Dollar intervention: Facts versus ideology

[bart]

Dollar 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 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 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.

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:

The actual timing and dollar details of the recent intervention are as follows:

1. 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.
2. 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.
3. The reporting of the ESF actions from the weeks ending June 13th & June 20th was not made public until July 14th.
4. 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

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. 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.

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."

• 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 - 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."

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.

iTulip Select: The Investment Thesis for the Next Cycle™
__________________________________________________

To receive the iTulip Newsletter or iTulip Alerts, Join our FREE Email Mailing List

Copyright © iTulip, Inc. 1998 - 2007 All Rights Reserved

All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Nothing appearing on this website should be considered a recommendation to buy or to sell any security or related financial instrument. iTulip, Inc. is not liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. Full Disclaimer

[Digger]

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

[jk]

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]

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.

[jtabeb]

Dollar 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 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 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.

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:

The actual timing and dollar details of the recent intervention are as follows:

1. 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).
2. 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.
3. The reporting of the ESF actions from the weeks ending June 13th & June 20th was not made public until July 14th.
4. 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

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. 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.

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."

• 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 - 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."

My motto: "Ignore the man behind the curtain at your peril."

iTulip Select: The Investment Thesis for the Next Cycle™
__________________________________________________

To receive the iTulip Newsletter or iTulip Alerts, Join our FREE Email Mailing List

Copyright © iTulip, Inc. 1998 - 2007 All Rights Reserved

All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Nothing appearing on this website should be considered a recommendation to buy or to sell any security or related financial instrument. iTulip, Inc. is not liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. Full Disclaimer

Superb! OUTSTANDING!!

I had read Mish's post and was almost buying it, THANK YOU IMMEASURABLY FOR THE SAVE!

[bart]

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.




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.






No comments on Mish and his top quality dubious journalism? ;)

[bart]

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.

And stay tuned for another "commentary" about Mish and his spin, etc. :rolleyes: ;)

[bart]

Here the commentary for today:
Never believe conspiracy theories...

[jk]

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]

A close up of the period from Sept 2007 through early August 2008:

The actual timing and dollar details of the recent intervention are as follows:

1. 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).
2. 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.
3. The reporting of the ESF actions from the weeks ending June 13th & June 20th was not made public until July 14th.
4. 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

[bart]

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]

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/...7174922597.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.

[bart]

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/...7174922597.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.

[j4f2h0]

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]

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]

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?

[bart]

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

[bart]

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]

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.

[bart]

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.