Off-Topic: U.S. Indicies about to Take a Dump?
The Fed finally ran out of bullets yesterday, essentially passing the problem that is the American economy off to the president and Congress to resolve. One of my favorite reads thinks the S&P will break through 1,100 (now at 1,128) and head for 950. On the selloff already, the U.S. Dollar is rallying, which is whacking crude, gold, commodities, etc. The good news is if we do hit 950, I suspect that will equate to $1 less a gallon at the pump. Grocery stores may once again cut prices on foodstuffs. And we all get to watch the circus in DC....
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jump-start the short term credit markets. But that acts like the aftermath of a large wave hitting the beach: secondary pulses, cross-currents, pauses. It's going to be a bumpy ride for at least 18 to 24 months as this excess is digested by the world markets. It beats 10+ years of bread-lines and privation. But watch the short term credit markets - If rates are not affected by the Feds recently announced $ 400 Billion long to short term two-step, the ride will be much longer and bumpier.
That's true, but I also get ALL my financial advice from this site. Saves me the time of reading the Journal or watching Bloomberg.
The Fed still has one big howitzer to fire. Flood the world with dollars straight from the printing presses, not t-bills or bonds. Switzerland just did this recently - setting the swissie at 1.2 euros. The Swiss are now sucking up euros like crazy and shoveling Swiss francs out the door of the room holding the printing presses. Whatever they are doing with all those euros is unknown. I am pretty sure they are not buying Greek, Irish, Spanish, Italian, French bonds! Gold, perhaps?
A strong dollar is exactly NOT what the US economy needs right now. Bernanke has been slyly devaluing the dollar by manipulating the bond market (exceedingly well, in my view). However, events in Europe have put paid to this campaign. The fear and terror in European financial markets is sending 'hot' money to the US in super tanker loads; and the dollar cross rates are going to the moon. Good luck to you, Mr. Bernanke.
For me in my oil play, the US dollar movement has cost me a 5% hit on my profit margins so far. I didn't get my CAD-USD hedge right. I got the oil hedge on at a pretty good price, thank heavens. My production is hedged at $106/bbl through 2013. I am real pissed with myself for getting the dollar hedge wrong.
End of steve's economics tutorial.
You state, "Politicians are all the same once they get to DC." I believe that in the past, and up to fairly recent times, you are mostly correct. That said, I also believe there is a new breed that is NOT the same. Ones such as my Senator, NOT Bill Nelson.
Fyi: I still had $260 in Canadian dollars left I didn't exchange until today. Supposedly it's $1.02 U.S. now, but Bank of America only paid me $.92 on every Canadian bill I had. So basically they screwed me out of an LDU!
By the way, nice of Steve to own up to his financial moonlighting here. He is, as I recall, the father of the LDU metric. [Adam Smith: Wealth of Nations; John Maynard Keynes: Treatise on Money; Milton Friedman: A Monetary History of the United States; Steve229: the LDU].
The signs and omens point to one thing: The world is going to hell in a handbasket. My plan is to sell my stocks and put all my money into strippers' garters. This will insure that I won't mind when my investment goes down on me.
You are killing me with your prescient calls on USD. I put on a hedge for my USD-CAD exposure at $1.025. Most recent quote this AM - $.9636. OUCH! That is a 6% hit to my profit margin. I did much better with my oil hedge - $106/bbl through 2013.
My gut and my brain both tell me that USD must fall vs CAD (and sooner rather than later). HAH! Forex market doesn't agree with me! I am going to keep that dollar hedge in place for while, at least until the profit margin hit approaches 12%. At that level it would make sense to eat the the loss on the dollar hedge and capture the profit premium that a $.90 spot CAD would add to my oil hedge.
What are your thoughts, Dougster?
When I was first getting into the long dollars trade I thought it would just be short term, but now I am feeling more optimistic that it is looking good long term. The biggest parts of the dollar index are versus the Euro, the Yen, and the Pound.
Europe, of course, is very messed up right now and the market is expecting them to drop rates to help out when they had been expecting rate hikes before. I can seen the Euro bounce short term on some grand bailout scheme, but I think the Euro problems are likely to continue for years.
