Still All The Same Markets - A Picture Worth a Thousand Charts

This shot says it all - the "all the same markets" hypothesis is still in play.

Why bother with diversification when all the markets move in tandem?

(Source: Barchart.com)

Hat tip to Robert Prechter, who I believe was the first to point out the increasing correlation between every asset class, as far back as 2004. He postulated that the markets were being driven by global liquidity flows:

• When liquidity is plentiful (2004-2007), all the markets rise together, the dollar drops
• When liquidity dries up, the dollar rallies, all markets tank (2008 - early 2009)

Since March, we've seen liquidity increasing, and the dollar dropping - still playing according to script. So I think we have to assume this relationship is still in place, until proven otherwise.

New Reports of the Dollar's Demise: Greatly Exaggerated?

From London's The Independent comes the latest report of the dollar's impending implosion - in an article fittingly titled The Demise of the Dollar.

In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.

I've read a few publications jumping all over this story today - the sky is falling, the dollar is doomed!

Have to say I'm skeptical. Governments are the ultimate investment herd! This is another great cue that the dollar has indeed put in a major bottom.

The dollar is showing some resiliency around the 76 mark. Time will tell if this latest "demise of the dollar" story is as ill timed as many from recent history.

You wouldn't know it from reading the news headlines...the sickest currency on planet Earth is still comfortably above its 2007 lows.

(Source: Barchart.com)

It's Time to Go Long the Buck

Three weeks ago, we discussed the possibility the the dollar was bottoming and poised for a major rally.

My reasoning was that:

• Sentiment was overwhelmingly negative on the buck. I noticed that even traditional contrarian investment sources appeared to be piling on. When there's nobody left to sell, that's usually a good sign that the bottom is in.

• We still appear to be in a period of debt deflation, which the Federal Reserve is basically helpless in preventing, because we have a credit based system. When credit goes away, it's gone forever. You can't print credit.

• The Japanese Central Bank, despite its best efforts, was ultimately unable to produce inflation since their credit bubble popped in 1990. And if the old joke is that their central bank was so incompetent that it couldn't destroy its own currency, I didn't know why ours would be any different.

What's happened in the last few weeks?

Pulling up the chart, the dollar appears to be forming a bottom. The 77 mark has held:

Is the buck bottoming?

(Source: Barchart.com)

The equity and commodity markets look toppy. Investor sentiment is overwhelmingly bullish. The AAII index, a very reliable contrarian indicator, is at levels not seen since November 2007.

Furthermore, China, the posterchild of this rally, has turned down - the Shanghai Index rolled over a few weeks ago...along with several key commodities. Gold is yet to break $1,000 decisively, despite the widespread belief that the Fed has successfully created inflation.

Add it all up, and we've got some very bearish pieces staring us in the face. And if we do see another massive deflationary wave down...is there any reason to believe it will behave differently than the last?

I don't think so. So I'm taking some cues from the markets, and positioning myself in the only asset that held up and even rallied the last time around - the US dollar.

Take Note When Bears are Bullish

One of our astute readers took me to task when I said Robert Prechter was not a perma-bear. In fact, this reader made a very good case, pulling up some old doomsday calls of Prechter's that look silly in hindsight.

We had a good back and forth debate - I accepted his points, but added that Prechter has called this rally to a tee, which was a bullish call.

Ultimately our reader summed it up perfectly:

Funny thing is he has called 2 rallies well 1980s bull market and this most recent rally.

He gets in trouble once he goes bearish (which he has been 18 of the last 20 years). Had he gotten away from this stupid (dow 400, great depression II) perma outlook of his, he would be much better. Then again, maybe its this permabearishness that somehow, someway gives him the ability to call rallies.

Maybe the real take away - the lesson of the last 20 years, is heed his calls of rally, ignore his calls of doom. Imagine how well we would have done!!! ;

A hilarious, and very insightful conclusion! We should especially take heed when the bearish types turn bullish!

I suppose the counterpoint would also be a wise one - be wary when perma-bulls turn bearish!

Positions Update

Still holding cotton - barely - and now we're taking a flyer on the buck.

It's tough to sell cotton here - and also tough to get excited about it. In a healthy global economy, cotton's fundamentals would appear to justify higher prices right now. The fact that we don't have them gives me pause that something is amiss - perhaps cotton is telling us that things may not be so fine and dandy.

Cotton continues to range trade.

