown in the US International Reserve statement are split between the Fed’s SOMA account and the ESF. At the end of 2007 the SOMA account made up roughly 2 thirds of the US reserves with the other third belonging to the ESF ($47.3 billion (http://www.newyorkfed.org/aboutthefed/fedpoint/fed27.html) of the total of $69.95 billion (http://www.treas.gov/press/releases/200712171713469210.htm) at that time).
If that ratio holds true today, and that’s likely, the change in positions could just as well reflect a transaction by the Fed. A bail-out of a troubled European institution by the Fed comes to mind though I’m not sure if that would legally be possible.
Since we don’t know whether the change in position reflects a transaction by the Fed or the ESF and who is on the other side of the trade it's all speculation from this point on. We may never know for sure.
Please do not take this post personal. It is meant to shed some additional light on the situation. We are all free to draw our own conclusions. This also includes coming to no conclusion at all if the available information doesn't convincingly support a specific case.
Digger
.
As I noted earlier, if you expect bullet proof facts you will always be disappointed. You will also never reach a clear or even close to unequivocal decision.
Occam's Razor ( http://en.wikipedia.org/wiki/Occams_razor ) applies here.
If it walks like a duck, and makes noises like a duck etc. and there is little to no contrary evidence... ... and clear and strong correlation (always present when there's causation) exists... then its extremely likely that its a duck.
Occam's Razor [...] applies here.
Occam's razor…
The principle states that the explanation of any phenomenon should make as few assumptions as possible.
The assumptions the currency intervention theory is based on are:
- The change in the US international reserve was caused by an ESF-transaction, not by a Fed-transaction.
- The ESF-transaction was intended to support the dollar against the euro
- The official press release denying currency intervention in Q2 is "creative" word usage.
Quite a bit to swallow, no? Lex parsimoniae?
Again, I cannot exclude intervention but I also won't go out on a limb and claim that's the most likely or even the only possible explanation. In this case I simply don't know. In the case of the ECB's gold price manipulation I do know that it doesn't hold up. See my yet unreplied rebuttal (http://www.itulip.com/forums/showthread.php?p=44402#poststop).
If you believe in intervention that's fine with me. You are entitled to an opinion just as I am. No problems here.
.
No I don't at all think it very much to swallow at all, and of courtse you're welcome to your opinion.
As far as Occam's Razor, I submit that it strongly applies as does the duck analogy.
"- The change in the US international reserve was caused by an ESF-transaction, not by a Fed-transaction.", as I noted before, is trivial at best. In other words, it doesn't matter.
It both avoids and clouds the actual facts and charts.
"- The ESF-transaction was intended to support the dollar against the euro" - yes, of course.
As the initial chart clearly shows, along with virtually a perfect time match and a Euro & dollar based transaction. The SDR data shows the same pattern, as well as showing intervention in 2005 when so many were surprised by an apparent mystery - just like now.
"- The official press release denying currency intervention in Q2 is "creative" word usage."
You apparently don't believe its possible that spin or "creative" word usage or lies can come out of the government or Fed, and of course that is your right even though its a rather unusual viewpoint.
And you failed to comment about or recognize that the actual chart and data direct from the ESF is the actual simplicity, and makes virtually zero assumptions.
Massive ESF actions in the Euro and SDR accounts resulted in (or triggered if you prefer) large moves in the USDX.
It's not unlike Keynes on inflation and the Occam's Razor simplicity:
"There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million can diagnose."
-- John Maynard Keynes, "Economic consequences of the peace"- Unseen Hand, page 57
as I noted before, is trivial at best. In other words, it doesn't matter.
How can it be trivial if a Fed operation would be so much less likely a currency intervention than an ESF operation?
As the initial chart clearly shows, along with virtually a perfect time match and a Euro & dollar based transaction...as well as showing intervention in 2005
The 2005 pattern is a lot less convincing. The data is EUR holdings in millions of USD and at a time when the USD strengthens against the euro this position must automatically fall accordingly. That’s what I see on the chart. Here is my suggestion: Create a chart of the EUR position in EUR and not in dollars and that may boost your case. I haven’t done it and most likely won’t. It would be interesting to see what this chart looks like.
You apparently don't believe its possible that spin or "creative" word usage or lies can come out of the government or Fed, and of course that is your right even though its a rather unusual viewpoint.
I’m sceptical by nature but that doesn’t mean I ignore official statements as it suits me.
And you failed to comment about or recognize that the actual chart and data direct from the ESF is the actual simplicity, and makes virtually zero assumptions.
And you failed to comment about or recognize that the actually data in your chart does NOT come directly from the ESF. It is the US International Reserve Position which contains currency positions from the Fed as well as from the ESF. As long as we have no means to find out how much is hold by who a change in the EUR position could reflect a Fed operation as well as an ESF operation. Implications are as above.
"Treasury's Weekly Press Release on U.S. Foreign Exchange Reserves (http://www.treas.gov/press/international-reserve-position.html) shows the levels of various official foreign assets (foreign exchange, SDRs, U.S. reserve position in the IMF, and gold). Only the foreign exchange and SDR components of official reserves are assets of the ESF. Of the foreign exchange component, the total is divided between the ESF and the Federal Reserve's System Open Market Account (SOMA)."
I’ll leave it here and am going to take a breather from all this for a couple of days. But before I do I wanted to say that even so we often disagree I benefited from your work. It has brought certain data to my attention. Thank you for that. And maybe, just maybe, you got a little out of my work too… :rolleyes:
Regards and in that spirit,
Digger
.
Finster
08-22-08, 02:28 PM
In the light of the present universe of factors weighing on the dollar, what probability would you assign to seeing a USD rally proceed *really significantly* past 80, before flaming out as we proceed into the new year? ... Possible to get above 82-83-84 on the dollar index going into 2009?
Count me in with those who want to know!
In particular, I want to know the chances the dollar will remain below 1/800 ounces of gold, or whether it might soon fall to less than 1/900 ounces ... :eek:
How can it be trivial if a Fed operation would be so much less likely a currency intervention than an ESF operation?
The simplest answer is embodied in this Buffet quote:
Managers should never forget one of Abraham Lincoln's favorite riddles: “How many legs does a dog have if you call his tail a leg?” The Answer: Four, because calling a tail a leg does not make it a leg.
-- Warren Buffett
Your implication that a dollar intervention coming from the Fed is somehow greatly different than a dollar intervention coming from the ESF & Treasury is extremely difficult to understand at best.
The 2005 pattern is a lot less convincing. The data is EUR holdings in millions of USD and at a time when the USD strengthens against the euro this position must automatically fall accordingly. That’s what I see on the chart.
I believe if you look carefully, you will notice sudden jumps and drops that do not correlate with Euro movements, in both the Euro and SDR portions of the ESF.
I’m sceptical by nature but that doesn’t mean I ignore official statements as it suits me.
You avoided the point of whether you believe its even possible that it could be the use of "creative" wording, aka Greenspan speak.
