Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Gold and Silver Capitulation Time - 14th Nov 19
The Case for a Silver Price Rally - 14th Nov 19
What Happens To The Global Economy If the Oil Price Collapses Below $40 - 14th Nov 19
7 days of Free FX + Crypto Forecasts -- Join in - 14th Nov 19
How to Use Price Cycles and Profit as a Swing Trader – SPX, Bonds, Gold, Nat Gas - 13th Nov 19
Morrisons Throwing Thousands of Bonus More Points at Big Spend Shoppers - JACKPOT! - 13th Nov 19
What to Do NOW in Case of a Future Banking System Breakdown - 13th Nov 19
Why China is likely to remain the ‘world’s factory’ for some time to come - 13th Nov 19
Gold Price Breaks Down, Waving Good-bye to the 2019 Rally - 12th Nov 19
Fed Can't See the Bubbles Through the Lather - 12th Nov 19
Double 11 Record Sales Signal Strength of Chinese Consumption - 12th Nov 19
Welcome to the Zombie-land Of Oil, Gold and Stocks Investing – Part II - 12th Nov 19
Gold Retest Coming - 12th Nov 19
New Evidence Futures Markets Are Built for Manipulation - 12th Nov 19
Next 5 Year Future Proof Gaming PC Build Spec November 2019 - Ryzen 9 3900x, RTX 2080Ti... - 12th Nov 19
Gold and Silver - The Two Horsemen - 11th Nov 19
Towards a Diverging BRIC Future - 11th Nov 19
Welcome to the Zombie-land Of Stock Market Investing - 11th Nov 19
Illiquidity & Gold And Silver In The End Game - 11th Nov 19
Key Things You Need to Know When Starting a Business - 11th Nov 19
Stock Market Cycles Peaking - 11th Nov 19
Avoid Emotional Investing in Cryptocurrency - 11th Nov 19
Australian Lithium Mines NOT Viable at Current Prices - 10th Nov 19
The 10 Highest Paying Jobs In Oil & Gas - 10th Nov 19
World's Major Gold Miners Target Copper Porphyries - 10th Nov 19
AMAZON NOVEMBER 2019 BARGAIN PRICES - WD My Book 8TB External Drive for £126 - 10th Nov 19
Gold & Silver to Head Dramatically Higher, Mirroring Palladium - 9th Nov 19
How Do YOU Know the Direction of a Market's Larger Trend? - 9th Nov 19
BEST Amazon SMART Scale To Aid Weight Loss for Christmas 2019 - 9th Nov 19
Why Every Investor Should Invest in Water - 8th Nov 19
Wait… Was That a Bullish Silver Reversal? - 8th Nov 19
Gold, Silver and Copper The 3 Metallic Amigos and the Macro Message - 8th Nov 19
Is China locking up Indonesian Nickel? - 8th Nov 19
Where is the Top for Natural Gas? - 7th Nov 19
Why Fractional Shares Don’t Make Sense - 7th Nov 19
The Fed Is Chasing Its Own Tail; It Doesn’t Care What You Think - 7th Nov 19
China’s path from World’s Factory to World Market - 7th Nov 19
Where Is That Confounded Recession? - 7th Nov 19
FREE eBook - The Investment Strategy that could change your future - 7th Nov 19

Market Oracle FREE Newsletter

How To Buy Gold For $3 An Ounce

Russia’s Interest Rate Hike is Negative for US Dollar

Interest-Rates / US Dollar Jun 02, 2011 - 02:48 AM GMT

By: Dr_Jeff_Lewis

Interest-Rates

While the US markets were closed to observe Memorial Day, Russia’s central bank acted to raise interest rates to cool inflation.  This may have ordinarily registered as a normal event for a central bank, but nothing is normal when the US central bank, the Federal Reserve, refuses to hike rates in the United States.


In reality, Russia’s rate hike may do very little to keep US dollars from pouring over international lines and into Russia.  Investors who see the US dollar as a perpetually weakening currency are empowered by rate hikes such as this one from the Russian central bank.  In hiking the overnight deposit rate to 3.5% from 3.25%, US dollar denominated investment capital has even more reason to flow into an already overheated Russian market.

Where this rate hike may force an internal slowdown in Ruble-denominated borrowing, it hardly stops investors who are riding the waves of 2011’s currency wars.  Instead, investors will find it profitable to borrow in the United States at 0-.25% and lend in Russian Rubles for 3.5% annually.  With 10:1 leverage, as is commonly employed in foreign exchange, investors bring home a 32.5% annual return, plus the difference in the exchange rate.  That is, if the US dollar continues to weaken, investors may make far more than 32.5% annually on their cash—they would make 62.5% if the US dollar lost another 3% of its value in the next year.

Rates are Credit Weapons of Mass Destruction

The United States is currently winning the currency war because we have no fear in our position.  With government debts soaring, and the US markets weakening, we have little to lose in pushing our currency to record lows.  Our fiscal problems, helped with foreign exchange investors, are now other country’s problems.  Russia just made it infinitely more attractive for investors to double-down on short-dollar, long-Ruble bets for long-term carry trade profits.

But where this foreign exchange effect is universal, Russia’s action is more important than other nations, mostly because they’re still a net-oil exporter.  Oil, of course, is still priced in US dollars.

So where Russia may act to raise rates and attract dollar-denominated investment capital, US dollar weakness against the Ruble should only continue.  With the Ruble gaining value against the dollar, oil from Russia that is sold in US dollars:

  1. Increases Russia’s holdings of US dollars
  2. Is less profitable domestically, since it will take more dollars to buy the same Ruble.

When oil is less profitable to produce, Russia has less incentive to produce more of it, and it is certain that they’ll start holding back in order to obtain higher prices in the future.  Therefore, on top of dollar weakness, the world markets will also have to deal with higher energy prices, which will only further stoke the fires of inflation in the United States.

Silver investors would be wise to watch carefully central bank activity around the world.  Typically anti-inflationary measures are not anti-inflationary when there is a lone central bank that has nothing to lose in pushing its currency down to zero.  This lone central bank is none other than the most powerful central bank in the world—the Federal Reserve. 

Further dollar weakness is certain, and commodity strength, especially from monetary commodities like silver, is a natural effect that stems from an inflationary cause.

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com

    Copyright © 2011 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules