Will the dollar be getting stronger in 2010?

In this video the USD dollar ‘carry trade’ is discussed, Denis Gartman speaks to Reuters about the belief he has that When the massive dollar carry trade unwinds, the greenback will shoot up.

The USD has been in the doldrums for several quarters now, trading in excess of $1.50 for some time. Denis thinks that the trigger will be something whereby we see three big steps in a short amount of time, a second wave of a ‘flight to quality’ if we get a second dip in the world markets could be the vector or anything else really. The point isn’t that it will happen on a certain date, merely noting that the current USD valuation is subject to rapid strengthening if further issues affect the markets.

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Inflation in 2010?

John Brynjolfsson of Armored Wolf talks to Bloomberg about his views on inflation, he was formerly a leading fund manager with PIMCO who are the largest bond fund house in the USA, his speciality was TIPS (Treasury Inflation Protected Securities – a security which provides protection against inflation), which in my book means the guy knows his inflation!

Critically he talks about the difference between Japan [and the potential Nipponisation as advanced by economists such as Paul Krugman] of the US market, then his belief in what will happen in the mid-term future regarding inflation. He is not saying ‘hyper-inflation’ such as Marc Faber continuously talks about, but his 4-6% is still significant, in particular if it hits during a contraction in which case its real effect will be greater.

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The yield curve on US Treasuries

Tom Keene from Bloomberg talks about the yield curve and some of the spreads that we are seeing in the current market, as well as that there are the seeds of the inflation story that we have been warning about since 2008.

Separately there are Harvard economists saying we need to see some inflation as it would prevent people from holding off on spending (look up the paradox of thrift and of deleveraging).

One final video worth looking at is the last one in this post, it poses the question ‘what will happen when the Chinese stop saving’.

One of the major oversights in this clip is that the Asian tendency towards savings is embedded in their culture, that means you can’t provide healthcare or anything else and expect the trend to end, it will probably take more than a decade for such a transition to occur because habits don’t change overnight, the ‘Chinese Way’ is not a movement that can turn on a dime.

The focus on trade links however is really interesting and the big …

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The banking ‘Whitewash’

Meredith Whitney talks about the ‘banking whitewash’, saying that the recent gains in many banks (they have been beating expectations by and large in Q1) are not all down to ‘recovery’ but instead due to other factors.

She says that the factors that lead to these gains are not replicable and that the underlying assets are still deteriorating. This makes for some interesting observation because the great deleveraging of both companies and individuals is still in full swing so there is little reason to doubt the observations Meredith Whitney makes, rather it will be how these factors play into the real economy that concern me.

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The banking 'Whitewash'

Meredith Whitney talks about the ‘banking whitewash’, saying that the recent gains in many banks (they have been beating expectations by and large in Q1) are not all down to ‘recovery’ but instead due to other factors.

She says that the factors that lead to these gains are not replicable and that the underlying assets are still deteriorating. This makes for some interesting observation because the great deleveraging of both companies and individuals is still in full swing so there is little reason to doubt the observations Meredith Whitney makes, rather it will be how these factors play into the real economy that concern me.

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Balance Sheet Expansion

Tom Keene of Bloomberg talks about the Fed and the results we may see of the solutions being put in place by Ben Bernanke. He makes the interesting and valid point about Ben Bernanke being one of the best living historians of the Great Depression and why it puts him in the unique position of being able to navigate the situation the US economy is in. 50 beeps in the 10 year treasury equates to nine big figures on Euro Dollar, so going from $1.30 to $1.39. Tom also talks about savings rates. Great viewing.

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