And you failed to comment about or recognize that the actually data in your chart does NOT come directly from the ESF. It is the US International Reserve Position which contains currency positions from the Fed as well as from the ESF. As long as we have no means to find out how much is hold by who a change in the EUR position could reflect a Fed operation as well as an ESF operation. Implications are as above.
Please refer again to the Buffet quote above regarding the "US International Reserve Position", as well as the extremely high correlations and date coincident USDX moves.
Also note that the Fed quote you noted implies that it was not a Fed action, but rather an ESF set of actions.
All of the implications are quite clear from here, including the very obvious correlations and resultant effects. For there to be causation, high correlation must be present... and it unquestionably is... and even continues to be in the August data.
So many have been surprised by the apparent mysterious USDX move, when the very simple data direct from the ESF page clearly shows the cause (or trigger if you prefer) for both the June and much larger July moves, as well as the 2005 "surprise" move. Behind the scenes actions do occur.
Count me in with those who want to know!
In particular, I want to know the chances the dollar will remain below 1/800 ounces of gold, or whether it might soon fall to less than 1/900 ounces ... :eek:
Me too! Did your secret decoder ring come in yet? :cool: ;)
More seriously though, my combo chart with trade and budget and TIC (Treasury Int'l Capital) flows shows it to be undervalued by 2-4%... and its also been mediocre on accuracy.
And besides, the USDX and gold have a worse correlation than many believe.
Where do you see the dollar index headed?
Lukester
08-22-08, 07:02 PM
Finster -
Mish has been giving Bart some serious migraine headaches. There is no known antidote to the Mish-Induced-Migraine. :D
Lukester
08-22-08, 07:55 PM
Digger -
I don't post this to revive this discussion as Bart could probably use a little rest from these polemics at least for a day or two, but here is a new article by Ted Butler with some interesting parallels tracking the validity of intervention in the gold and silver markets - and clearly this article's data is directly relevant to the sharp move up in the USD which was of course simultaneous - all in all, it seems tied to your arguments questioning the validity of Bart's intervention thesis.
At a certain point elaborate arguments about the "effectiveness" of intervention begin to appear perhaps just a wee bit academic, at least in the light of the article below. ...
This extract illustrates why attempting to demolish Bart's thesis here on the actual mechanisms of that intervention may do our general cause more harm than good. After all, presumably none of us approve of this stuff, right? That Mish spends so much time posturing within the (highly popular) position that "conspiracy mongering is the realm of the mentally deficient" is in this case a highly unfortunate bit of grandstanding on his part. Yes, the "manipulation" would appear frequently the cop-out argument - but here?
We've seen that Mish grandstanding elsewhere with enough regularity in the past to recognize the trademark style. Anointing yourself as a "conspiracy debunker" is an artifice - it's popular, and lends "ersatz instant credibility". But claiming all manipulation theory is "generally wrong" is merely dogmatic. Bart took the much harder to defend argument - the manipulation is real because the data associations verge upon overwhelming.
In light of this, arguments purporting to debunk "associative deduction" as a "loose methodology" may verge upon the academic in the face of the size and starkness of data correlations such as Ted Butler uncovers.
In Butler's data below the manipulative correlation potential is so blatant as to beg the question why serious minded observers wish to spend time or get too sophisticated trying to argue the contrary. We don't have a lot of people around here doing the snooping that Bart does to uncover this stuff. "Mish the great manipulation debunker" has taken some fence sitting arguments on this point which look to my like more like a "fancy two-step" than a serious investigation.
It's important to pick the issues you choose to try to demolish with care, lest you wind up "demolishing" the real issues at hand.
__________
ARTICLE HERE: http://news.silverseek.com/TedButler/1219417468.php
For any remaining doubters that COMEX silver and gold pricing is manipulated, the following CFTC data should be considered. This data is taken from a monthly report issued by the CFTC, called the Bank Participation Report. Here’s the link for the report -
http://www.cftc.gov/marketreports/bankparticipation/index.htm (http://www.cftc.gov/marketreports/bankparticipation/index.htm) The relevant data is found in the July and August futures sections. I will condense it.
http://silverseek.com/news/TedButler/2008/8-22tb.jpg
These facts speak for themselves. Here are the facts. As of July 1, 2008, two U.S. banks were short 6,199 contracts of COMEX silver (30,995,000 ounces). As of August 5, 2008, two U.S. banks were short 33,805 contracts of COMEX silver (169,025,000 ounces), an increase of more than five-fold. This is the largest such position by U.S. banks I can find in the data, ever. Between July 14 and August 15<SUP>th</SUP>, the price of COMEX silver declined from a peak high of $19.55 (basis September) to a low of $12.22 for a decline of 38%.
For gold, 3 U.S. banks held a short position of 7,787 contracts (778,700 ounces) in July, and 3 U.S. banks held a short position of 86,398 contracts (8,639,800 ounces) in August, an eleven-fold increase and coinciding with a gold price decline of more than $150 per ounce. As was the case with silver, this is the largest short position ever by US banks in the data listed on the CFTC’s site. This was put on as one massive position just before the market collapsed in price.
This data suggests other questions should be answered by banking regulators, the CFTC, or by those analysts who still doubt this market is rigged. Is there a connection between 2 U.S. banks selling an additional 27,606 silver futures contracts (138 million ounces) in a month, followed shortly thereafter by a severe decline in the price of silver? That’s equal to 20% of annual world mine production or the entire COMEX warehouse stockpile, the second largest inventory in the world. How could the concentrated sale of such quantities in such a short time not influence the price?
Is there a connection between 3 U.S. banks selling an additional 78,611 gold futures contracts (7,861,100 ounces) in a month, followed shortly by a severe price decline in gold? That’s equal to 10% of annual world production and amounts to more than $7 billion worth of gold futures being sold by 3 U.S. banks in a month. How can this extraordinary concentrated trading size not be manipulative?
Because prices fell so sharply after the short sales were taken (with the appropriate dirty tricks as I have previously explained) holders of known physical silver in the world suffered a decline in value of more than $2.5 billion and long COMEX silver futures holders suffered a similar $2.5 billion decline in the value of their contracts. In gold, because the dollar value held is much greater than silver, investor losses were much greater, on the order of hundreds of billions of dollars on their physical holdings. Declines in the value of mining shares adds many billions more. Was this loss of value caused by the concentrated short selling of 2 or 3 U.S. banks?
What real legitimate business do 2 or 3 U.S. banks suddenly have for selling short such quantities of speculative instruments over a brief time period? Do we want banks to be engaging in this type of activity? If the manipulation was not successful, would U.S. taxpayers be called on to bail out yet another bank speculation gone bad?
Do the traders who lost money in the recent price collapse of silver have a reason to believe that their money is now in the pockets of these two or three U.S. banks? If so, do they have recourse?