(Source: Barchart.com)

Open positions:

Current Account Value: $23,891.64

Cashed out: $20,000.00
Total value: $43,891.64
Weekly return: -2.0%
2009 YTD return: -53.0% (Yikes)

Prior yearly returns:
2008: -8%
2007: 175%
2006: 60%
2005: 805%

Initial trading stake: $2,000

Can The Last Dollar Bull Please Turn Out The Lights?

Over the past week, we've been investigating dollar sentiment, which appears to be overwhelmingly bearish at the moment.

I was surprised when our dollar sentiment survey revealed that only 56% of readers were bearish on the dollar. After seeing bearish readings north of 90% in some places, and anecdotal evidence to support these #'s, I was a bit surprised that our results weren't as extreme.

Though astute reader MarketAddict pointed out that perhaps our readers are a bit more contrarian in nature, and thus the balanced opinion in our house poll.

Today in Growth Stock Wire, expert trader Jeff Clark sounded a Bubble Alert in everything except the dollar.

The problem now is everybody – and I mean EVERYBODY – is bearish on the dollar. It's a doomed currency, and everyone is expecting its eventual demise. Of course, that was the case last December as well, just before the dollar kicked off a three-month rally that boosted the greenback 12% and sent stocks and commodities reeling.

From a contrarian point of view, a bottom in the dollar is near. Too many people are betting on its demise. And while they may eventually be proven correct, the market is likely to make them suffer in the short term.

We're probably no more than a few days away from an important short-term bottom in the dollar, which means we're probably close to a short-term top in the stock and commodities markets. Given the extent of the selloff in the dollar and the rally in all the other markets, a counter-trend move could be substantial.

I agree wholeheartedly with Jeff, and believe that we could be in for a powerful, sustained dollar rally coming up. So if you're glancing longingly at gold, oil, stocks, and other "dollar hedges" - this is probably a wise time to check our emotions and channel your inner contrarian.

Ed. note: I'll make a quick plug for Jeff's premium trading service, The Short Report. It's excellent - I've been a subscriber for several months now - worth checking out if you're a serious short term trader.

It's not hard to be bearish on the dollar when you see this chart.

(Source: Barchart.com)

All Green Across the Screen Today...The Rally Lives On

The screens were flashing all green today, as our noted "all or nothing" trade resulted in everything moving up today!

Except for? The dollar, of course!

This screen shot from Barchart.com reflect a bull market in, well, everything!

Of note, Treasuries were up today - who the heck is still buying these things? A mystery to most market observants, indeed.

Meanwhile Green Shoots have proven to be unkind to the Greenback, which closed down today, just a shade above it's low for 2009.

So what do you think - is the dollar toast, or is it poised to climb if/when this rally finally cools off? If you haven't already, please take a minute to give us your take in our dollar sentiment survey.

Results will be published on Sunday, so stay tuned!

Dollar, Yen, Australian Dollar Rally Today - Where to Next?

It's another "all or nothing" day in the markets - with equities down, the US Dollar and Japanese Yen are, of course, up. This time joined by - surprise - our old friend, the Australian dollar (ugh - got chased out of that position too early :( )

Looking at a 6-month chart of the dollar, it's doesn't look pretty - or does it? Is the dollar on a one-way train to the cellar, or is it finding a bottom and ready to party?

Is the dollar about to fall out of bed...or just the basement window?

(Source: BarChart.com)

Take our quick poll and let us know what you think the dollar's going to do over the next 2-3 months. We'll be tallying the results this week, in order to compile an unofficial "dollar sentiment" index for readers!

Return on Capital? How About Return OF Capital!

I've come to the conclusion that in roughly March of 2008, the general tide shifted from inflation to deflation for the first time since World War II. Since that shift, everything we have seen has been pretty much deflationary.

Oil is half of where it was about a year ago. Ditto for corn and soybeans. Gold, after pushing $1,000 last summer, is now languishing just above $900.

The dollar, meanwhile, has rallied - and is perched much higher than it was a year ago. And that's after a year of solid "quantitative easing"...who would have guessed!

What I'm getting at is that the common wisdom last summer was that the dollar was screwed, and that we'd see deflation for a little bit, then wild inflation as a result of the money printing. I bought into this hypothesis whole hartedly myself...it seemed to make sense. Perhaps too much sense.

Well I can now safely say that I was either early, or wrong - and in trader's parlance, that's the same thing!

I thought that if inflation reared it's head, the commodity markets would be the first to know about it. And a few months ago, I thought we may have been experiencing a mini inflationary boomlet.

Now in retrospect, perhaps this was all just a standard fare bear market bounce.

