Foreign Exchange Watch

You can't exactly compare military spending in America to that of Britain. Britain spends about 2.5% of its GDP on its military, America spends nearly double in GDP terms, approaching 5%. In real terms it is projected that Britain will spend less on its military in 2009 than France. In reality you can't compare any State's military expenditure to that of America who spend more than double all the EU States put together or by another measure number 1 spends the same amount as number 2 to number 40 put together... which brings you from France and Britain right down as far as Denmark and Portugal.

My comments on their economic plan aren't related to their military. Obviously they are weakening their currency so that it is cheaper for their manufacturers to export and their shopkeepers to sell. America is at it too as would any right minded country which feared it was entering a recession. If we had our own currency (aside from the fact we'd now be bankrupt) we would be doing exactly the same thing, just like we did in the early 1990s.

cactus flower wrote:

Again, the frequency and velocity of angry statements from the UK about the Irish tax regime has noticeable increased in the last few weeks. The mangy old lion is shaking its old mane a lot. Ibis has some right on his side in saying that the UK is still a naval/military power, but it is not in the halfpenny place compared with the US, and the US is not able to maintain its operations without running up a massive deficit.

Ignore it, it is the usual bluster, just as the Irish blame UK hedge funds, all nonsense and phantoms. If they really wanted to make a point they could. For example they could decide that NI was a special case from a corporation tax point of view.

Squire wrote:

cactus flower wrote:

Again, the frequency and velocity of angry statements from the UK about the Irish tax regime has noticeable increased in the last few weeks. The mangy old lion is shaking its old mane a lot. Ibis has some right on his side in saying that the UK is still a naval/military power, but it is not in the halfpenny place compared with the US, and the US is not able to maintain its operations without running up a massive deficit.

Ignore it, it is the usual bluster, just as the Irish blame UK hedge funds, all nonsense and phantoms. If they really wanted to make a point they could. For example they could decide that NI was a special case from a corporation tax point of view.

I think that would do more good than harm to us. Critical mass is a good thing.

johnfás wrote:

You can't exactly compare military spending in America to that of Britain. Britain spends about 2.5% of its GDP on its military, America spends nearly double in GDP terms, approaching 5%. In real terms it is projected that Britain will spend less on its military in 2009 than France. In reality you can't compare any State's military expenditure to that of America who spend more than double all the EU States put together or by another measure number 1 spends the same amount as number 2 to number 40 put together... which brings you from France and Britain right down as far as Denmark and Portugal.

My comments on their economic plan aren't related to their military. Obviously they are weakening their currency so that it is cheaper for their manufacturers to export and their shopkeepers to sell. America is at it too as would any right minded country which feared it was entering a recession. If we had our own currency (aside from the fact we'd now be bankrupt) we would be doing exactly the same thing, just like we did in the early 1990s.

"A nation of shopkeepers" Where have I heard that before?

Back to foreign exchange. I think we could be on the starting blocks for a prolonged bull market in the US dollar. I am looking at a lot of long term technical charts and stuff like that and am developing a view on this. The recent depreciation of the dollar against the Euro looks like it was a retracement in a bigger trend. I will come back later and develop this further. Youngdan may have his own view and his views are always interesting, even on the occasions when they not entirely accurate. (btw, youngdan, I am bearish on gold).

I heard a guy predicting gold to fall back to 300 yesterday but only got the end of it and can't remember who. Maybe the thought of a fall blanked my mind.

I think that considering the falls in oil and everything else that gold has done well and expect a huge move up.

I called a turn on the dollar at 1.60 last summer and 2 weeks ago called it to fall. I expect the dollar to crash from here and when I see that the bond market has gone parabolic I expect that to crash in a matter of days.

So I am taking the other sides to your trades Slim and if anyone else wants to declare their thoughts, up or down, we await.

Ya pays yar money and ya take yar chances

youngdan wrote:

I heard a guy predicting gold to fall back to 300 yesterday but only got the end of it and can't remember who. Maybe the thought of a fall blanked my mind.

I think that considering the falls in oil and everything else that gold has done well and expect a huge move up.

I called a turn on the dollar at 1.60 last summer and 2 weeks ago called it to fall. I expect the dollar to crash from here and when I see that the bond market has gone parabolic I expect that to crash in a matter of days.

So I am taking the other sides to your trades Slim and if anyone else wants to declare their thoughts, up or down, we await.