The data in the Bank Participation report is clear and compelling. that it is hard to conclude anything but manipulation. It is beyond credulity to conclude other than two or three banks caused one of the most severe price collapses in precious metals history. The CFTC has a lot to answer for as the regulatory agency responsible for preventing this type of blatant manipulation.
Great pickup Lukester! Ted Butler hits another one out of the park. :cool: :D
And I exposed some more of Mish's "issues" as well as added some perspective to M3 at M3 and inflation, deflation & ideology (http://www.itulip.com/forums/showthread.php?t=4894) .
Finster
08-23-08, 06:46 AM
Me too! Did your secret decoder ring come in yet? :cool: ;)
More seriously though, my combo chart with trade and budget and TIC (Treasury Int'l Capital) flows shows it to be undervalued by 2-4%... and its also been mediocre on accuracy.
And besides, the USDX and gold have a worse correlation than many believe.
Where do you see the dollar index headed?
You probably have a better handle on that than I do! It is noteworthy, though, that the recent advance in the conventional forex-based dollar index has been "confirmed" by the FDI. In other words, it is real, not merely an artifact of other currencies declining.
http://users.zoominternet.net/~fwuthering/FFF/FinsterFinancialForecast.htm
http://users.zoominternet.net/~fwuthering/FFF/FDIW.png
You probably have a better handle on that than I do! It is noteworthy, though, that the recent advance in the conventional forex-based dollar index has been "confirmed" by the FDI. In other words, it is real, not merely an artifact of other currencies declining.
http://users.zoominternet.net/~fwuthering/FFF/FinsterFinancialForecast.htm (http://users.zoominternet.net/%7Efwuthering/FFF/FinsterFinancialForecast.htm)
http://users.zoominternet.net/%7Efwuthering/FFF/FDIW.png
Interesting, thank ye kindly. I miss your perspicacious self here on iTulip.
I don't want to put words in your mouth... would you say the FDI is showing dis-inflation - aka relative deflation? Your FDI does tend to lead my "inflation" predictions by a bit and they're showing a temporary dis-inflation ahead.
Finster
08-23-08, 11:07 AM
Interesting, thank ye kindly. I miss your perspicacious self here on iTulip.
I don't want to put words in your mouth... would you say the FDI is showing dis-inflation - aka relative deflation? Your FDI does tend to lead my "inflation" predictions by a bit and they're showing a temporary dis-inflation ahead.
The hard stuff, El Bartos. De-freaking-flation!
Remember that unlike most 'flation guages, the FDI is sensitive to short-term movements. Technically disinflation would show as a shallower slope of decline, an outright rise is always deflation. Only if a rise were to persist at a high rate and/or for a substantial period of time (e.g. as in 2000-2002) would conventional measures begin to register deflation.
Keep in mind the FDI only registers what has already happened (even if it is more timely than conventional price inflation guages). Whether and to what extent the trend may continue might be better guided by your monetary indicators ...
The data in the Bank Participation report is clear and compelling. that it is hard to conclude anything but manipulation. It is beyond credulity to conclude other than two or three banks caused one of the most severe price collapses in precious metals history. The CFTC has a lot to answer for as the regulatory agency responsible for preventing this type of blatant manipulation.
This is highly ironic given that this argument (Paper does affect spot price) used was very much the same as the ETN paper vs. physical commodity argument in the Oil Bubble thread.
So which is it that drives price? Supply or paper trading?
If some combination, what is that?
The hard stuff, El Bartos. De-freaking-flation!
Remember that unlike most 'flation guages, the FDI is sensitive to short-term movements. Technically disinflation would show as a shallower slope of decline, an outright rise is always deflation. Only if a rise were to persist at a high rate and/or for a substantial period of time (e.g. as in 2000-2002) would conventional measures begin to register deflation.
Keep in mind the FDI only registers what has already happened (even if it is more timely than conventional price inflation guages). Whether and to what extent the trend may continue might be better guided by your monetary indicators ...
Cool, thanks for the confirmation... it never pays to ignore the Fin and the dungeon beasties. :cool:
Best guess wise on the trend and future inflation is that we start heading down from roughly the 12% current inflation to 8% or so in 1Q 2009... and apply some Yogi to that too.
"It's tough to make predictions, especially about the future."
-- Yogi Berra
Finster
08-23-08, 12:29 PM
Cool, thanks for the confirmation... it never pays to ignore the Fin and the dungeon beasties. :cool:
Best guess wise on the trend and future inflation is that we start heading down from roughly the 12% current inflation to 8% or so in 1Q 2009... and apply some Yogi to that too.
"It's tough to make predictions, especially about the future."
-- Yogi Berra
If by inflation you mean the stuff conventional gauges like the CPI read, then you're in complete accord with the FDI. Although the FDI isn't fundamentally predictive, the conventional measures lag horribly. So trends in the FDI strongly tend to show up later in the CPI (and in alternatives like Williams' SGS version as well).
So you could say the FDI is predicting a decline in consumer price inflation. I'd just rephase that to say that the CPI will belatedly register what the FDI is showing has already happened.
This is highly ironic given that this argument (Paper does affect spot price) used was very much the same as the ETN paper vs. physical commodity argument in the Oil Bubble thread.
So which is it that drives price? Supply or paper trading?
If some combination, what is that?
Both, and the balance between the two varies.
Supply & demand rule on the long term, and paper *can* rule on the short or even intermediate term.
Finster
08-23-08, 02:11 PM
Both, and the balance between the two varies.
Supply & demand rule on the long term, and paper *can* rule on the short or even intermediate term.
I would just add that whenever you are talking about a trade and a price, there are always two commodities involved. One might be a physical commodity, the other a paper currency. The rate of exchange - i.e the price - is determined by the supply and demand for both commodities.
Jim Nickerson
08-24-08, 08:56 PM
The hard stuff, El Bartos. De-freaking-flation!
Remember that unlike most 'flation guages, the FDI is sensitive to short-term movements. Technically disinflation would show as a shallower slope of decline, an outright rise is always deflation. Only if a rise were to persist at a high rate and/or for a substantial period of time (e.g. as in 2000-2002) would conventional measures begin to register deflation.
Keep in mind the FDI only registers what has already happened (even if it is more timely than conventional price inflation guages). Whether and to what extent the trend may continue might be better guided by your monetary indicators ...
Finster, I am rather sure I am getting the meaning of your latest updated FDI and your comments above, but shouldn't "decline" above be "incline."
I would just add that whenever you are talking about a trade and a price, there are always two commodities involved. One might be a physical commodity, the other a paper currency. The rate of exchange - i.e the price - is determined by the supply and demand for both commodities.
Verily and forsooth, Fin.
A rather esoteric point, but to clarify it I assume then that you are considering things like behind the scenes intervention as being part of supply & demand?
Finster, I am rather sure I am getting the meaning of your latest updated FDI and your comments above, but shouldn't "decline" above be "incline."
jim, the fdi theoretically represents an absolute value for the dollar. if there is inflation, that is the value of the dollar is decreasing, then the fdi declines. disinflation represents a slowing of inflation, so the decline would be progressively more gradual [disinflation is a second derivative function]. deflation means the dolllar is becoming more valuable, so the curve would be going up.