In any case, I now can't find anything that indicates we're not still in a deflationary environment. Gold, as mentioned, can't break through $1,000. Wake me up when that happens.

And the US dollar...maybe the sickest currency in the history of the planet...actually is behaving just fine. Can you believe that?

The US dollar looks...just fine, actually!

(Source: Barchart.com)

Folks, I never thought I'd say this...but I think cash...specifically US dollars...are the place to be for the moment.

Now I could be wrong - I'll be the first to admit. So how will we know? If the dollar starts to really fall out of bed, it's crucial that we have our fingers on the trading triggers. A move down could happen swifty and violently.

But until further notice - I think the trade to be in...is no trade at all. Just cold hard cash.

Right now, it's all about "Return OF Capital" - it's the new "Return On Capital"...for the 4th Turning!

Quick Reader Survey - Please Share Your Thoughs!

I tossed together a quick 3-question reader survey, and I'd appreciate it if you could take a minute or two to share your thoughts and suggestions with me using the survey link here.

It's always great to connect with you, and your feedback and input help me figure out where to focus my energies...namely on stuff you like, and stuff you'd like to see more of.

The Week's 3 Most Popular Posts...

1. Why 650 is a Generous Fair Value Estimate for the S&P 500
2. Looks Like Another Wave of DE-flation...Here's What To Do
3. BBQ, Beer, and Contrarian Investment Indicators

Positions Update

Got killed this week...and I am out! Here's my new positions...so much for diversification:

Current Account Value: $27,511.18

Cashed out: $20,000.00

Total value: $47,511.18

Weekly return: -9.8% :(

2009 YTD return: -45.8% :(

Prior year's results: --> Don't try this at home...this is what is known as wreckless trading

2008: -8%

2007: 175%

2006: 60%

2005: 805%

Initial stake: $2,000.00

Last Call on the Pound Sterling Rally?

It might be time for us to grab a pint...and short one of our favorite whipping boys once again.

The British Pound - the only currency that may actually be sicker than the US dollar (two turds circling the bowl really) - looks like it's recent rally may be running out of steam.

Grab a pint...and short the Pound?

(Source: Barchart.com)

The BP has plummeted since early 2008 - from around $2, all the way down around $1.37 at it's low earlier this year - and is now back up around $1.62. That looks like a standard fare retracement to me of roughly 40%.

With the dollar starting to look frisky once again, we could see the BP get smacked down once again soon.

If you'd like to short the BP, the ETF FXB is probably the easiest way to do it.

The trouble with shorting the Pound straight up is that you're short in dollar terms - so if you prefer to hedge with another currency, you may want to pair it up with a long position, such as say FXA (the nice, sound Australian dollar).

Further reading: Australia caught sandbagging the A$!

Why Jim Rogers Has Covered All His Short Positions

"Because they are printing money," he says...and believes that stocks could go to very high nominal levels, while the currency becomes worthless.

I was just catching up on Rogers latest media appearances, and found this video on CNBC from a couple of weeks back.

Jim's still pounding the table that we've got a currency crisis on the way...while giving a long, hard glare at the dollar as the prime culprit.

And of course, he still loves commodities.

Enjoy the video!

Also check out one of Jim Rogers' favorite investments, sugar, hitting a 3-year high yesterday!"

Jim's latest book...now on sale...

Top China Banker Demands US Sales of "Yuan Bonds"

On Sunday, Guo Shuqing, a top Chinese Banker, suggested the US and World Bank sell bonds denominated in Chinese yuan.

"I think the U.S. government and the World Bank can consider the possibility of issuing renminbi bonds in the Hong Kong market and the Shanghai market," he said.

The clamor by China for a diversification of the US-centric world of finance continues to grow louder by the day, it seems.

Hat tip: Ed Steer at Casey Daily Resource Plus for finding this story

Over the weekend, we mentioned that the US dollar may be due for a short term rally, and that rally is likely to be shortlived. After a big day yesterday, the dollar is in the tank today...could the rally be over already? Even we didn't think it'd be that shortlived!

This Ain't Your Grandpa's Deflation...This Week in Commodities

Common wisdom holds that depressions are inherently deflationary.  The United States in the 1930's.  Japan in the 1990's and 2000's.

Combine a depression with other deflationary factors going today in the US - demographics, deleveraging, falling asset prices, even productivity - and you've got some serious deflationary headwinds.

(As a side note - I've warmed to the view that gentle deflation, as a result of increasing productivity, is the optimal, and honest, situation that promotes both savings and economic growth.  It's silly to label all deflation as "bad" or "evil"...how can deflation created by increased productivity be bad?  But I digress.)