Ya pays yar money and ya take yar chances

Indeed. It will be interesting to see how it works out. I think there will always be a demand for the dollar. As the more minor currencies get chewed up and more money comes into the majors, its a question of the resilience of the ECB to withstand enormous political pressures as Europe slides intoserious recession. Countries on the periphery of the Euro (Greece, Portugal Ireland) are in serious difficulty now and it will get a lot worse. ERM2 curriencies will get hammered first before the forex speculators get to work on the Euro. But the Euro will be severely tested next year. And the dollar will profit from this.

I expect the euro to meet it's demise sooner rather than later and compare the dollar against the yen and gold. Th EU bigwigs will do their utmost to keep it strong but a bit of economic hardship will break the Irish for sure. They may not have any balls left to pull out but I expect Spain Italy Greece etc to have more backbone

One thing is for sure, it is make or break time.

I am off for 2 weeks. Need to recharge the batteries. Gold has held up well recently but, in my opinion, at the end of the day, it's a commodity and they are going down in this deflationary environment. I will concede, however, youngdan, it's more your area than mine and you could very well be right about gold. The dollar is a different matter. I really believe in the distinct possibility of a bull market in this. Still doing the technicals but I will come back to this with a full analysis.

I love the forex market, the way the currencies move in a fascinating rhythm.

Locked me on the groove
Breaking into heaven
Coming after you
History is written
Everytime we move
Fascinating rhythm

Play loud when trading currency futures

https://www.youtube.com/watch?v=REvijHyUpH4

Slim would it be as much fun for you if the UK was in the Euro ? What's happening with STG anyway and all this flow of economic activity up there should ultimately lead to inflation there, isn't that theoretically right and a strengthening of their currency ?

Is this kind of thing be happening in other Euro-border areas too - the Baltics, Poland and Germany perhaps, the Adriatic states ?

It's definitely a fascinating thing to try to imagine all those currency pistons moving up and down and affecting each other until the printing begins in earnest.

Quote :

Sterling collapse putting Irish jobs at risk

http://www.thepost.ie/story/mhidmhsngb/rss2/

Shanahan said that it was time for the government to get involved in resolving the situation. ’‘Export credit finance has to be facilitated," he said. ’‘While that may not be politically popular, the government could certainly consider underwriting a private sector initiative.

’‘The banks now have a responsibility. They are, after all, surviving on the back of our guarantee. The government should oblige the banks to pass on that guarantee to exporters. All we are asking is that the circle be closed."

Shanahan warned that companies trading internationally would be pleading the ‘inability to pay’ clause of the national wage agreement, and that many would have to negotiate wage reductions as part of their survival plans. His sentiments were echoed by Curran, who described the wage agreement as a ’‘ludicrous situation. It is absolutely incredible that, at a time when the country is in its worst recession in a century, we are continuing to reward ourselves with a 6.5 per cent pay increase," he said.

According to Central Statistics Office figures, Irish exports to Britain were worth €16.6 billion last year, while imports from Britain totalled €20.5 million. While the sterling crisis means those imports are now cheaper, Rossa White, economist with Davy, warned that, on the whole, sterling’s slide was bad news.

Things we import now from the UK are getting cheaper, thus more money in pockets of consumers. ’‘Export credit finance" = protectionism, no ? Higher costs of exporting leading to loss of jobs, loss of tax, more dole payments, less money in system, more inclination to buy cheaper goods etc.

There's some balance trying to get out there.

Auditor #9 wrote:

Slim would it be as much fun for you if the UK was in the Euro ? What's happening with STG anyway and all this flow of economic activity up there should ultimately lead to inflation there, isn't that theoretically right and a strengthening of their currency ?

Is this kind of thing be happening in other Euro-border areas too - the Baltics, Poland and Germany perhaps, the Adriatic states ?

It's definitely a fascinating thing to try to imagine all those currency pistons moving up and down and affecting each other until the printing begins in earnest.

Strictly from a currency trading viewpoint, I prefer Sterling to be outside the Euro. My reasoning for this is that sometimes when there is a general move of Euro-Swiss Franc-Yen against Sterling-US Dollar-Canadian Dollar-Australian Dollar, the way to maximise this is often taking a position on the extremes, which for me recently meant going short Sterling/long Swiss and seeing an 8% or so devaluation of the pound against the Swiss Franc in 30 hours, sliding from 1.7550 to 1.6035

The inflation theory you mention is sound but I believe we are in a massive deflationary spiral and inflation will keep going down. The effect in the UK is that the rate of inflation reduction will be slower but that cant get away from the fact that commodities prices are getting crushed. Oil is a good example of this. Even when OPEC met last week in Algeria to cut production, it fell another 5 cents. Gold has held up well so far but I expect it to go down since it is a commodity in my eyes and nothing more. Consult youngdan for the opposing view.