Fromn the FOMC minutes today ( http://www.federalreserve.gov/monetarypolicy/fomcminutes20080805.htm ):
There were no open market operations in foreign currencies for the System's account in the period since the previous meeting.
In other words, the operations noted in this thread were all from the ESF, U.S. Treasury.
Finster
08-27-08, 11:39 AM
Finster, I am rather sure I am getting the meaning of your latest updated FDI and your comments above, but shouldn't "decline" above be "incline."
Yes. .................
Finster
08-27-08, 11:47 AM
Verily and forsooth, Fin.
A rather esoteric point, but to clarify it I assume then that you are considering things like behind the scenes intervention as being part of supply & demand?
It's not that esoteric, Bart. It's a point I've made before, for example, in connection with oil. In particular, that the oil price (in dollars) represents a rate of exchange between two commodities, oil and dollars. Therefore any supply and demand analysis must take into account supply and demand factors for both oil and dollars.
To illustrate, suppose you sell me a barrel of oil. That doesn't simply mean that I get a barrel of oil, right? Right. You give me one barrel of oil and I give you 120 dollars. It is a two way exchange involving dollars and oil. Although we downplay the second commodity when we speak of "the price of oil" (omitting mention of which commodity went the other way in this two-way exchange), it is always a two way trade of two commodities.
Therefore and verily, thou can'st rightly claim to have performed a full analysis of price trends using supply and demand factors unless one has examined supply and demand factors for both commodities. Far from estoeric, this is the core reason why so many smart analysts have been flummoxed by oil price trends.
Finster
08-27-08, 11:49 AM
Finster -
Mish has been giving Bart some serious migraine headaches. There is no known antidote to the Mish-Induced-Migraine. :D
I recommend one post each of Finster and Lukester, and two capsules of parthenolide-standardized feverfew.
Therefore and verily, thou can'st rightly claim to have performed a full analysis of price trends using supply and demand factors unless one has examined supply and demand factors for both commodities. Far from esoteric, this is the core reason why so many smart analysts have been flummoxed by oil price trends.
Far be it for this unworthy one to contradict thine view on the bi side of supply & demand... ;)
I recommend one post each of Finster and Lukester, and two capsules of parthenolide-standardized feverfew.
http://www.nowandfutures.com/grins/mongo_pawn.mp3
or perhaps
http://www.nowandfutures.com/grins/mmm_something.wav ;)
Mish has actually already received his just rewards, his blog rank has crashed lately per Alexa.
And actually on topic, it appears that the ESF intervention is over for now per the data from them late yesterday.
Lukester
08-27-08, 01:23 PM
Bart - Seeing as Finster has just dispensed advice from the quack-doctor Lukester as well, I'll just have to mail you my quack-doctor's bill tomorrow morning. I'll waive any B0nars cash payment, but I will gladly accept one year's worth of piping-hot (actionable please!) futures calls from the Bart-Cerberus? I see you and the Finster are back in rare form. Bad Finster, wandering off like that and leaving the wise Cerberus oracle minus a head. Bad, bad wandering Finster, went off and started a silly rock 'n roll band ( ?? Or was it a chamber music ensemble? And what the heck's he doing starting a band anyway? I thought Finster was supposed to be this middle aged or grandfatherly type guy? :confused: )
I recommend one post each of Finster and Lukester, and two capsules of parthenolide-standardized feverfew.
Bart - Seeing as Finster has just dispensed advice from the quack-doctor Lukester as well, I'll just have to mail you my quack-doctor's bill tomorrow morning. I'll waive any B0nars cash payment, but I will gladly accept one year's worth of piping-hot (actionable please!) futures calls from the Bart-Cerberus? I see you and the Finster are back in rare form. Bad Finster, wandering off like that and leaving the wise Cerberus oracle minus a head. Bad, bad wandering Finster, went off and started a silly rock 'n roll band ( ?? Or was it a chamber music ensemble? And what the heck's he doing starting a band anyway? I thought Finster was supposed to be this middle aged or grandfatherly type guy? :confused: )
My new and favored monetary substitute, excluding normal metals, is now rubber duckies... its the latest trend and my stable is growing. :eek:
http://www.nowandfutures.com/grins/rubber_ducky.jpg
Finster's band has a much cuter and more attentive audience though... :p ... and that FDI band of renown is much trendier too... and climbing the charts that way 'tis a far far better thing to do... :cool:
Maybe you want to ping your pal Mike with this latest from those conspiracy theorists over at Bloomberg (hat tip to Mega for finding the story).
U.S., Europe, Japan Devised Plan to Prop Up Dollar, Nikkei Says (http://www.bloomberg.com/apps/news?pid=20601087&sid=aafNFhZiOg.w&refer=home)
By Timothy R. Homan
Aug. 27 (Bloomberg) -- Finance officials from the U.S., Japan and Europe in mid-March drew up plans to strengthen the U.S. dollar following troubles at Bear Stearns Cos., Nikkei English News reported, citing unnamed sources.
he intervention designed by the U.S. Treasury Department, Japan's Finance Ministry and the European Central Bank called for the central banks to purchase dollars and sell euros and yen, with Japan providing the yen needed for the currency swap if the greenback's value dropped significantly, the news service said.
The three groups, which considered making an emergency statement through the Group of Seven industrial nations, did not stipulate a specific exchange rate for the potential intervention, nor did they detail the amount of money to be used, Nikkei said. more... (http://www.bloomberg.com/apps/news?pid=20601087&sid=aafNFhZiOg.w&refer=home)
Maybe you want to ping your pal Mike with this latest from those conspiracy theorists over at Bloomberg (hat tip to Mega for finding the story).U.S., Europe, Japan Devised Plan to Prop Up Dollar, Nikkei Says (http://www.bloomberg.com/apps/news?pid=20601087&sid=aafNFhZiOg.w&refer=home)
By Timothy R. Homan
Aug. 27 (Bloomberg) -- Finance officials from the U.S., Japan and Europe in mid-March drew up plans to strengthen the U.S. dollar following troubles at Bear Stearns Cos., Nikkei English News reported, citing unnamed sources.
The intervention designed by the U.S. Treasury Department, Japan's Finance Ministry and the European Central Bank called for the central banks to purchase dollars and sell euros and yen, with Japan providing the yen needed for the currency swap if the greenback's value dropped significantly, the news service said.
The three groups, which considered making an emergency statement through the Group of Seven industrial nations, did not stipulate a specific exchange rate for the potential intervention, nor did they detail the amount of money to be used, Nikkei said. more... (http://www.bloomberg.com/apps/news?pid=20601087&sid=aafNFhZiOg.w&refer=home)
:eek: :D :D
Great link (& kudos to Mega & you)... and there indeed is actual raw factual evidence of BoJ and ECB currency intervention lately too. I haven't posted any of it since if the ESF facts aren't enough, then the evidence of central banks being cooperating partnerships when needed won't change any minds.
