This morning the markets are confronted with speculation over whether the Saudis are preparing to de-peg from the dollar. Unlike other nations in the oil rich Gulf region which have already cut interest rates in lockstep with the Fed, the monetary authority in Saudi Arabia has refused to do so. The Kingdom d0esn't want to further stoke inflation by lowering rates to match the 1/2 point Fed cut. Whether the Saudis were to break the peg with the dollar remains to be seen, but the refusal to lower its lending rates has spurred a dollar hammering this morning, with the Dollar index slumping to below the 79 level. The dollar has also plunged against the euro moving past $1.40.The image above comes from this report by the Telegraph of the UK: Fears of dollar collapse as Saudis take fright.
Now, to be fair, the falling dollar is not a Bernanke-only phenomenon. There was a rapid loss in dollar purchasing power during the 20th century, especially since 1971 when the Bretton Woods system of limited dollar convertability to gold ended and dollar became a true fiat currency. Bernanke is getting a bad rap for the recent acceleration of the dollar's decline.
Simply stated, this situation with the Saudis is seen in the forex as another threat to the dollar's status as the reserve currency of the world. China, Russia and other countries have recently been diversifying their holdings away from the dollar. Reserve currency status has had its benefits -- namely a virtually unlimited U.S. ability to print dollars by selling Treasurys to the rest of the world to fund our current account and budget deficits.
With that said, stock futures are only modestly lower, until S.A. actually breaks the peg, the above is relegated to speculation where the Wall Street bulls are concerned. There is also the chance the Saudis will clarify, or even deny they are going to de-peg and that would certainly reverse the big outflow from dollars we're seeing this morning. For all I know this could be some sort of trial balloon - the sheiks having some fun with a little experimentation, but that starts moving in the realm of conspiracy and I won't go any further with that.
I also have to wonder how the investing arm of the Saudi Royal Family - namely Prince Al-Waleed bin Talal, worth around $20 bln with big holdings in companies like Citigroup (C), would deal with the consquences of Saudi dollar de-peg which would not only pummel the dollar, but also his dollar denominated investments... just a thought and one that has not been well developed as I throw this together on the fly.
The dollar's woe, is gold's gain: Gold Climbs to 27-Year High on Weakening Dollar; Silver Gains.
As we get closer to the all time high of $850/oz (nominal dollars) set back in January of 1980, the sliding dollar's impact is evident in gold as well. Adjusted for inflation, gold would actually need to rise to about $1,800 an oz today to match that 1980 all time high. Again, be wary of a gold whipsaw if the Saudis come up with a strong de-peg denial.
Treasurys are lower pushing yields higher. The 10 year yield is up to 4.6% as what's bad for the dollar is bad for Treasurys. Put another way, since the Fed rate cut, the 10 year yield has moved about 12 basis points higher. That, as has been covered here in the past, is a bad scenario - where the Fed cuts short term rates, but longer term rates rise, known as a steepening yield curve, or waning confidence about the future.
Crude oil is holds on to a modest gain above $82/bbl.
If you have the time, Reuters has a pretty good analysis of the Bernanke rate cut: Bernanke bets the house in rate cut gamble.
There's bound to be some interesting listening later today: Paulson, Bernanke Prepare to Defend Response to Housing Slump.
There are some positives and other negatives this morning...
Goldman Sachs (GS) blew the door of street estimates again: Goldman Sachs' profit rises 79%.
No surprise at Bear Stearns (BSC): Bear Stearns Profit Drops Most in Ten Years on Credit Turmoil
Fedex (FDX) is deep in the trenches of the daily economic battle, so what they say about the economy would be of importance: FedEx Posts Net Increase of 4%, But Company Warns of Slowdown.
Best Buy (BBY) which recently posted strong results, continues to eat Circuit City's (CC) breakfast, lunch, dinner and midnight snack: Circuit City posts quarterly loss. It's a case of you either have it, or you're so far gone that you simply don't.
First time jobless claims fell again: Jobless claims fall to 311,000.
With that said, stock futures are only modestly lower, until S.A. actually breaks the peg, the above is relegated to speculation where the Wall Street bulls are concerned. There is also the chance the Saudis will clarify, or even deny they are going to de-peg and that would certainly reverse the big outflow from dollars we're seeing this morning. For all I know this could be some sort of trial balloon - the sheiks having some fun with a little experimentation, but that starts moving in the realm of conspiracy and I won't go any further with that.
I also have to wonder how the investing arm of the Saudi Royal Family - namely Prince Al-Waleed bin Talal, worth around $20 bln with big holdings in companies like Citigroup (C), would deal with the consquences of Saudi dollar de-peg which would not only pummel the dollar, but also his dollar denominated investments... just a thought and one that has not been well developed as I throw this together on the fly.
The dollar's woe, is gold's gain: Gold Climbs to 27-Year High on Weakening Dollar; Silver Gains.
As we get closer to the all time high of $850/oz (nominal dollars) set back in January of 1980, the sliding dollar's impact is evident in gold as well. Adjusted for inflation, gold would actually need to rise to about $1,800 an oz today to match that 1980 all time high. Again, be wary of a gold whipsaw if the Saudis come up with a strong de-peg denial.
Treasurys are lower pushing yields higher. The 10 year yield is up to 4.6% as what's bad for the dollar is bad for Treasurys. Put another way, since the Fed rate cut, the 10 year yield has moved about 12 basis points higher. That, as has been covered here in the past, is a bad scenario - where the Fed cuts short term rates, but longer term rates rise, known as a steepening yield curve, or waning confidence about the future.
Crude oil is holds on to a modest gain above $82/bbl.
If you have the time, Reuters has a pretty good analysis of the Bernanke rate cut: Bernanke bets the house in rate cut gamble.
There's bound to be some interesting listening later today: Paulson, Bernanke Prepare to Defend Response to Housing Slump.
There are some positives and other negatives this morning...
Goldman Sachs (GS) blew the door of street estimates again: Goldman Sachs' profit rises 79%.
No surprise at Bear Stearns (BSC): Bear Stearns Profit Drops Most in Ten Years on Credit Turmoil
Fedex (FDX) is deep in the trenches of the daily economic battle, so what they say about the economy would be of importance: FedEx Posts Net Increase of 4%, But Company Warns of Slowdown.
Best Buy (BBY) which recently posted strong results, continues to eat Circuit City's (CC) breakfast, lunch, dinner and midnight snack: Circuit City posts quarterly loss. It's a case of you either have it, or you're so far gone that you simply don't.
First time jobless claims fell again: Jobless claims fall to 311,000.
No comments:
Post a Comment