Ben Bernanke, a student of the Great Depression, believes that the Depression could have been averted if deflation had been averted.

Determined not to repeat the mistakes of history - or what he thought were the mistakes of history - Bernanke took unprecendented measures...first, lowering interest rates as far as they would go...next, utterly trashing the Fed's balance sheet...and finally, when all else failed, he cranked up the printing presses.

Printing money always leads to inflation...in fact, printing money...or quantitative easing...is inflation.  Rising prices - which follow - are the symptoms of inflation.  

But what if you just print the money "for a little while"?  That's right - print it up, float it out there to keep the economy from grinding to a halt - and then when things are moving again, start to pull it back in.

Doesn't it sound insane?

Well, this is what is being tried.  And as hyperinflationary as this sounds, even the most fervent inflation hounds believe it will be a year or two or three before we start to see inflation creeping into the system.

Too much credit was destroyed, the velocity of money slowed down too much...logical reasoning dictated that it would take the Fed time to print enough to make up the gap...even at the rapid rate in which they were printing.

Then a funny thing happend while we were chilling out, getting comfortable, and generally not worrying about inflation - commodity prices started to move up.  The dollar started to drop.  Bond yields started to climb.

Falling Dollar, Rising Bond Yields = An "Uh Oh" Sandwich

Remember when every investor in the world was worried about the dollar's poor fundamentals?  McDonald's was poking fun at the dollar in it's commercials...music videos were flashing euros...supermodel Gisele Bundchen asked to be paid in euros rather than dollars.

That marked a bottom - at least a short term bottom - in the dollar.  Everyone was on the same side of the trade - short the US dollar.  

When world financial markets collapsed, a global "flight to safety" and massive short covering propelled the dollar up, up, and up.  

For awhile, nobody worried about the dollar's fundamentals...at least in the short term.  The Fed's printing money?  Hey, no problem, the dollar's still the world's reserve currency.  Besides, other countries are printing money too.  Why worry?

In the meantime, the dollar quiety began to slide...and the dollar index is now sitting at its low point for 2009:

It's a quiet race to get rid of US dollars once again. 

(Source: Barchart.com)

Makes you wonder if currency fundamentals do, in fact, still matter...if printing money is indeed bearish for the value of the currency being printed.

Meanwhile, what has The Fed been doing with it's newly printed dollars?  It's been buying long dated US Treasuries to keep yields down!

Nobody else is buying this trash, so it's up to our printing presses to pick up the slack.  The Fed announced this "newly printed cash for trash" program last December - when yields on the 10 and 30 year bonds were dropping, and deflation was king.

Common wisdom held that deflation, combined with these "monetization purchases" by The Fed, would continue to drive rates down...possibly all the way to zero.

But a funny thing happened on the way to Japan...rates bottomed on December 18, 2008, and have been climbing ever since!  Long dated Treasuries have been slammed throughout the first half of 2009!

30-Year Treasuries are not behaving like we're in a deflationary environment

 (Source: Barchart.com)

Uh oh...this is not good.  What a Fed to do?

If they let interest rates rise - that will surely squash whatever is left of the US consumer.  Green shoots turn into marajuana buds - game over.

But the only way to prevent interest rates from rising in the near term (short of cutting government debt, which we know is not going to happen) - is to step up their purchase of long term bonds.

So applying a little game theory to the Fed's current hand - we have to expect them to sacrifice the dollar.

The twist, I believe, is that the dollar could get trashed quite soon.  So I would strongly advise you to take a hard look at your savings and investments - right now.  

Charts don't lie.  No matter what our personal beliefs or biases are about the future, no matter what we think is going happen - we have to defer to what the markets are telling us.  And right now, the markets are starting to say "uh oh."

It could be a breathtaking move out of the dollar - it's value could feasibly get trashed in a matter of weeks, days, or even hours.  Don't be the one left holding the "Old Maid" card as the rest of the world runs for the exits. 

In Case You Missed It...This Week's 5 Most Popular Posts...

1. How to Time the Gold Market
2. The Dumbest Inflation Explanation I've Ever Heard
3. Marc Faber: We've Begun a 15-20 Year Bear Market in Bonds
4. What is the Breakout in Gold Stocks Signaling?
5. Can Commodities Decouple From Stocks?  This Week in Commodities

Positions Update - Back in the High Life Again!

What a week put by the Aussie...while the USD tanked, the A$ soared - moving up over 3.5 cents in one week!