Yen is a bit iffy. Long term I think it is tied to the strength of China so that will continue to work for it. If bonds really did top out however then that should put pressure on the Yen to weaken.
The Pound would also be strongly influence for the worse against problems in Europe, so I don't like its chances against the dollar, either. The British economy is also one of the weakest in terms of GDP growth amongst the major economies and they are even more willing to print money than the US.
The other big thing is that, probably due to the election, and how much inflation disrupted other countries earlier this year, the Fed doesn't seem to be allowed to do as much QE as they would like. (The "twist" puts downward pressure on gold as well, although the gold market is very small compared to currencies, so I think this is just a minor factoring working in the dollar's favor.)
So I like the US dollars chances at this stage. Probably good until the election next year, but, of course, you always have to watch this volatile market, and things you thought were given could change at any time. (Although with your oil hedge you can't be too worried! )
This exchange demonstrates the differences between a trader (you) and a business operator (me). My oil hedge was dead easy to figure out since I know my cost of production to the penny and the estimated length of time needed to drill out my land position. Accepting the profit margin that the $106/bbl hedge guaranteed was a no-brainer. My plan is to extend the land position and flip the company with these three years of juicy profits on the books to entice a buyer.
The USD-CAD hedge demonstrates what a buffoon I can be in markets where I have no real expertise. I suppose if I had done even some rudimentary research I might have done better. Seat-of-the-pants investing is no better than buying lotto tickets. I pondered this hedge a great deal but pondering is no replacement for down-and-dirty real work; and I just did not do that. I have decided to let USD-CAD $.90 be my stop-loss floor on this unfortunate hedge. In addition, I will want to see a pretty quick reversal in the trend of this cross rate. I will take the losses on this hedge if the rates are still at current levels in the new year.
I can be such an ass!!
This morning feels like we are near a (temporary) top in the USD versus the Euro. I think I am going to the book the trade for a 25% profit. Might want some margin around so I can short some treasuries or the S&P or whatever txtittyfan says is the best way to protect assets now. :-)
The pain of my USD-CAD hedge is worse. CAD is down another $0.02 since 09/29. My profit margin hit is now 8%. The speed of this movement is stunning. Happily, oil is continuing to fall as well.
Even happier for me is the gradual drop in prices charged by some of my suppliers. My drilling contractor has had another high tech rig come free and it is being offered to me for $15,000/day LESS than the comparable rig under contract to me until June/12. Shows how fast things respond to the market in the oil patch - the guy is willing to take a $450k/mo hit in order to keep his rigs running. I am happy to squeeze suppliers to lessen the hit caused by my asinine dollar hedge.
I have tried to understand the index that you use but I cannot see how it is useful for my specific needs. Can you enlighten me? Or is the dollar index only a trading vehicle, not a hedging tool?
There are dollar index futures, but it's mostly for trading. I think anyone doing hedging for real business purposes is going to use more specific contracts.
This roller coaster ride on my CAD-USD hedge during the last two months has been spectacular. Spot quote this AM has approached $1.01. That is not far south of my hedge price of $1.025. I am no longer beating myself up about the hedge. It looks like my hedge will be onside soon, protecting my oil profits until Dec 2013.
Do you follow oil prices, doug? The WTI-Brent spread is closing. That is a very bullish signal for my industry and the North American economy in general. Gas consumption must be picking up in the US. That does not necessarily mean higher prices at the pumps either. The mess at Cushing has meant that most east coast refineries have been using more Brent crude than usually is the case.
Now you guys have to quit messing around with the XL pipeline. Approve it and get it in the ground and watch oil prices! Brent-WTI differential will disappear. Everybody will win.
I got stopped out on those long dollars. Net-net I'm still up on long US dollars this year but now I think the US is going to be in the market's cross-hairs and the dollar will take out the all time lows. I'm long gold, US Steel (ticker X) and short the US dollar against the Australian dollar.
I think the market goes back after Europe eventually, but first it has to teach the US to get it's house in order.
Selling all the oil has got to be sweet!
The market's been super choppy since my last post. I'm taking the loss on Aussie dollar (bought at 1.0660 out at 1.0250), and rolling that money into gold (1st bought at 1740 doubling at 1775) . Going to hold onto X as well (bought at 25 currently around 26.2).