I still think the eastern European currencies will get emasculated by speculators before they come looking for the Euro but when they do, the Euro will have a difficult time of it. Political indecisiveness will hamper the Euro and force it down, the beneficiary being the US Dollar. The wildcard in all this how much of what will who print.

If we knew the directions it would be easy so time will tell on the currencies

youngdan wrote:

If we knew the directions it would be easy so time will tell on the currencies

Very true. "Easy" it is not. Informed guesses is as good as it gets. Happy trading, youngdan.

I have some income in Switzerland and some considerable time ago decided that the Euro, Sterling and the dollar were overvalued. So moved to Swiss but mainly Yen.

The Yen carry trade is unwinding and that is forcing the Yen up. Historically its value may have been higher in the late 90s but then its industry was not under the same threat as today. That upward rise will stop say Q2 but the Yen will remain strong. Japan has a sound trade surplus.

The Swiss economy cannot be out of line with the Euro zone or it will destroy its economy and the Euro cannot be allowed to rise and rise against Sterling or the dollar.

Eurozone interest rates will drop in an attempt to bring the value down. If the Euro remains high the currencies fixed to it in ERM II will be tested and each will fail. They will attempt to avoid this for political reasons. Then there are the currencies not tied, if they fall those countries will become more conpetitive than the Euro Zone, but with equal access. The Euro has to fall back. BUT

The UK and USA are about to print until they run out of ink. They will do anything to bolster balance sheets in financial institutions. They want inflation!! In inflation, becuase currency is worth less assets are worth more. The drops in interest rates reduces interest on deposits and increase the real interest banks are charging. Lending has become much more expensive in real terms. More competative rates will not be seen until well into 2010.

The deflationary pressures, deleveraging and all the rest of it will probably last through most of next year, but Q1 or Q2 of 2010 we will start to see the beginnings of recovery and investment. So Q3 of 2009 should see the floor in stock markets, but commodities will rise ahead of recovery.

I would watch food costs as I think the period of falling food costs is over. Copper, lead and other metals will be a good place to be in 2010 as will the energy sector.

Gold I can never make my mind up about. I think there may be some falls yet before a rise in all commodities, but gold is differnet. Does it not tend to peak before recovery? It is a haven but once you see you are through the worst why stay there? You have to get out fast or risk sharp loss. So its value depends on your judgement of just how big a hole collective governments are digging. Before all the bailouts and digouts, global cronyism, I would have said a waste of time but now I am not so sure.

Many governments want inflation, they will borrow and print. They will penalise savings and risk debasing currencies. I have no doubt that a year from now we will be talking about looming inflation. Gold may well hold value against currencies. Silver looks a less risky bet.

Just to add to the above I am not at all convinced by the various
government bailouts. To me it is pouring good money after bad. It is
hoping for the mythical trickle down effect, but people are worried so although
they will get no interest for their money they will save or try to
reduce debt.

Governments instead of propping up failed entities need to
encourage investment in productive sectors and produce some benefits
(goods, infrastructure, whatever) that have real and lasting value. They need to be a lot more clever and encourage other
investment. They need to tempt others out of squirrelling away their
savings. That is why I think deflation will run right through 2009. The
key to recovery is to get people investing but that won't happen until we
see a floor, so the quicker that happens the better.

Political leadership at present is poor and lacks real purpose. In many ways they, and their inept interventions, are a large part of the problem. They are trying to revive corpses instead of allowing the markets to fall, and do what needs to be done. That is when to intervene. When do you take over a failing firm burdened with liabilities, before or after receivership? We would probably have bottomed out by now but for the interventions.

The decisions that I take now will directly effect the employment prospects of thousands of people several years from now. I cannot invest my money, because much of what I do may be worth less at the end of next year. So to invest means taking a loss, but worse than that I cannot predict a demand or profit say 4-5 years from now. I cannot recommend investment to colleagues therefore stasis continues for me.

I must confess I find the current situation utterly frustrating. I like to do, to improve, to get things done and to be reduced to watching currency charts or share values is like being reduced to the status of a miser or money changer. It is demeaning.

Squire wrote:

I must confess I find the current situation utterly frustrating. I like to do, to improve, to get things done and to be reduced to watching currency charts or share values is like being reduced to the status of a miser or money changer. It is demeaning.

I'm sorry to say that I don't have a complex picture of how an investor might see the world but that sounds more encouraging than the simple picture I have of them being mindless money-makers. Of all the speculation there is I have felt before that currency speculation is a lot more disturbing. In September we saw and debated a little here the banning of Short Selling which is a bit perverse but somehow acceptable - why not bet on a commodity or stock going to a lower rate - maybe there is every reason it should be at that rate.