I believe the Australian dollar could continue to rally further from here, and will be holding this position until we see a change in the trend.  Because we know that the trend is our friend!

OJ was down slightly on the week...some rain in Florida to snap the drought.  Prices held strong though...they could be consolidating before the next move higher.  We're still at fairly cheap prices on OJ, so there is room on the upside.

Not to cry over spilt milk - or in this case, spilt sugar - but I should not have "taken profits" in my sugar positions last week.  Just goes to show that when the trend is on your side, you don't sell and wait for a pullback...because it may never come!

Shame on me, and now I sit on the sidelines, waiting for a further breakout to the upside to reinitiate this position.

Finally with a little dry powder sitting around, I decided to "punt" on a Mini Soybeans contract on Friday.  Beans have been extremely strong, driven by demand from...you guessed it...China.  The soybean complex is a favorite of the Chinese - more so than corn and wheat - and as a result, beans have leading the pack as far as the grains go.

Soybeans are on the move, driven by Chinese demand. 

(Source: Barchart.com)

Current Account Value: $31,836.61

Cashed out: $20,000.00
Total value: $51,836.61
Weekly return: 11.6%
2009 YTD return: -37.3% (Don't call it a comeback??)

Prior year's results:
2008: -8%
2007: 175%
2006: 60%
2005: 805%

Initial stake: $2,000.00

Jim Rogers: The US is About to Have a Currency Crisis

If you have the majority of your savings in US dollars, this may be the most important insight you ever hear from Jim Rogers.

In an interview with Bloomberg from this morning, Rogers said:

“We’re going to have a currency crisis, probably this fall or the fall of 2010.  It’s been building up for a long time. We’ve had a huge rally in the dollar, an artificial rally in the dollar, so it’s time for a currency crisis.”

Jim reiterated that the place to be invested is in commodities, particularly agriculture:

"You're going to have serious food shortages in the next 3-5 years - prices are going to go through the roof."

You can view a video of this entire interview using this link (click on the "Video" tab on top).

Want some ideas about agricultural commodities with particularly appealing fundamentals right now?  Check out This Week in Commodities, which is heavily focused on agricultural commodities - right now we're invested in sugar and orange juice, both profitable trades to date and still climbing.

More recent insights from Jim Rogers:

• Rogers believes world is heading for Depression
• Jim interviewed by GoldSeek Radio
• Rogers prefers oil over gold right now

Ed. Note: I just got done reading Jim Rogers' new book - review to follow. Long story short, it's an insightful, quick read that I'd highly recommend. Pick up a copy if you haven't already:

Singapore Quits on its Currency, Too

Is ANYONE going to defend their currency?  Chuck Butler writes in the Daily Pfennig that Singapore is now the latest to throw in the towel on theirs:

A couple of weeks ago, when Chris was writing the Pfennig for me, he wrote about Singapore, and how the Monetary Authority of Singapore (MAS) had indicated it might push the Sing dollar lower. In fact, here's what he had to say in the Pfennig, March 30th, "Another currency you may want to consider exiting is the Singapore dollar. According to a story I read on Bloomberg this morning, the Monetary Authority of Singapore may devalue their currency and allow it to drop 4 percent against the US dollar in the next few months."

Well... Last night, the MAS announced a downward re-centering of the Sing dollar trading band while maintaining the width of the trading band and the policy of zero appreciation. OK... There it is... Forget all the trade widening and so on, and center on the "policy of zero appreciation"... That does not bode well for the Sing dollar... And for Chris' statement on March 30th? Bang On! Timely!

The thing I can't get out of head, is the fact that Singapore needs to keep its currency in line (value VS the dollar and euro) with the other currencies in Asia in order to keep its exports competitive... I guess, the MAS is thinking there aren't going to be any exports! And the ones that are there, they (Singapore) will have a "cheaper currency" and an advantage!

At least the MAS didn't devalue the currency, as these types of small countries tend to do to tilt the playing field toward them! And believe or don't... The Sing dollar rallied on the news that the MAS didn't devalue the currency... So... This is like manna from heaven for anyone trying to switch out of Sing dollars and into something else... The currency rallied overnight!

Just another reason to buy gold - it can't be "quantitatively eased" by any government.

China Sold Bonds Heavily in Jan, Feb

The New York Times reports that the Chinese government was an aggressive seller of foreign debt - including US Treasuries - in January and February, before reversing course in March.

All in all, China's foreign reserve growth in Q1 was its slowest in eight years - indicating that China may be losing it's appetite for US debt.

