November 15, 2011
How refreshing it is when a Major Government makes, and admits to, Market Intervention, based on Market and Economic Realities, and not on Hope or Delusions, or Misinformation or Disinformation or Manufactured “News”.
In one Arena, that of Currency, Major Governments do often publically admit to Intervention, as did Japan this past Monday when it trumpeted its Intervention (the third this year!) to weaken the Yen to make its exports more competitive.
But regarding the Intervention in other Markets (e.g. Gold, Silver, Equities) Major Governments/Central Banks are still loath to ‘fess up.
But monitoring and analyzing Interventions and Market and Economic Realities in Major markets is essential if one is to timely seize Opportunities for Gain, rather than get hit with substantial losses.
Of many examples of suffering as a result failing to focus on Market and Economic Realities, perhaps the best is the recent Bankruptcy of Jon Corzine’s MF Global. Almost unbelievable it is that MF apparently used 40 to 1 leverage and held positions in over 6 billion in Euro Sovereigns’ Debt. We suppose IMF Global thought they were wise holding all the PIIGS countries debt but Greece’s (They held Belgium’s instead – thus holding the debt of all the PIIBS).
It boggles the mind that ex Goldman-Sachs Chief Executive Corzine’s MF Global could be so divorced from present and prospective Market Realities that they thought that holding the PIIBS Sovereign Debt (and with leverage yet!) could actually be profitable and wise. (Perhaps if they had read Deepcaster, or Graham Summers,… or other Market-and-Economic-Reality-oriented Writers… it might have been different.)
No surprise to us that the Euro-Powers did Intervene and provide Greece with stop-gap (i.e. temporary) relief of an ostensibly $100 billion Euro write-down. Of course since the 50% Private Creditor Haircuts were ostensibly “Voluntary” no CDS (i.e. Credit “Insurance”) Event was triggered.
But given this precedent. Who is going to trust the efficacy of CDS “Insurance” ever again?!
Remember that Hedges are only as strong as the strength and character of the counterparty. “Voluntary” Haircut… Nonsense.
But there is another prospective event that the Euro-Powers should have predicted based on a Market Reality long Evident – Greece can not pay even under the terms of its New Deal.
Thus the on-again, off-again Call for a Referendum (whether one will actually occur is an open question).
In fact, as we forecast months ago, Greece would likely default (and it has) and we have also forecast that Portugal is next. Moreover, private holders of Italian and Spanish and Irish, and eventually French and British debt will have to take Serious Haircuts of 50% or more, at least, and even those will not save some of those nations from default.
In sum, in the Markets in general, and in the Precious Metal Markets in particular, it is essential to analyze Market and Economic Realities and the Interventionals, especially in the P.M. market because The Cartel* has for year conducted a campaign to suppress these prices.
Such analysis of Market and Economic Realities and ongoing and prospective Interventions is essential to best estimate the timing and effect of Interventions and thus the optimal timing for Trading or Investors.
We are in a New Abnormal in which the very Structure of Markets and Economies are all at risk and subject, like it or not, to Dramatic Change. This fact leads us to identify 4 opportunities for gain.
October 24, 2011
The Wall Street Journal
NEW YORK -(Dow Jones)- The dollar plunged to a record low against the yen Friday as investors questioned Japan’s resolve to halt its currency’s rise.
Traders said a batch of automatic orders, known as stops, were triggered when the dollar crept close to Y76. These computerized trades sent the U.S. currency cascading to a fresh all-time low of Y75.78.
The sharp sell-off lasted less than two minutes before the dollar began to climb back, trading recently at Y76.15 mid-morning Friday in New York, according to EBS via CQG. The yen last traded below Y76 on Aug. 19.
March 18th, 2011
By: Ambrose Evans-Pritchard
The dollar plunged instantly against the euro, yen, and sterling as the comments flashed across trading screens. David Bloom, currency chief at HSBC, said the apparent policy shift amounts to an earthquake in geo-finance.
“The mere fact that the US Treasury Secretary is even entertaining thoughts that the dollar may cease being the anchor of the global monetary system has caused consternation,” he said.
