Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
USDT Ponzi Scheme FINAL WARNING To EXIT Before Tether Collapses Crypto Exchange Markets - 22nd Jun 21
Stock Market Correction Starting - 22nd Jun 21
This Green SuperFuel Could Change Everything For the $14 Trillion Shipping Industry - 22nd Jun 21
Virgin Media Fibre Broadband Installation - What to Expect, Quality of Wiring, Service etc. - 21st Jun 21
Feel the Inflationary Heartbeat - 21st Jun 21
The Green Superfuel That Could Disrupt Global Energy Markers - 21st Jun 21
How Binance SCAMs Crypto Traders with UP DOWN Coins, Futures, Options and Leverage - Don't Get Bogdanoffed! - 20th Jun 21
Smart Money Accumulating Physical Silver Ahead Of New Basel III Regulations And Price Explosion To $44 - 20th Jun 21
Rambling Fed Triggers Gold/Silver Correction: Are Investors Being Duped? - 20th Jun 21
Gold: The Fed Wreaked Havoc on the Precious Metals - 20th Jun 21
Investing in the Tulip Crypto Mania 2021 - 19th Jun 21
Here’s Why Historic US Housing Market Boom Can Continue - 19th Jun 21
Cryptos: What the "Bizarre" World of Non-Fungible Tokens May Be Signaling - 19th Jun 21
Hyperinflationary Expectations: Reflections on Cryptocurrency and the Markets - 19th Jun 21
Gold Prices Investors beat Central Banks and Jewelry, as having the most Impact - 18th Jun 21
Has the Dust Settled After Fed Day? Not Just Yet - 18th Jun 21
Gold Asks: Will the Economic Boom Continue? - 18th Jun 21
STABLE COINS PONZI Crypto SCAM WARNING! Iron Titan CRASH to ZERO! Exit USDT While You Can! - 18th Jun 21
FOMC Surprise Takeaways - 18th Jun 21
Youtube Upload Stuck at 0% QUICK FIXES Solutions Tutorial - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations Video - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations and Trend Analysis into Market Correction - 17th Jun 21
Stocks, Gold, Silver Markets Inflation Tipping Point - 17th Jun 21
Letting Yourself Relax with Activities That You Might Not Have Considered - 17th Jun 21
RAMPANT MONEY PRINTING INFLATION BIG PICTURE! - 16th Jun 21
The Federal Reserve and Inflation - 16th Jun 21
Inflation Soars 5%! Will Gold Skyrocket? - 16th Jun 21
Stock Market Sentiment Speaks: Inflation Is For Fools - 16th Jun 21
Four News Events That Could Drive Gold Bullion Demand - 16th Jun 21
5 ways that crypto is changing the face of online casinos - 16th Jun 21
Transitory Inflation Debate - 15th Jun 21
USDX: The Cleanest Shirt Among the Dirty Laundry - 15th Jun 21
Inflation and Stock Market SPX Record Highs. PPI, FOMC Meeting in Focus - 15th Jun 21
Stock Market SPX 4310 Right Around the Corner! - 15th Jun 21
AI Stocks Strength vs Weakness - Why Selling Google or Facebook is a Big Mistake! - 14th Jun 21
The Bitcoin Crime Wave Hits - 14th Jun 21
Gold Time for Consolidation and Lower Volatility - 14th Jun 21
More Banks & Investors Are NOT Believing Fed Propaganda - 14th Jun 21
Market Inflation Bets – Squaring or Not - 14th Jun 21
Is Gold Really an Inflation Hedge? - 14th Jun 21
The FED Holds the Market. How Long Will It Last? - 14th Jun 21
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Can Revulsion with the Federal Reserve Note be Sustained over the Weeks and Months Ahead?

Currencies / US Dollar Aug 12, 2011 - 12:12 PM GMT

By: Aftab_Singh

Currencies

Best Financial Markets Analysis ArticleWe seem to have reached an intermediate-term extreme in revulsion for the Federal Reserve note. It seems to us that the status quo of the currency markets is highly dependent on the Federal Reserve accommodating the market’s perception of it. Here, I present the usual Federal Reserve balance sheet charts and briefly outline why we continue to anticipate a short-term rally in the dollar.