I seem to recall a TV commercial a while back about Mikey eating anything and not paying attention to real facts too... :rolleyes: ;) ... and I know he does read these threads.
The comments on his blog when he talks about intervention or M3 or similar (when he allows them to be posted) are "illuminating" too... it must just be a coincidence that they quote various posts on and from iTulip & elsewhere... ;)
One of the most fascinating things about "humanity" in the social sciences is how long it takes for various off the radar or behind the scenes items to percolate through to more than just a few.
It truly has been a surprise, although the almost literal stimulus response reactions of the vested interest and ideology worshiping and blinder enabled crowd is almost always unsurprising.
Thank goodness for writers better than I who sum it up so very well:
All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.
-- Arthur Schopenhauer (1788-1860)
:eek: :D :D
Great link (& kudos to Mega & you)... and there indeed is actual raw factual evidence of BoJ and ECB currency intervention lately too. I haven't posted any of it since if the ESF facts aren't enough, then the evidence of central banks being cooperating partnerships when needed won't change any minds.
I seem to recall a TV commercial a while back about Mikey eating anything and not paying attention to real facts too... :rolleyes: ;) ... and I know he does read these threads.
The comments on his blog when he talks about intervention or M3 or similar (when he allows them to be posted) are "illuminating" too... it must just be a coincidence that they quote various posts on and from iTulip & elsewhere... ;)
One of the most fascinating things about "humanity" in the social sciences is how long it takes for various off the radar or behind the scenes items to percolate through to more than just a few.
It truly has been a surprise, although the almost literal stimulus response reactions of the vested interest and ideology worshiping and blinder enabled crowd is almost always unsurprising.
Thank goodness for writers better than I who sum it up so very well:
All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.
-- Arthur Schopenhauer (1788-1860)
We refer to it as "The 'other' invisible hand." In Adam Smith's day, such an arrangement as global finance capitalism was never conceived of. No doubt he'd be appalled at the way governments have come to the aid of other governments after private markets bowed out because allowing markets to decide uneconomic trade arrangements was politically inexpedient.
From Politics of Foreign Debt - Part I: Why the government had to bail out the GSEs: (http://itulip.com/forums/showthread.php?p=42087#post42087)
http://www.itulip.com/images/invisiblehandLogo.jpg
http://www.itulip.com/images/foreignholdingstreas1952-2008.gif
Foreign central banks rushed in starting in 2003 where private investors
feared to tread after the technology stock bubble collapsed in 2000
http://www.itulip.com/images/foreignholdingsagency1987-2008.gif
First arrow A shows an increase in agency debt purchases by foreign investors
starting around the last recession in 2001. Central banks picked up
where private investors left off in 2006, as shown by second arrow B
Mish and his minions can't get their heads around the truth.
Mish and his minions can't get their heads around the truth.
Great article & charts.
My characterization of Mish and those minions - I believe their heads are located closer to a certain nether region.
http://www.nowandfutures.com/grins/head_up_ass.jpg
Its almost ludicrous to have such relatively obvious raw data and facts, and still refuse to admit that things really do happen behind the scenes. Continuing to rant away about "conspiracies" is doing a massive dis-service to his remaining readers.
http://www.forbes.com/reuters/feeds/reuters/2008/08/28/2008-08-28T070328Z_01_T720_RTRIDST_0_MARKETS-FOREX-INTERVENTION-NIKKEI-UPDATE-2.html
U.S., Europe, Japan planned dollar rescue -Nikkei
08.28.08, 3:03 AM ET
<TABLE cellSpacing=0 cellPadding=0 align=left border=0><TBODY><TR><TD>
</TD></TR></TBODY></TABLE>
United States - (Adds no comment from ECB)
TOKYO, Aug 28 (Reuters) - The United States, Europe and Japan planned joint intervention to rescue the dollar when it was plunging in March at the time U.S. investment bank Bear Stearns collapsed, the Nikkei business newspaper reported.
Officials from the U.S. Treasury Department, Japan's Finance Ministry and the European Central Bank reportedly drew up a currency contingency plan over the weekend of March 15-16, the Nikkei said, citing sources familiar with the situation.
Analysts said even though a rescue never took place, any such agreement on intervention would be important in the future if the dollar were to tumble again or other exchange rates move very sharply.
The officials did not specify levels for initiating the dollar rescue plan, but in the event of a free-fall they agreed to coordinate aggressive buying of the greenback and sell yen <JPY=>and euros <EUR=>, the newspaper said.
...
The United States, Europe and Japan have not intervened jointly in the currency market since September 2000 when they acted to prop up a sliding euro. Japan's last intervention was in March 2004.
Even as the dollar slid after the flare-up of the credit market turmoil last August, there had been a perception among market players that U.S. authorities were willing to tolerate falls in the dollar in a policy of "benign neglect", to help support U.S. exports as the economy faltered.
But market players detected a shift in U.S. officials' stance towards the dollar in June when Federal Reserve Chairman Ben Bernanke issued a rare warning on the inflation risk posed by a weak dollar, and Treasury Secretary Henry Paulson declined to rule out intervening in currency markets.
Under the intervention framework, Japan was to supply yen through currency swaps. The plan also called for using a previously established swap mechanism between the United States and Europe.
No coordinated intervention took place, however, as the dollar began recovering shortly after U.S. authorities brokered JP Morgan Chase (nyse: JPM (http://finapps.forbes.com/finapps/jsp/finance/compinfo/CIAtAGlance.jsp?tkr=JPM) - news (http://www.forbes.com/markets/company_news.jhtml?ticker=JPM)- people (http://www.forbes.com/peopletracker/results.jhtml?startRow=0&name=&ticker=JPM))'s <JPM.N>buyout of Bear Stearns -- the biggest victim so far in the year-old credit crisis.
As measured by the dollar index <.DXY>, the currency plunged to that record low on March 17, the first market day following the announcement of the Bear Stearns deal, but later recovered. The dollar tumbled to a 13-year low of 95.77 yen that day but is now near 109 yen.
A U.S. Treasury spokeswoman, the Federal Reserve and the ECB declined to comment on the report. Japan's top financial diplomat, Naoyuki Shinohara, also said he had no comment.
Japanese Finance Minister Bunmei Ibuki told Reuters the nation's monetary authorities will decide how to deal with any sharp foreign exchange moves in the future based on economic fundamentals at the time.
"If anything, the fact that officials recognised the concern about the dollar's decline seems somewhat supportive for the dollar as maybe benign neglect was not so neglectful," said Marc Chandler, head of global FX strategy at Brown Brothers Harriman in New York.
"At the end of the day, however, President Bush is still set to be the first American president since at least the break-up of Bretton Woods that has not authorised intervention in the FX market, and given the recent price action the distinction looks relatively safe." (Reporting by Gertrude Chavez-Dreyfuss in New York; Leika Kihara and Masayuki Kitano in Tokyo)
Bart,
please look at what I said:
How can it be trivial if a Fed operation would be so much less likely a currency intervention than an ESF operation?
and what you made out of it:
Your implication that a dollar intervention coming from the Fed is somehow greatly different than a dollar intervention coming from the ESF & Treasury is extremely difficult to understand at best.
The meaning of my question should have been very clear from my earlier posts. If it was a Fed operation and not an ESF operation chances are a lot lower that it was currency intervention at all, e.g. it could have been an operation to provide liquidity for a European institution or something else.
The rest of your reasoning is built on the totally different spin that you gave to my quote.
Again, all this is neither proof that the treasury via its ESF had intervened nor is it proof that it hadn’t.
Digger
.
I suggest you look at the actual evidence and also the concept of Occam's Razor (which I note with amusement that Mish has mimicked and copied me on in his most recent diatribe about the real existence of behind the scenes actions), rather than trying to come up with minor issues and muddying the water.... and ignoring:
From the FOMC minutes today ( http://www.federalreserve.gov/monetarypolicy/fomcminutes20080805.htm ):
In other words, the operations noted in this thread were all from the ESF, U.S. Treasury.
Intervention shows in both the ESF Euro account and in the ESF SDR account. Its no more complex than that.
http://en.wikipedia.org/wiki/Occaam%27s_razor
If the Fed says: "There were no open market operations in foreign currencies for the System's account in the period since the previous meeting."
and Treasury (ESF) has also not intervened in the currency markets (http://www.forbes.com/reuters/feeds/reuters/2008/08/28/2008-08-28T070328Z_01_T720_RTRIDST_0_MARKETS-FOREX-INTERVENTION-NIKKEI-UPDATE-2.html)
then there might have been no currency intervention at all.
The change in the US international reserve position may have been caused by something else as I hinted at before.
.
If the Fed says: "There were no open market operations in foreign currencies for the System's account in the period since the previous meeting."
and Treasury (ESF) has also not intervened in the currency markets (http://www.forbes.com/reuters/feeds/reuters/2008/08/28/2008-08-28T070328Z_01_T720_RTRIDST_0_MARKETS-FOREX-INTERVENTION-NIKKEI-UPDATE-2.html)
then there might have been no currency intervention at all.
The change in the US international reserve position may have been caused by something else as I hinted at before.
.
Please do your homework a bit better. That's Reuter's article, as well as the Bloomberg one, were about last March.
But feel free to continue commenting and avoiding the actual ESF facts, and on the wrong thread too.
Intervention shows in both the ESF Euro account and in the ESF SDR account. Its no more complex than that. http://en.wikipedia.org/wiki/Occaam%27s_razor
Finster
08-30-08, 10:54 AM
Maybe you want to ping your pal Mike with this latest from those conspiracy theorists over at Bloomberg (hat tip to Mega for finding the story).
U.S., Europe, Japan Devised Plan to Prop Up Dollar, Nikkei Says (http://www.bloomberg.com/apps/news?pid=20601087&sid=aafNFhZiOg.w&refer=home)
By Timothy R. Homan
Aug. 27 (Bloomberg) -- Finance officials from the U.S., Japan and Europe in mid-March drew up plans to strengthen the U.S. dollar following troubles at Bear Stearns Cos., Nikkei English News reported, citing unnamed sources.
he intervention designed by the U.S. Treasury Department, Japan's Finance Ministry and the European Central Bank called for the central banks to purchase dollars and sell euros and yen, with Japan providing the yen needed for the currency swap if the greenback's value dropped significantly, the news service said.
The three groups, which considered making an emergency statement through the Group of Seven industrial nations, did not stipulate a specific exchange rate for the potential intervention, nor did they detail the amount of money to be used, Nikkei said. more... (http://www.bloomberg.com/apps/news?pid=20601087&sid=aafNFhZiOg.w&refer=home)
LOL!!! :D
This sounds at least as much like a recipe to weaken the euro and yen as as to strengthen the dollar. If the US really wanted to strengthen the dollar, it wouldn't need help from other CBs. All it would take is for our own CB to stop making so many of the darned things. A surprise 75 bp rate hike would put an exclamation point behind it.
Oh, and an unequivocal announcement that there will be no more bailouts would do nicely, too. Let Feddie go!
On the other hand, isn't that a little like opening the door after the horse is already out of the barn? Last time I checked, the dollar was strengthening quite nicely, thank you.
http://users.zoominternet.net/~fwuthering/FFF/FDIW.png
Jim Nickerson
08-30-08, 11:19 AM
LOL!!! :D
This sounds at least as much like a recipe to weaken the euro and yen as as to strengthen the dollar. If the US really wanted to strengthen the dollar, it wouldn't need help from other CBs. All it would take is for our own CB to stop making so many of the darned things. A surprise 75 bp rate hike would put an exclamation point behind it.
Oh, and an unequivocal announcement that there will be no more bailouts would do nicely, too. Let Feddie go!
On the other hand, isn't that a little like opening the door after the horse is already out of the barn? Last time I checked, the dollar was strengthening quite nicely, thank you.
http://users.zoominternet.net/~fwuthering/FFF/FDIW.png
Finster, in the other clearly visible upmoves in the FDI, they occurred more gradually and over longer periods of time, I think took almost a year or longer in 1998 and 2002, before reversing. Can you offer any insight regarding the present rapid upmove? And do you have any opinion as to how long it might continue?
Finster
08-30-08, 12:51 PM
Finster, in the other clearly visible upmoves in the FDI, they occurred more gradually and over longer periods of time, I think took almost a year or longer in 1998 and 2002, before reversing. Can you offer any insight regarding the present rapid upmove? And do you have any opinion as to how long it might continue?
It has been stunningly sharp, Jim. Best guess on why would simply be that the trend had just overshot way too far and once it broke, was like a crack in a dam.
The FDI itself does not tell us how much further the deflationary trend will continue. Nevertheless, based on both fundamental conditions and Elliott Wave considerations, some speculation is possible. I expect a small "B Wave" retracement just about any time now, followed by another deflationary wave of substantial magnitude. The latter, due to the magnitude of the debt (short position in dollars) extant, along with the already-extended nature of monetary policy tools. This will last perhaps some months. Then I expect another round of severe inflation.
The B wave retracement should manifest itself in financial markets as a rally in commodity prices, stock prices, or both. Then they will fall. As a lagging indicator, I expect the CPI to moderate substantially over the next year. As the concern of policymakers turns again towards deflation and economic weakness, however, I expect a renewed full-court press, probably accompanied by further "innovative tools" from the Fed.
Notably, I expect as the US Treasury begins to absorb credit losses from such failing institutions as Feddie (Fannie and Freddie), the credit quality of US Treasury paper itself will deteriorate. Since the default mode of such soveregn debt is usually inflation, that would likely be accompanied by stepped-up monetization of Treasury debt, leading to either a renewed decline in the dollar, sharply rising interest rates, or both.