If this trend continues to accelerate, I anticipate the US Federal Reserve will have no choice but to print more money in order to finance it's long term debt obligations.  This is risky business, no doubt, as I am not aware of a historical instance where a government printed money this quickly, and did not experience serious inflation.

Folks, this is not meant to be doom and gloom - these are just the facts as I see them.  Now the question we must ask ourselves is: "How can we profit from these anticipated moves?"  There's nothing we can do to save our government from it's own stupidity, but there's a lot we can do to protect ourselves, and even profit handsomely.

Some "money printing" protection positions to consider:

• Shorting long term US debt (like Jim Rogers)
• Buy gold and other precious metals
• Buy commodities, especially agriculture - historically agriculture is quite cheap, and the world is not about to stop eating

Any other suggested trades?  

Congresswoman Tries to Legislate Dollar's Challenges Away

Are the dollar's days numbered as the world's reserve currency?  Not if  Congresswoman Michele Bachmann has her way.

Earlier this week, Rep. Bachmann swung to the defense of the US Dollar, on the heels of China asking for a new world reserve currency.

From Rep. Bachmann's website:

In response to suggestions by China, Russia, and other countries around the world calling on the International Monetary Fund to explore a multi-national currency, U.S. Representative Michele Bachmann (MN-6) has introduced a resolution that would bar the dollar from being replaced by any foreign currency.

“Yesterday, during a Financial Services Committee hearing, I asked Secretary Geithner if he would denounce efforts to move towards a global currency and he answered unequivocally that he would," said Bachmann. "And President Obama gave the nation the same assurances. But just a day later, Secretary Geithner has left the option on the table. I want to know which it is. The American people deserve to know."

If you're interpreting her comments the same way I am - then I think that Michele believes the US is considering using a basket of currencies to replace the dollar within our borders.

Ah, you can't make this stuff up (hat tip to Agora Financial for uncovering this gem of a news item).

In fairness to Michele, as I'm right now digging through her website to find more material for, well, jokes, to be quite honest - I found her Twitter feed, which actually impressed me, as she is apparently quite the fiscal conservative.

In fact, here is a video of her calling for the Obama administration to cut the capital gains tax rate to ZERO - along with cutting the business tax rate down to 9%!

And she bashes the Federal Reserve and US Treasury!  Wow, have to admit I'm quite impressed.  What an emotional rollercoaster ride this column has been for me.

I was going to finish this colum with a few cheapshot jokes and call it a morning, and I left with a new fantasy girlfiend - low taxes and libertarianism ideals are always the way to my heart.  Just goes to show, you never know when love comes walking in. 

China Asks For New World Reserve Currency

In an "open letter" on the official website of The People's Bank of China - which I didn't know existed until today - Chinese central banker Zhou Xiaochuan called for a new world reserve currency.

The outbreak of the current crisis and its spillover in the world have confronted us with a long-existing but still unanswered question,i.e., what kind of international reserve currency do we need to secure global financial stability and facilitate world economic growth, which was one of the purposes for establishing the IMF? There were various institutional arrangements in an attempt to find a solution, including the Silver Standard, the Gold Standard, the Gold Exchange Standard and the Bretton Woods system. The above question, however, as the ongoing financial crisis demonstrates, is far from being solved, and has become even more severe due to the inherent weaknesses of the current international monetary system

While the US Dollar is not explictly singled out in the letter- it obviously might as well be.  It's a quick read, worth checking out if you haven't already.

The real question, I think, is how much of this letter is posturing vs. genuine intent to act.  I'm not sure yet, but this is an awful lot of noise coming from China recently on this subject, following up Luo Ping's comments about US Treasury Bonds.

Weekly Commodities Report - Dropping Dollars From Helicopters

Bernanke Fires Up the Printing Presses

Earlier this week, Ben Bernanke announced the US Federal Reserve will buy up to $300 billion of US long-term Treasury securities over the next 3 months.  Where will the Fed get that money?  It will essentially create it out of thin air - also known as "printing money."

Surprisingly, the markets were not amused by Ben's announcement, as the dollar suffered it's largest one-day decline since 1971, while gold got a nice pop, rallying from sub $900, currently sitting around $950 as I type.  

Gold's recent rally may have had something to do with the fact that it, unlike the US Dollar, cannot be created out of thin air.

Amusingly, this accouncement comes on the heels of a key Chinese official lamenting the bad stench emanating from US Treasury Bonds.  Some reports I've seen recently suggest that foreign investment in US debt has fallen precipitiously, and this represents the Fed's last gasp to hold interest rates low - possibly attempting to drive them all the way down to zero.