Currency speculation on the other hand .. this seems similar to shorting in that values issuing from a state, nation or country might not be market-true and it might be valuable if there are rich and clever people out there who are permitted to take advantage of and attack some State hegemony - I've petrodollars in mind I don't know if that's relevant - but ultimately currency speculation means that Governments can't be trusted or there is definitely no free market or something

Quote :

I must confess I find the current situation utterly frustrating. I like to do, to improve, to get things done and to be reduced to watching currency charts or share values is like being reduced to the status of a miser or money changer. It is demeaning.
Squire

The sheer waste of what is happening in terms of people's skills and our productive resources is staggering.

Squire wrote:

Just to add to the above I am not at all convinced by the various
government bailouts. To me it is pouring good money after bad. It is
hoping for the mythical trickle down effect, but people are worried so although
they will get no interest for their money they will save or try to
reduce debt.

Governments instead of propping up failed entities need to
encourage investment in productive sectors and produce some benefits
(goods, infrastructure, whatever) that have real and lasting value. They need to be a lot more clever and encourage other
investment. They need to tempt others out of squirrelling away their
savings. That is why I think deflation will run right through 2009. The
key to recovery is to get people investing but that won't happen until we
see a floor, so the quicker that happens the better.

Political leadership at present is poor and lacks real purpose. In many ways they, and their inept interventions, are a large part of the problem. They are trying to revive corpses instead of allowing the markets to fall, and do what needs to be done. That is when to intervene. When do you take over a failing firm burdened with liabilities, before or after receivership? We would probably have bottomed out by now but for the interventions.

The decisions that I take now will directly effect the employment prospects of thousands of people several years from now. I cannot invest my money, because much of what I do may be worth less at the end of next year. So to invest means taking a loss, but worse than that I cannot predict a demand or profit say 4-5 years from now. I cannot recommend investment to colleagues therefore stasis continues for me.

I must confess I find the current situation utterly frustrating. I like to do, to improve, to get things done and to be reduced to watching currency charts or share values is like being reduced to the status of a miser or money changer. It is demeaning.

Good post, Squire. I agree with the notion that deflation will be dominant in 2009 and the normal rules of investment will take a holiday. It is one of the reasons I liquidated almost everything I had and moved into the forex market. Unlike you, however, I don't find it demeaning but rather necessary because I view this as a protective move more than anything else.

In the current environment, predicting anything in 4-5 weeks time is difficult enough, never mind 4-5 years. It will be a very difficult year next year and everyone must make crucial decisions now to protect wealth from deflation next year. ETF's are an option but again, one has to have a market view to begin with to benefit from these. The carnage next year will be gruesome and I refuse to allow whatever I have to be subject to the whims of any "government policy", particularly that of the Irish government.

I heard Coughlan and O'Dea were in Texas to plead with Michael Dell to reconsider his company's position regarding the Limerick facility. If that's true, Ireland is in particularly bad shape going into 2009. Because it clearly shows that not just don't they not understand what is happening, they are unable to grasp what they should be doing. It is so, so scary.

Lads oil is going up again wouldn't ye put yeer money into a humble algae-oil business. I know some cheap boggy land in West Clare - 11 acres fronting the river Shannon for 165 k. You can get 50,000 litres of algae oil per acre. Burns in a conventional diesel engine only slightly modified.

Real currency surely is the production of some products .. or services. The world will always need oil - doesn't it qualify as a kind of currency ? Seriously, there must be something ye can put money safely into - even buying oil as it is. $43 a barrel this morning.

Slim - whatever else will be up in the air for the next year or so, surely there are some rock-solid commodities or stocks like oil though that are worth putting money into ?

Auditor #9 wrote:

Lads oil is going up again wouldn't ye put yeer money into a humble algae-oil business. I know some cheap boggy land in West Clare - 11 acres fronting the river Shannon for 165 k. You can get 50,000 litres of algae oil per acre. Burns in a conventional diesel engine only slightly modified.

Real currency surely is the production of some products .. or services. The world will always need oil - doesn't it qualify as a kind of currency ? Seriously, there must be something ye can put money safely into - even buying oil as it is. $43 a barrel this morning.

Slim - whatever else will be up in the air for the next year or so, surely there are some rock-solid commodities or stocks like oil though that are worth putting money into ?