Mr Geithner later qualified his remarks, insisting that the dollar would remain the “world’s dominant reserve currency … for a long period of time” but the seeds of doubt have been sown.
The markets appear baffled by the confused statements emanating from Washington. President Barack Obama told a new conference hours earlier that there was no threat to the reserve status of the dollar.
“I don’t believe that there is a need for a global currency. The reason the dollar is strong right now is because investors consider the United States the strongest economy in the world with the most stable political system in the world,” he said.
The Chinese proposal, outlined this week by central bank governor Zhou Xiaochuan, calls for a “super-sovereign reserve currency” under IMF management, turning the Fund into a sort of world central bank.
The idea is that the IMF should activate its dormant powers to issue Special Drawing Rights. These SDRs would expand their role over time, becoming a “widely-accepted means of payments”.
Mr Bloom said that any switch towards use of SDRs has direct implications for the currency markets. At the moment, 65pc of the world’s $6.8 trillion stash of foreign reserves is held in dollars. But the dollar makes up just 42pc of the basket weighting of SDRs. So any SDR purchase under current rules must favour the euro, yen and sterling.
Beijing has the backing of Russia and a clutch of emerging powers in Asia and Latin America. Economists have toyed with such schemes before but the issue has vaulted to the top of the political agenda as creditor states around the world takes fright at the extreme measures now being adopted by the Federal Reserve, especially the decision to buy US government debt directly with printed money.
Mr Bloom said the US is discovering that the sensitivities of creditors cannot be ignored. “China holds almost 30pc of the world’s entire reserves. What they say matters,” he said.
Mr Geithner’s friendly comments about the SDR plan seem intended to soothe Chinese feelings after a spat in January over alleged currency manipulation by Beijing, but he will now have to explain his own categorical assurance to Congress on Tuesday that he would not countenance any moves towards a world currency.
October 7th, 2010
By: Neal Armstrong
The dollar’s downtrend gathered pace on Thursday as it slid to a 15-year low versus the Japanese yen and an all-time low against the Swiss franc on the prospect of more money-printing by the U.S. Federal Reserve.
The Australian dollar surged to a 27-year high against its U.S. counterpart after surprisingly strong jobs data revived talk of a Reserve Bank rate hike, while broad dollar selling pushed the euro to an eight-month high.
The Bank of England and the European Central Bank both stood pat on their monetary policies on Thursday, underlining the possibility that the Fed may lead the way into more aggressive quantitative easing, which is seen knocking the dollar lower.
Traders waited to see whether ECB President Jean-Claude Trichet makes any reference to currencies at a news conference around 1230 GMT. They also awaited clues to whether the central bank would scale back extraordinary funding measures soon.
The dollar’s latest decline made traders nervous, as the U.S. currency traded below levels where Tokyo intervened for the first time in six years on Sept. 15.
Direct currency intervention and talk of monetary loosening by central banks has ignited the issue of global imbalances ahead of a Group of Seven (G7) finance ministers’ and central bankers’ meeting this weekend, where the threat of a “currency war” is likely to dominate discussion.
“The only story out there at the moment is what the implications of another massive surge of QE means for the dollar and global imbalances,” said Maurice Pomery, managing director of Strategic Alpha.
He added the meetings were unlikely to produce an agreement on how to fix trade imbalances as countries act independently to boost economic growth, which would likely push the dollar lower.
U.S. Treasury Secretary Timothy Geithner said on Wednesday that countries must persuade their emerging counterparts such as China to let their currencies rise or risk competitive depreciations that would hurt the world economy.
September 14, 2010
The dollar hit a 15-year low against the yen on Tuesday, testing Japanese authorities’ resolve to stem the yen’s climb after Prime Minister Naoto Kan won a party leadership vote.
Here are some milestones in the yen’s 138-year history:
1871 – The yen becomes Japan’s currency as part of the Meiji Restoration, which marked the start of Japan’s modernisation and opening to the rest of the world. Japan adopts the gold standard.
1949 – After World War Two the dollar’s fixed rate is set at 360 yen via the Bretton Woods system, partly to help stabilise prices in the Japanese economy.