Dollar Rises for Ninth Day Versus Euro as Crude Oil Falls
http://www.bloomberg.com/apps/news?pid=20601101&sid=aY7gM.QuY3Vg&refer=japan
:confused: strange days
The FDI itself does not tell us how much further the deflationary trend will continue. Nevertheless, based on both fundamental conditions and Elliott Wave considerations, some speculation is possible. I expect a small "B Wave" retracement just about any time now, followed by another deflationary wave of substantial magnitude. The latter, due to the magnitude of the debt (short position in dollars) extant, along with the already-extended nature of monetary policy tools. This will last perhaps some months. Then I expect another round of severe inflation.
The B wave retracement should manifest itself in financial markets as a rally in commodity prices, stock prices, or both. Then they will fall. As a lagging indicator, I expect the CPI to moderate substantially over the next year. As the concern of policymakers turns again towards deflation and economic weakness, however, I expect a renewed full-court press, probably accompanied by further "innovative tools" from the Fed.
Notably, I expect as the US Treasury begins to absorb credit losses from such failing institutions as Feddie (Fannie and Freddie), the credit quality of US Treasury paper itself will deteriorate. Since the default mode of such soveregn debt is usually inflation, that would likely be accompanied by stepped-up monetization of Treasury debt, leading to either a renewed decline in the dollar, sharply rising interest rates, or both.[emphasis added]
looks like long-term pm holders had better buckle their seat belts; you are predicting quite the roller coaster.
Finster
09-09-08, 04:54 PM
[emphasis added]
looks like long-term pm holders had better buckle their seat belts; you are predicting quite the roller coaster.
I might add some emphasis to the "speculation" part ... :D Given all the nuts in the soup these days, time frames can be extremely fickle. You're likely in quite safe territory in looking for a "roller coaster", but whether the next stop for gold prices is closer to $600 or $1000 I wouldn't pretend to know.
I can say this much, though. On this kind of ride, I want my "seat belt" to be made at least partly made of PM!
metalman
09-09-08, 04:56 PM
I might add some emphasis to the "speculation" part ... :D Given all the nuts in the soup these days, time frames can be extremely fickle. You're likely in quite safe territory in looking for a "roller coaster", but whether the next stop for gold prices is closer to $600 or $1000 I wouldn't pretend to know.
I can say this much, though. On this kind of ride, I want my "seat belt" to be made at least partly made of PM!
yaaaaaawn. been on this ride for 7 yrs. my only worry is that i die of old age before it's over. wanna see the gran finale!!!
yaaaaaawn. been on this ride for 7 yrs. my only worry is that i die of old age before it's over. wanna see the gran finale!!!
i'm afraid the gran finale will look like the stage at the end of hamlet.
No report again from the ESF last week, just like right after the last intervention... and the basic USDX uptrend is still in place.
Finster
09-13-08, 12:30 PM
No report again from the ESF last week, just like right after the last intervention... and the basic USDX uptrend is still in place.
You wouldn't happen to have a ... uhm ... er ... chart would you?
You wouldn't happen to have a ... uhm ... er ... chart would you?
http://www.nowandfutures.com/grins/you_rang.wav :eek:
http://www.nowandfutures.com/images/usdx_short_term.png
Finster
09-14-08, 08:42 AM
http://www.nowandfutures.com/grins/you_rang.wav :eek:
http://www.nowandfutures.com/images/usdx_short_term.png
You da man! Interesting that it [shameless plug] turned just three weeks after the turn in the FDI ...[/shameless plug]. :o One suspects some of your work may have foreshadowed it by even more ... perhaps your FTM?
You da man! Interesting that it [shameless plug] turned just three weeks after the turn in the FDI ...[/shameless plug]. :o One suspects some of your work may have foreshadowed it by even more ... perhaps your FTM?
Two great minds with but two awesome models? :eek: :cool: ;)
You are indeed correct, Manor Maven - my FTM also shows something quite similar. I've also tuned it up a bit so that it shows "Fed only" effects (the blue line) and also "Fed plus Congress, etc." (the burgundy line).
http://www.nowandfutures.com/images/fed_all_short_term.png
Two great minds with but two awesome models? :eek: :cool: ;)
You are indeed correct, Manor Maven - my FTM also shows something quite similar. I've also tuned it up a bit so that it shows "Fed only" effects (the blue line) and also "Fed plus Congress, etc." (the burgundy line).
http://www.nowandfutures.com/images/fed_all_short_term.png
bart, wouldn't you expect the dollar index to move reciprocally to the ftm? i.e. if the money supply is up, shouldn't the value of the dollar be going down? [leaving out the intrinsic movements of other currencies for the moment]
bart, wouldn't you expect the dollar index to move reciprocally to the ftm? i.e. if the money supply is up, shouldn't the value of the dollar be going down? [leaving out the intrinsic movements of other currencies for the moment]
Taken on its own, yes... but when doing analysis of that sort, actions of other central banks as well as players like the ESF must be taken into account. Its too easy to lose sight of the forest for the trees.
There are time lags involved too, depending on what connection or causation one is trying to glean from the FTM (or FDI for that matter).
One of the main uses I see for models like the FDI and FTM is that they help confirm issues surrounding timing but not necessarily direction (especially direction issues per the FTM).
And the main use of the FTM in my opinion remains being a window to what the Fed is actually doing, rather than what they're saying.
Finster
09-15-08, 05:54 AM
bart, wouldn't you expect the dollar index to move reciprocally to the ftm? i.e. if the money supply is up, shouldn't the value of the dollar be going down? [leaving out the intrinsic movements of other currencies for the moment]
In addition to the lag factor Bart cites, there is another element. Because those price effects are not simply due to changes in the money supply alone. They are a function of two variables: not only the change in the supply of money and credit, but the change in the supply of money and credit relative to the stuff that money and credit covers.
Suppose, for example, the money supply doubles, while the economic pie it covers remains the same. All else being equal, we’d expect a doubling of prices to follow, right? Next, suppose the supply of money remains the same, while the economic pie gets cut in half. Same thing. Prices double. By money supply alone, we had inflation in the first case, but not the second. By another definition, we had inflation in both cases.
Both conclusions are correct. But if we, as investors, are concerned about prices, we need to take seriously the second definition. For this is the one that is going to affect the prices of stocks, commodities, and other things we put in our portfolios.
Next, recall that there is not just one form of money in the world. There are lots of them. So even if the size of the global economic pie doesn’t change much, the portion of it covered by any one form of money can change very substantially.
Suppose, for example, there were two currencies in the world. And that one of them became greatly diminished due to (say) hyperinflation, deflation, debasement, or destruction. It declines in use and perhaps even disappears. Well, what of the other currency? This isn't one of those "all else being the same" kinds of situations. The economic pie this other currency covers has now expanded dramatically. If the supply of this other currency remains constant while the other currency disappears, prices will fall. You will not have had deflation by strict money supply definition, yet the value of that currency will increase, and you will have had deflation by the other definition. It will affect your investment portfolio just the same as if the supply of that other currency had fallen while all else remained the same; as if you had had deflation in money supply.