Audi, all commodities like oil, wheat, nickel, ore, soyabeans, silver, coffee and, yes, even gold, are priced in dollars on the worlds major futures markets. As is the means to move around these things, international freight. With collapsing economies, especially that of China, leading to drastically reduced demand, the price of these commodities is hardly likely to increase by very much, especially in a deflationary spiral. Take oil, for example. Last week OPEC met in Algeria to cut production. They got an agreement to do so but the market reacted by reducing the futures price. I think oil is trading technically at the moment anyway insofar as we are in the middle of winter and the need for oil was addressed for this period long beforehand in the oil futures market. So coming out of winter in the northern hemisphere, when prices trend downwards, underlines the reduction in demand and caps the price.

We have see big falls in all commodities with the exception of gold, which has held up, in my opinion, on nothing but sentiment towards it in times of great uncertainty. I don't expect this to last and expect it to go down, since it is, imo, merely a commodity with no special alchemaic powers. I dont expect these big falls to be reversed in 2009 unless, in agricultural commodities, we see weather factors playing a once-in -a-century role in crop destruction.

Hence, I moved into forex where governments cannot screw you with dumb decisions, there is always something going up as something else goes down and it is the most liquid market in the world so you get your price most of the time. As I said before, it is a defensive move on my part. But I guess I am not the man to answer your question on commodity prices, since I am more into forex. Youngdan, however, is someone whose views on commodities are worth listening (even though we disagree on gold and the dollar) to and he can give you a view which will make sense (at least the way he explains it!). Like all views, mine, his, your next door neighbours or your cats, you can take it or leave it.

I would put my money on this system going down.

Slim Buddha

I moved out of property ahead of the collapse and moved into Yen and Swiss. Swiss because I have some interests there and Yen because I considered it the safest currency and likely to appreciate. I will not move back into Sterling, Dollars or the Euro any time soon.

I agree it is all about protection, but it does seem such an unproductive activity when viewed in the overall context. It is like running before the storm.

I have interests in construction, property development and agriculture and also known to participate in a bit of trading of goods if opportunity arises. Those interests are spread and are in many countries. Many people who work for me have worked for members of my family for a long time and I have a responsibility to them. What is the market for beef, should w move to rice production etc. Such decisions are complicated by currency considerations, the economic stability of the country and a strange tax regimes.

In construction and development you need to retain a trusted network. These are people who stood by me in difficult times, people I trust.

The aim is to come out of this intact and in a strong position to move forward. There is more to wealth than money, effective, capable networks are crucial.

Ireland is in dire shape. Ireland needs to build up and retain indigenous wealth. That wealth needs to be spread and more people need opportunity to access resources. Ordinary people need to be able to invest and have ownership of opportunities. The question is how!

On the positive side food is going to cost more in the future so there may be better opportunity for the farming community and rural Ireland.

I think FF need to retire to the back benches but am less than sure that FG willl be much better. Similar problem in England.

Currency wise a high Euro and low Sterling will crush the Irish economy.

Coughlin and Odea in Texas to talk to the billionaire. I would wager that he would rather kiss a pig's ass than listen to these two lugs for an hour. Did nobody tell them that they are the reason he is going to Poland at a not inconsiderable expense.

I don't think the Sterling collapse will be allowed to go on much longer. They can't let it slump any more or they'll risk a run on the pound for real. British second homers on the Continent are already howling about living costs.... just watch France and Spain for more property market grief.

This will last max until February, when all those German car manufacturers realise that after mothballing production for 2 months, they still have surplus inventory. The Euro should come down. With regard to quantitative easing or money printing, it is the view of many that the US can get away with it (foreign reserve currency and all that) but that if the UK try it, they will become the new Argentina..... the trick with this one, though, is to stop printing after many of the bad debts have been cancelled, but before inflation hits the real economy. It might work, but frankly, I expect mismanagement to rule supreme yet again.

I am always amused at the Irish inferiority complex. What makes us think our Government is worse than everyone else's? There's STIFF competition out there at the moment. Anglo may have been a fiasco, but here's a list to make you think

Lehman Bros, Northern Rock, Fortis, Jerome Kerviel, Bernard Madoff, HBOS, RBS, Deutsche Bank (which has just really upset the bond market), Rod Blagojevitch, BAE systems and the alleged billion to Prince Bandar, the Iraq war, David Kelly, GEORGE W BUSH, ffs. Angela Merkel (now known as Darth Merkel to the greenies after performing a spectacular U turn on environmental issues in order to prop up the car/coal industry)....the Spanish property market, the riots in Greece, the droughts in Australia (we were told they needed to do something about their water back in the 80s), Fannie Mae, Freddie Mac. Afghanistan. India and Pakistan. Zimbabwe. Cash for honours. Gordon Brown and his divorce from Prudence. The fact that 10% of UK property is at risk of flooding. The response to Hurricane Katrina.

Are we that badly off here?? I rest my case

Merry Christmas all