1959 - The dollar/yen exchange rate is liberalised. The margin of fluctuation is set at 0.5 percent on either side of its dollar parity.
1963 - The margin of fluctuation is widened to 0.75 percent.
1971 - United States abandons gold standard. The end of Bretton Woods system of fixed exchange rates forces a realignment of world currencies.
December 1971 - Smithsonian Agreement sets the dollar/yen exchange rate at 308 yen, and allows it to fluctuate in a wider band between 301.07 yen and 314.93 yen.
1973 – Japanese monetary authorities decide to let the yen float freely against the dollar, and the yen appreciates as far as 263 to the dollar.
1978 - The yen pushes through 200 to the dollar for the first time, strengthening as far as 177.
1980 to 1985 - Yen’s appreciation halts and partially reverses despite Japan’s big trade surpluses. Higher U.S. interest rates see Japanese investors put money in dollar assets.
1985 - The Group of Five industrial nations, the predecessor to the G7, sign the Plaza Accord in which they agree the dollar is overvalued and that they will move to weaken it. The yen climbs from its pre-accord level around 240 to 211 in October and 200 in November, a 20 percent rise in just a few months.
1986 – The U.S. currency falls further to around 190 yen in January, 167 yen in April and 153 yen in August.
1987 – In February, six of the G7 nations sign the Louvre Accord, which aims to stabilise currencies and halt the dollar’s broad decline. The dollar still falls from near 153 to 137 in April and 120.80 by the end of the year.
1988 – On January 4, the dollar falls to a post-war low of 120.45 yen in Tokyo, a level that holds as the low for more than five years. The Bank of Japan intervenes to buy dollars and sell yen that day on behalf of the Ministry of Finance.
August 17, 1993 – The dollar declines to a new post-war low of 100.40 yen in Tokyo.
June 21, 1994 - The dollar falls through the key 100 yen level and touches a record postwar low of 99.85 yen in New York trade before finishing at 100.30 yen.
April 19, 1995 - The dollar hits a record post-war low at 79.75 yen after U.S.-Japanese trade frictions spark heavy selling. By the end of the year it is near 103.40.
1998 – Asian financial crisis sees yen weaken to nearly 148 yen vs the dollar in August, even after U.S. authorities join the Bank of Japan to buy yen, spending $833 million, in June.
In October, dollar tumbles from near 136 yen to 111.50 yen, as carry trades unwind following the near-collapse of hedge fund major Long-Term Capital Management.
1999 – The yen strengthens further despite repeated intervention, reaching 102 in November.
2001 – Following the September 11 attacks on the United States, the Bank of Japan intervenes to sell yen for dollars.
2003 – The Ministry of Finance begins massive intervention to halt the yen’s rise against the dollar, partly to shield Japanese exporters as the economy remains stuck in its post-bubble slump and deflation. The MOF spends 20.4 trillion yen ($200 billion) over the year, nearly all of it to buy dollars and sell yen.
2004 – The MOF spends 14.8 trillion yen ($145 billion) intervening in the first quarter of the year, including 1.67 trillion yen buying dollars on January 9 alone. But the MOF ceases intervention in March and has never since resumed.
2005 – The yen hits a high of 101.67 yen in January but then falls, hitting 121.40 in December. Yen carry trades and Japanese investors shifting funds into foreign assets drive the slide.
June 2007 – The dollar hits a 4-1/2-year high of 124.14 yen.
July 2007 – Yen’s broad depreciation takes it to a 22-year low on a real effective exchange rate (REER) basis. Compared with January 2005 the yen loses 25 percent of its value on a REER basis.
March 13, 2008 – The yen hits a 12-year high of 99.77.
October 24, 2008 – Yen hits 13-year high of 90.87 vs the dollar. Also sets an all-time high of 55.11 against the Australian dollar, which loses almost a third of its value in just a month on a massive unwind of carry trades.
October 27, 2008 - The yen’s surge prompts the G7 to issue statement singling out the yen in warning on currency market volatility.
December 12, 2008 – The dollar falls through 90 yen for the first time in 13 years after a bill to rescue U.S. automakers fails in the Senate.