[The first chart shows the Federal Reserve's assets as recorded on the 'factors affecting reserve balances' statistical release. The second chart shows those assets on a proportional basis. That is, the latter chart shows the Fed's various assets as a percentage of its total assets.]

As we suspected, the recent weekly declines in the total size of the Federal Reserve’s balance sheet were to be cherished as a rare and peculiar happening. This week, the Federal Reserve’s balance sheet expanded by around $5 billion. Surprise, surprise, the majority of this expansion was in favor of US Treasury notes & bonds and ‘Other Assets’.

With that said, it should be clear (from the first chart above) that the momentum of the increases in the Fed’s balance sheet size has slowed lately. Moreover, as we have stressed for months on end; the Fed’s assets have improved qualitatively over the past year or so (at least by consensual standards). [The movement away from Mortgage-backed securities and towards US Government bonds & notes should be clear from the second chart above.]

The major problem that the West faces is an enormous legacy of debt. Since debt can be viewed as a ‘short on federal reserve notes‘, we concluded that this improvement (in the quality of the Federal Reserve note) would eventually invoke another drastic ‘short squeeze in money’ (i.e. a drastic decrease in the money prices of things aka an appreciation of federal reserve notes against ‘risk’). This, it would seem, is coming to pass.   However, when we look at the currency markets these days, we cannot help but recall the wise words of Humphrey B. Neill in ‘The Art of Contrary Thinking‘:

The problem of “money” is far too complex for us to examine in this report. It is a study in itself and one which still confuses the great minds of the world. It would be presumptuous for me to attempt a learned discussion of monetary economics.

However, I do wish to leave with you the thought that, because monetary problems are not comprehended by the public or by the average businessman, “money management” will continually cross up public opinions concerning economic trends.

Monetary manipulation is a crafty and tricky tool within a system of bootstrap economics. If you make it a point to become posted on some of the more common practices of monetary management you will occasionally be able to discern trends that are opposite to those commonly discussed in public pronouncements and business stories.

When looking at the dollar these days, we cannot help but suspect that; “money management” is crossing up public opinions concerning economic trends and that the intermediate-term trends in the dollar are in opposition to those commonly discussed in public pronouncements and business stories! The world has got quantitative easing on the brain, and people seem to hold conviction that ‘the authorities will do whatever is required’ because ‘otherwise the world will end’. We have great sympathy with the view that the monetary authorities will be outlandishly profligate in the future, after all, the Fed’s balance sheet has expanded continually over the past 100 years:

However, remember that the monetary authorities are proponents of statist economic dogmas. With glazed-over eyes, they say; ‘INFLATION = CPI GROWTH. INFLATION ≠ CPI GROWTH DOES NOT COMPUTE!‘. So, despite mild modernizations of their theories (like perhaps the inclusion of US equities into their blackbox models of the economy) we must realize that these guys are part of a long, dogmatic legacy of money producers who make decisions based on changes in the growth of a basket of consumer goods. This is essentially the reason why we pay so much attention to movements in the real money supply in our newsletters. Right now, the textbook is saying; ‘don’t debase’:

Indeed, this view has been corroborated by the recent ‘no QE3′ announcement. And yet, with the spikes in US Treasury securities and gold, the market is discounting enormous and imminent balance sheet expansions by the Fed! In fact, the reverse seems to be occurring (after all, we recently witnessed the rare occurrences of weekly contractions in the size of the Fed’s balance sheet). So, although we believe in the long-term bearish case for the dollar, we find it hard to believe that the market will maintain this level revulsion all the way to the end. That is, we find it difficult to believe that this level of revulsion for the Federal Reserve note can be meaningfully sustained over the weeks and months ahead. Naturally, then, we’ve been anticipating a rally in the dollar.

Just to be clear, we don’t anticipate this by saying; ‘the dollar is good and the US is awesome yada yada yada’ but rather by saying; ‘consensual traders are going to get messed around as usual’. In our minds, anything that throws the current perceptions of monetary policies off course could invoke a swift repositioning by consensual market participants. There is no guarantee that this will come to pass, but we believe that current (consensual) perceptions of the future are too dependent on a specific course of events – so the long dollar trade seems to have a favorable risk/reward profile. That is, the long dollar trade may contain a high degree of contrarian asymmetry.

Aftab Singh is an independent analyst. He writes about markets & political economy at http://greshams-law.com .

© 2011 Copyright Aftab Singh - 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