This is not merely theoretical. This is exactly what happened in the minor deflation of 1997-1998. That was when we had the Asian Currency Crisis. These events shrunk the economic coverage of a number of emerging market currencies, leaving a vacuum to be filled by the USD and other developed market currencies. Even as the supply of these currencies increased, the increase was not initially fast enough to keep up with the expansion of the portion of the global economy they were covering. Result: Rising value of the dollar and price deflation pressure.
Something similar happened in 2000-2002. Except in this case the other "currencies" involved were not those issued by governments, but by corporations. While not identical in economic function to currency, stocks do represent economic value and are liquid and tradable. The sheer mass of the collapse in global stock markets was such that currencies rushed in to fill the void. We are seeing yet a third variation on this theme right here in 2008, as real estate, mortgages, credit, etceteras undergo a slow motion implosion.
The ESF (Exchange Stabilization Fund, the Treasury department that does dollar interventions & support) was very busy week ending 10/24.
The data was published yesterday and shows strong evidence that the dollar support/intervention operations started last June and published in early July are being reversed... and yet again, just like July, the USDX reversed trend on the same day the data was published. All three main ESF accounts show balance changes far above the changes in the underlying currencies - Euro, Yen & SDR.
Must be a coincidence... :rolleyes:
The ESF (Exchange Stabilization Fund, the Treasury department that does dollar interventions & support) was very busy week ending 10/24.
The data was published yesterday and shows strong evidence that the dollar support/intervention operations started last June and published in early July are being reversed... and yet again, just like July, the USDX reversed trend on the same day the data was published. All three main ESF accounts show balance changes far above the changes in the underlying currencies - Euro, Yen & SDR.
Must be a coincidence... :rolleyes:
Bart, please can you provide some details on this subject and, if possible, a .... chart ?:)
phirang
10-30-08, 10:51 AM
Bart, please can you provide some details on this subject and, if possible, a .... chart ?:)
Swap lines are a bitch, eh?:cool:
friendly_jacek
10-30-08, 11:43 AM
The ESF (Exchange Stabilization Fund, the Treasury department that does dollar interventions & support) was very busy week ending 10/24.
The data was published yesterday and shows strong evidence that the dollar support/intervention operations started last June and published in early July are being reversed... and yet again, just like July, the USDX reversed trend on the same day the data was published. All three main ESF accounts show balance changes far above the changes in the underlying currencies - Euro, Yen & SDR.
Must be a coincidence... :rolleyes:
Lets see if I understood correctly. Are you saying that dollar intervention started in late June and ended on 10/24?
That would be interesting to know. I suspected for a few months that the oil bubble was prickled for a purpose, but had a whole slew of unintended consequences such as bankrupting investment banks long on oil and starting this huge spell of deflation.
Bart, please can you provide some details on this subject and, if possible, a .... chart ?:)
Euro
http://www.nowandfutures.com/images/esf_euro_yen.png
Yen
http://www.nowandfutures.com/images/esf_euro_yen2.png
SDR
http://www.nowandfutures.com/images/esf_sdr_usdx.png
The clearest evidence is on the last chart, of the ESF SDR balance. The SDR account balance almost doubled.
But both the Yen and Euro show evidence too. "Probable intervention" means that the account balance changed much more than the underlying currency did. In other words, if the Euro dropped 5% but the ESF balance in Euros moved the other direction by (for example) 2%, that means that intervention very very likely did occur.
Then we also have the behind the scenes or sentiment driver - when trading desks find out that the ESF is acting, they will tend to either follow the lead or at the very least lower their positions if they're in the other direction.
Lets see if I understood correctly. Are you saying that dollar intervention started in late June and ended on 10/24?
That would be interesting to know. I suspected for a few months that the oil bubble was prickled for a purpose, but had a whole slew of unintended consequences such as bankrupting investment banks long on oil and starting this huge spell of deflation.
Very roughly - yes. But the interventions are and were not in any way continuous, nor are they of similar size. They vary from just under a billion into the tens of billions.
Also, just because they reversed during week ending 10/24 does not mean that they can't reverse again this week... although its unusual for any Central Bank or intervention authority to do whipsaws.
And as usual, interventions are far from the only factor that determines currency values... but ignoring them is perilous.
The clearest evidence is on the last chart, of the ESF SDR balance. The SDR account balance almost doubled.
Wow! Thanks Bart. That is more than I hoped to find out.
But both the Yen and Euro show evidence too. "Probable intervention" means that the account balance changed much more than the underlying currency did. In other words, if the Euro dropped 5% but the ESF balance in Euros moved the other direction by (for example) 2%, that means that intervention very very likely did occur.
Yup. And of course it can always be pure coincidence...
Then we also have the behind the scenes or sentiment driver - when trading desks find out that the ESF is acting, they will tend to either follow the lead or at the very least lower their positions if they're in the other direction.
Even without knowing if the trend has been sharply reversed...
although its unusual for any Central Bank or intervention authority to do whipsaws.
Of course. That would be highly irresponsible to do. Imagine the consequences on the national economies of the countries which have formal or covert dollar peg and/or significant currency carry trade.
http://business.timesonline.co.uk/tol/business/markets/japan/article5042278.ece
Traders in Tokyo have given warning that about $90 billion (£55billion) of complex foreign exchange products, sold mainly to Japanese households and institutions, are on the brink of falling “like a house of cards”.
A rescue effort by the product issuers - large Japanese, European and American investment banks - is expected to involve extensive hedging measures that will throw global currency markets into even deeper turmoil.
The products, which are known as power reverse dual currency notes (PRDC), were sold to Japanese households as simple products offering higher yields than regular savings but the bonds were in reality hugely complex structures “with 15 moving parts and multiple points of pain”, derivatives experts at RBS in Tokyo said.
The products combine exposure to foreign exchange, interest rate differentials and domestic inflation and have formed a small but potent part of the so-called yen carry trade - the borrowing of yen to invest in currencies offering higher interest rates - a gambit thought to have financed huge amounts of global risk-taking in recent years.
http://www.economist.com/business/displaystory.cfm?story_id=12523880
Kuwait’s government came to the aid of Gulf Bank after it revealed a big loss from trading in currency derivatives for a client. As Kuwaitis started withdrawing their money from Gulf in droves, the central bank guaranteed all bank deposits and started an inquiry. Gulf Bank’s boss promptly resigned, but not before stockmarkets tumbled throughout the region.http://www.economist.com/business/displaystory.cfm?story_id=12516536
More ominously, on October 20th CITIC Pacific, a Chinese steel and property company, revealed losses that could reach $2 billion, stemming in part from a derivative that hedged currency movements within a band that proved too narrow to protect its revenues. Asian companies are more likely to suffer such derivative-related losses than European and (especially) American firms.Fed's current approach is very prudent ....
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