April 15, 2010
The number of U.S. workers filing new claims for jobless aid soared last week as the backlog from the Easter holiday was processed, adding to worries about the economic recovery, while U.S. industrial output rose less than expected in March.
Initial claims for state unemployment benefits rose 24,000 — the largest increase in two months — to a seasonally adjusted 484,000, the Labor Department said on Thursday. Markets had expected a dip to 440,000.
“Everything on the manufacturing side is clearly pointing to an acceleration,” said Phil Orlando, chief equity market strategist at Federated Investors in New York.
“The consumer side, the retail sales data we saw yesterday was off the charts. So there is no reason for me to believe that the labor market has organically turned sour.”
In separate data, U.S. industrial production rose 0.1 percent in March. Economists polled by Reuters had expected a gain of 0.7 percent.
Another report showed expansion in New York state manufacturing rose to a six-month high. The New York Federal Reserve’s “Empire State” general business conditions index rose to 31.86 in April, the highest since October and up from 22.86 in March. Economists polled by Reuters had expected a figure of 24.00.
Factory activity in the U.S. Mid-Atlantic region, meanwhile, grew in April, to its highest since December 2009.
The Philadelphia Federal Reserve Bank said its business activity index rose to 20.2 in April from the March reading of 18.9. Economists had expected a reading of 20.0.
“Both the Philly and N.Y. Fed reports show improving manufacturing and business conditions. That’s consistent with our expectations of a moderate recovery,” said Robert Dye, senior economist with PNC Financial Services in Pittsburgh.
U.S. stocks were mixed with the Dow industrials (DJI:^DJI – News) down slightly, with the rise in jobless claims adding pressure to indexes. U.S. Treasury debt prices were steady to slightly lower. The U.S. dollar was up versus the euro and yen.
U.S. industrial production was held back by a drop in utilities output as heating demand fell, the Federal Reserve data showed. Capacity utilization, a closely watched measure of slack in the economy, rose to 73.2 percent from 73.0, although that was still 7.4 percentage points below the 1972-2009 average.
“The sluggish headline was largely the result of a drop in utility output which was a function of the (warm) weather, rather than economic fundamentals,” said Michael Moran, chief economist at Daiwa Securities America in New York
A Labor Department official said the increase in claims last week was mainly due to administrative factors rather than economic ones. “I don’t think there is a whole lot of layoffs going on,” he said.
The four-week moving average of new claims, which irons out week-to-week volatility, rose 7,500 to 457,750.
The surge in claims last week is unlikely to derail the nascent jobs recovery, analysts said. A sign of the improving labor market tone was also evident in the New York Fed survey.
The employment index rose to 20.25 in April, the highest since March 2006, and up from 12.35 last month. New orders rose to a six-month high of 29.49 in April and up from 25.43 last month.
The labor market has lagged the U.S. economic recovery, but growing evidence of firming domestic demand could ease some doubts about the durability of the economic bounce and encourage companies to step up hiring.
Retail sales surged in March in data published on Wednesday and businesses have started rebuilding inventories.
Analysts hope that this could help the economic recovery to transition into a self-sustaining one.
The recovery from the worst downturn in 70 years has been largely powered government stimulus and a surge in manufacturing as businesses start to replenish inventories.
In Thursday’s data, the number of people still receiving benefits after an initial week of aid rose 73,000 to 4.64 million in the week ended April 3, the Labor Department said.
Analysts had forecast so-called continuing claims little changed at 4.54 million.
The insured unemployment rate, which measures the percentage of the insured labor force that is jobless, rose to 3.6 percent in the week ended April 3, from 3.5 percent in the prior period.
October 12, 2009
The Raw Story
By Agence France-Presse
The dollar’s position as the world’s leading reserve currency faces increased pressure as the financial crisis allows emerging economies greater influence on the world stage, analysts said.
A report last week in The Independent claiming that China, Russia and Gulf States are among nations prepared to ditch the dollar for oil trades has heightened the uncertainty surrounding the US currency’s future.
The dollar slumped against rivals last week in the wake of the British daily’s controversial report.
“The US dollar is being hurt by the continued talk of a shift away from a dollar-centric world,” said Kit Juckes, an analyst at currency traders ECU Group.
“Three conclusions stand out very clearly. Firstly, the shift in economic power away from the G7 economies is continuing. “Secondly, there is a growing acceptance amongst those winners that one consequence of this power shift will be to strengthen their currencies.
“And finally, as long as the US economy is not strong enough for any rise in interest rates to be conceivable for a long time, the dollar’s underlying downtrend will remain in place,” added Juckes.
The Independent, under the front-page headline “The Demise of the Dollar”, reported last Tuesday that Gulf states, together with China, Russia, Japan and France, were considering replacing the dollar as the currency for oil deals.
“In the most profound financial change in recent Middle East history, Gulf Arabs are planning — along with China, Russia, Japan and France — to end dollar dealings for oil,” wrote The Independent’s Middle East correspondent Robert Fisk.
They would switch “to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar,” added Fisk, citing Gulf Arab and Chinese banking sources.
The report was denied by a host of countries, including Kuwait, Qatar and Russia, while France dismissed it as “pure speculation.”
Even so, the United Nations itself last week called for a new global reserve currency to end dollar supremacy, which had allowed the United States the “privilege” of building up a huge trade deficit.
UN undersecretary-general for economic and social affairs, Sha Zukang, said “important progress in managing imbalances can be made by reducing the (dollar) reserve currency country’s ‘privilege’ to run external deficits in order to provide international liquidity.”
Zukang was speaking at the annual meetings of the International Monetary Fund and World Bank, whose President Robert Zoellick recently warned that the United States should not “take for granted” the dollar’s role as preeminent global reserve currency.
Meanwhile at a G20 summit in Pittsburgh last month, world leaders unveiled a new vision for economic governance, with bold plans to fix global imbalances and give more clout to emerging giants such as China and India.
Following the summit, US Treasury Secretary Timothy Geithner repeated Washington’s commitment to a strong dollar.
But last week the finance chief was left to watch as traders used The Independent’s report as an opportunity to push lower the troubled US unit.
The report “has helped concentrate the minds of traders and investors alike, and has given them another excuse to take the dollar lower,” GFT Global Markets analyst David Morrison told AFP.
“Despite what the Fed and other central bankers say, a weaker dollar is desirable because it is necessary to rebalance the global economy.
“As long as the decline is gentle and orderly, then they’re happy. But aggressive selling would spook the markets,” he added.
Commerzbank currency analyst Antje Praefcke agreed that the market’s reaction was significant because it showed that the dollar was on a downward trajectory.
“The questionable article in the Independent was of course disclaimed,” Praefcke said.
“It is nonetheless an interesting study of the pscychological factors which are currently putting pressure on the dollar. Even if conspiracy theories turn out to be nonsense, the dollar is subsequently able to retrace only some of its losses.”
October 12, 2009
By Ye Xie and Anchalee Worrachate
Central banks flush with record reserves are increasingly snubbing dollars in favor of euros and yen, further pressuring the greenback after its biggest two- quarter rout in almost two decades.
Policy makers boosted foreign currency holdings by $413 billion last quarter, the most since at least 2003, to $7.3 trillion, according to data compiled by Bloomberg. Nations reporting currency breakdowns put 63 percent of the new cash into euros and yen in April, May and June, the latest Barclays Capital data show. That’s the highest percentage in any quarter with more than an $80 billion increase.
World leaders are acting on threats to dump the dollar while the Obama administration shows a willingness to tolerate a weaker currency in an effort to boost exports and the economy as long as it doesn’t drive away the nation’s creditors. The diversification signals that the currency won’t rebound anytime soon after losing 10.3 percent on a trade-weighted basis the past six months, the biggest drop since 1991.
“Global central banks are getting more serious about diversification, whereas in the past they used to just talk about it,” said Steven Englander, a former Federal Reserve researcher who is now the chief U.S. currency strategist at Barclays in New York. “It looks like they are really backing away from the dollar.”
The dollar’s 37 percent share of new reserves fell from about a 63 percent average since 1999. Englander concluded in a report that the trend “accelerated” in the third quarter. He said in an interview that “for the next couple of months, the forces are still in place” for continued diversification.
America’s currency has been under siege as the Treasury sells a record amount of debt to finance a budget deficit that totaled $1.4 trillion in fiscal 2009 ended Sept. 30.
Intercontinental Exchange Inc.’s Dollar Index, which tracks the currency’s performance against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, fell to 75.77 last week, the lowest level since August 2008 and down from the high this year of 89.624 on March 4. The index, at 76.104 today, is within six points of its record low reached in March 2008.
Foreign companies and officials are starting to say their economies are getting hurt because of the dollar’s weakness.
Yukitoshi Funo, executive vice president of Toyota City, Japan-based Toyota Motor Corp., the nation’s biggest automaker, called the yen’s strength “painful.” Fabrice Bregier, chief operating officer of Toulouse, France-based Airbus SAS, the world’s largest commercial planemaker, said on Oct. 8 the euro’s 11 percent rise since April was “challenging.”
The economies of both Japan and Europe depend on exports that get more expensive whenever the greenback slumps. European Central Bank President Jean-Claude Trichet said in Venice on Oct. 8 that U.S. policy makers’ preference for a strong dollar is “extremely important in the present circumstances.”
“Major reserve-currency issuing countries should take into account and balance the implications of their monetary policies for both their own economies and the world economy with a view to upholding stability of international financial markets,” China President Hu Jintao told the Group of 20 leaders in Pittsburgh on Sept. 25, according to an English translation of his prepared remarks. China is America’s largest creditor.
Developing countries have likely sold about $30 billion for euros, yen and other currencies each month since March, according to strategists at Bank of America-Merrill Lynch.
That helped reduce the dollar’s weight at central banks that report currency holdings to 62.8 percent as of June 30, the lowest on record, the latest International Monetary Fund data show. The quarter’s 2.2 percentage point decline was the biggest since falling 2.5 percentage points to 69.1 percent in the period ended June 30, 2002.
“The diversification out of the dollar will accelerate,” said Fabrizio Fiorini, a money manager who helps oversee $12 billion at Aletti Gestielle SGR SpA in Milan. “People are buying the euro not because they want that currency, but because they want to get rid of the dollar. In the long run, the U.S. will not be the same powerful country that it once was.”
Central banks’ moves away from the dollar are a temporary trend that will reverse once the Fed starts raising interest rates from near zero, according to Christoph Kind, who helps manage $20 billion as head of asset allocation at Frankfurt Trust in Germany.
‘Flush’ With Dollars
“The world is currently flush with the U.S. dollar, which is available at no cost,” Kind said. “If there’s a turnaround in U.S. monetary policy, there will be a change of perception about the dollar as a reserve currency. The diversification has more to do with reduction of concentration risks rather than a dim view of the U.S. or its currency.”
The median forecast in a Bloomberg survey of 54 economists is for the Fed to lift its target rate for overnight loans between banks to 1.25 percent by the end of 2010. The European Central Bank will boost its benchmark a half percentage point to 1.5 percent, a separate poll shows.
America’s economy will grow 2.4 percent in 2010, compared with 0.95 percent in the euro-zone, and 1 percent in Japan, median predictions show. Japan is seen keeping its rate at 0.1 percent through 2010.
Central bank diversification is helping push the relative worth of the euro and the yen above what differences in interest rates, cost of living and other data indicate they should be. The euro is 16 percent more expensive than its fair value of $1.22, according to economic models used by Credit Suisse Group AG. Morgan Stanley says the yen is 10 percent overvalued.
Reminders of 1995
Sentiment toward the dollar reminds John Taylor, chairman of New York-based FX Concepts Inc., the world’s largest currency hedge fund, of the mid-1990s. That’s when the greenback tumbled to a post-World War II low of 79.75 against the yen on April 19, 1995, on concern that the Fed wasn’t raising rates fast enough to contain inflation. Like now, speculation about central bank diversification and the demise of the dollar’s primacy rose.
The currency then gained 26 percent versus the yen and 25 percent against the deutsche mark in the following two years as technology innovation increased U.S. productivity and attracted foreign capital.
“People didn’t like the dollar in 1995,” said Taylor, whose firm has $9 billion under management. “That was very stupid and turned out to be wrong. Now, we are getting to the point that people’s attitude toward the dollar becomes ridiculously negative.”
The median estimate of more than 40 economists and strategists is for the dollar to end the year little changed at $1.47 per euro, and appreciate to 92 yen, from 89.97 today.
Englander at London-based Barclays, the world’s third- largest foreign-exchange trader, predicts the U.S. currency will weaken 3.3 percent against the euro to $1.52 in three months. He advised in March, when the dollar peaked this year, to sell the currency. Standard Chartered, the most accurate dollar-euro forecaster in Bloomberg surveys for the six quarters that ended June 30, sees the greenback declining to $1.55 by year-end.
The dollar’s reduced share of new reserves is also a reflection of U.S. assets’ lagging performance as the country struggles to recover from the worst recession since World War II.
Since Jan. 1, 61 of 82 country equity indexes tracked by Bloomberg have outperformed the Standard & Poor’s 500 Index of U.S. stocks, which has gained 18.6 percent. That compares with 70.6 percent for Brazil’s Bovespa Stock Index and 49.4 percent for Hong Kong’s Hang Seng Index.
Treasuries have lost 2.4 percent, after reinvested interest, versus a return of 27.4 percent in emerging economies’ dollar- denominated bonds, Merrill Lynch & Co. indexes show.
The growth of global reserves is accelerating, with Taiwan’s and South Korea’s, the fifth- and sixth-largest in the world, rising 2.1 percent to $332.2 billion and 3.6 percent to $254.3 billion in September, the fastest since May. The four biggest pools of reserves are held by China, Japan, Russia and India.
China, which controlled $2.1 trillion in foreign reserves as of June 30 and owns $800 billion of U.S. debt, is among the countries that don’t report allocations.
“Unless you think China does things significantly differently from others,” the anti-dollar trend is unmistakable, Englander said.
Follow the Money
Englander’s conclusions are based on IMF data from central banks that report their currency allocations, which account for 63 percent of total global reserves. Barclays adjusted the IMF data for changes in exchange rates after the reserves were amassed to get an accurate snapshot of allocations at the time they were acquired.
Investors can make money by following central banks’ moves, according to Barclays, which created a trading model that flashes signals to buy or sell the dollar based on global reserve shifts and other variables. Each trade triggered by the system has average returns of more than 1 percent.
Bill Gross, who runs the $186 billion Pimco Total Return Fund, the world’s largest bond fund, said in June that dollar investors should diversify before central banks do the same on concern that the U.S.’s budget deficit will deepen.
“The world is changing, and the dollar is losing its status,” said Aletti Gestielle’s Fiorini. “If you have a 5- year or 10-year view about the dollar, it should be for a weaker currency.”
June 27, 2009
By Oliver Biggadike and Ye Xie
June 27 (Bloomberg) — The dollar declined the most against the euro in a month and dropped versus the yen after China repeated its call for a new global currency.
The Swiss franc declined against the euro and dollar this week as foreign-exchange analysts said the central bank sold its currency three times to support the economy. The greenback fell against most of its major counterparts after the People’s Bank of China said yesterday the International Monetary Fund should manage more of members’ foreign-exchange reserves.
“The dollar’s status as a reserve currency is being questioned,” said Benedikt Germanier, a foreign-exchange strategist in Stamford, Connecticut at UBS AG, the second- largest currency trader. “There are reasons to sell the dollar.”
The U.S. currency fell 0.9 percent to $1.4056 per euro this week from $1.3937 on June 19, the swiftest depreciation since the five days ended May 29. The dollar fell 1.1 percent to 95.18 yen from 96.27, its third consecutive weekly drop. The euro decreased 0.3 percent to 133.85 yen from 134.18.
Federal Reserve policy makers said on June 24 inflation “will remain subdued for some time” and that the economy warrants an “extended period” of low rates.
The 10-year Treasury yield fell the most since March as investors bet the Fed will keep interest rates close to zero for the rest of the year. The difference in yield, or spread, between 2- and 10-year yields decreased this week to 2.43 percentage points, near the narrowest level since May 20.