If you've been thinking that deflation would rule the day, I'd highly recommend revisiting an important guest piece penned for us by Bud Conrad about this epic battle between inflation and deflation.

If You're Short the Yen, You're Long the Dollar - Oops

The past couple weeks I've been on my soap box, calling the demise of the Japanese Yen.  I made the case that the Yen was circling the toilet bowl at a faster rate than the US Dollar.

Oops.

The Yen spiked sharply, and unfortunately I was stopped out of my short position at a large loss.  After I was stopped out, then Yen continued to rise a bit, and has since corrected back down.

This is why my wife yells at me for trading currencies.

Ah well, sucks, but have to respect your stops.

I have to admit, this trade gone awry may have killed my appetite for currency trading for awhile.  It was easy when the dollar was on a one-way trajectory to the cellar.  

Things are just a bit too crazy in the currency markets right now for an armchair trader like me to figure out.

Depression Economics for Kids

And just when you thought things couldn't get any stranger in the financial world, Disney announces a new exhibit at EPCOT center called "The Great Piggy Bank Adventure".

The exhibit will teach kids such valuable life lessons as staying ahead of inflation, and diversifying your investments.  

You can't make this stuff up.

Current Futures Positions

Date Position Qty Month/Yr Contract Entry Last Profit

02/27/09 Long  1  MAY 09  Sugar #11  13.79  13.42  ($414.40) 

Net Profit/Loss On Open Positions ($414.40)

Current Account Value: $25,312.72

Cashed out: $20,000.00
Total value: $45,312.72
Weekly return: -12.7%
2009 YTD return: -50.2% (yikes)

Prior year's results:
2008: -8%
2007: 175%
2006: 60%
2005: 805%

Initial stake: $2,000.00

Weekly Commodities Report - Waiting on the Grains and Softs

Grains and Softs Showing Some Signs

With the stock market showing some signs of life this week, many of the agricultural markets followed suit.  Corn put in a particularly strong week, driven by reports of strong export sales of the past couple of weeks, as well as strong equity and oil prices.

Seasonally this is the time of year for corn to rally - as the saying goes, if corn doesn't rally by the Fourth (of July), it's not gonna happen.

We reported earlier this year that farmer's may have a difficult time making money with corn at $4 - and speculated that some may switch their crop to soybeans.  This may be an interesting time to take a flyer on corn and see if it can make a run back up towards $5.

We are in "wait and see" mode across the board with respect to agriculture.  We continue to hold our sugar position, and coffee looks particularly interesting once again, as I continue to see reports of disappointing supply this year.

Update on Japanese Yen Short Position

The Japanese Yen was quite volatile this week - down, then up, then down again - ending the week about where it began.  

Japan posted it's first trade deficit in 13 years, as exports have fallen off a cliff.  But then the man known as "Mr. Yen" made a bullish statement regarding his expectations for the Yen, propelling it above the 104 mark mid-week.  Finally the market refocused on Japan's deteriorating GDP, sending the Yen back down.

Japan seems to be in a real economic pickle.  The country has serious demographic problems, and it's likely that Japan as we know it has entered what will be a long, terminal decline.  Everyone is just getting too old, and there will soon not be enough people left to work.

Since Japan's economy is largely export driven, expect Japan to do whatever it can to weaken the Yen vs. the dollar.

Around the Investing World

• The Swiss - of all people - give up on their own currency in a last ditch effort to stoke exports.  Expect this move to spark further rounds of competitive currency devaluation, which can only be bullish for gold.

• Jim Rogers continues to wait for a chance to short US Treasuries, noting that it's feasible that Bernanke could drive interest rates to zero in the short term.

• "Perma-bear" Jeremy Grantham is starting to deploy some capital into stocks, as he estimates the fair value of the S&P to be about 900.

Current Futures Positions

Date Position Qty Month/Yr Contract Entry Last Profit

03/02/09 Short 1 JUN 09 Japanese Yen 1.0271 1.0222 $612.50
02/27/09 Long 1 MAY 09 Sugar #11 13.79 12.89 ($1,008)

Net Profit/Loss On Open Positions ($395.50)

Current Account Value: $28,992.67

Cashed out: $20,000.00
Total value: $48,992.67
Weekly return: -0.4%
2009 YTD return: -42.9% (yikes)

Prior year's results:
2008: -8%
2007: 175%
2006: 60%
2005: 805%

Initial stake: $2,000.00

Shorting the Japanese Yen - Weekly Commodities Report

Why We're Shorting the Yen

Last Monday, we shorted the Japanese Yen.  Longtime readers may be wondering what we're smoking, as we've been playing the long side of the Yen (with relative success) on and off over the past couple of years.

My thinking is that the carry trade has been completely unwound, and fundamentals will now start driving the currency markets once again.  It's a tricky environment, as nation-states engage in an escalating battle of competitive currency devaluation.  I do believe that most of the world's currencies are "circling the bowl", just at different rates.

This should ultimately be quite positive for gold and silver, which may continue to regain their status as "sound money" while this plays out.

Back to the Yen - the fundamentals are not good, even worse than the dollar, I believe.  Japan's economy, which is export driven, has seen exports absolutely collapse.  The Bank of Japan has not been shy recently about expressing an interest in halting the Yen's rise.  A weak Yen is in Japan's best short term economic interests.

With the Yen "breaking down" on the chart, it's time to short it.

Source: Barchart.com

Other currencies with poor fundamentals that may be good short candidates are the British Pound and the Euro.  

Recession and Muddle Through Recovery, or Greater Depression?

This is going to be a long, drawn out recession, and a slow slog of a recovery, I believe.  I see one of two scenarios unfolding, and have spent a lot of my recent time and energy figuring out of we'll see:

1. A deep recession, but only a recession.  Followed by a slow recovery that is drawn out due to the massive government measures we're seeing.  But ultimately, the world, and the US, recover, and we're back on track with a new boom around the middle of next decade.
2. The Greater Depression, as Doug Casey postures, where things get really ugly, and we see something on par or even worse than the first Great Depression.  Social unrest and upheaval are possible, and perhaps even probable, in this scenario.

Scenario #1, the Muddle Through Economy, is a phrase coined by financial analyst John Mauldin.  If you're not familiar with Mauldin, I'd highly recommend you check him out.  He has a free weekly newsletter that is excellent.

Mauldin has a new service that I subscribe to, where he shares audio recordings of conversations he has with other financial gurus in his rolodex.  The most recent edition, recorded last week I believe, featured Nouriel Roubini, as they discussed the global economic outlook over the next 3-5 years.

While Mauldin and Roubini are both bearish in the short term, both seem to believe that things will eventually get back on track, led by the emerging markets.  Essentially we'll have our deep recession, with a slow L-shaped recovery, but eventually we'll get on with things.  

On the other side of the coin, Doug Casey and the folks at Casey Research believe we are in for some very bad things.  Since they have been relatively on the money regarding the current mess we're in, I can't disregard their opinion that things are going to get flat out ugly.

For the full monty from Doug Casey, check out this guest article he penned for us at the end of 2008 about The Greater Depression.

My conclusion?  I'm cautiously optimistic that Mauldin's view will prevail,  but can't rule out the warnings being issued by the Casey folks.  So I try to be a good trader and keep an open mind to all possible scenarios - so that when the facts change, I can change my outlook accordingly.

As a side note, I've been ruthlessly unsubscribing from most other financial publications I have.  Just too much noise - I don't need to have hundreds of stock ideas, and dozens of different opinions.  I've picked a few voices that I trust, and have gotten things mostly right to date in terms of the current economic situation, and will focus on them moving forward.

What I Do All Day

This blog is really just a fun side project for me.  I would love to spend all day on it if I could - and maybe someday I will if I can develop real business model around it - but for now, it's a labor of love.

These days, my days are quite busy, as my software company just released it's first product to the market.  We've built an automatic time tracking tool that helps people figure out where their time goes, by capturing and categorizing how they spend time on their computer.  

It seems to be most useful for folks who need to meticulously account for their time, such as attorneys and other folks who bill hourly, by serving as a "personal timekeeper" of sorts.

I'd welcome your feedback and thoughts on Chrometa's website and concept.  There's also a free 30-day trial available on the site.  To chat more about this, you can ping me direct: brett - at - chrometa - dot - com.

Hanging Out on Twitter

I have to admit I'm getting more addicted to the strange universe that is Twitter by the day.  You can find me there @brettowens.

Current Futures Positions

Open positions

Date	Position	Qty	Month/Yr	Contract	Strike	Call/Put	Entry	Last	Profit/Loss
03/02/09	Short	1	JUN 09	Japanese Yen			1.0271	1.0204	$837.50
02/27/09	Long	1	MAY 09	Sugar #11			13.79	12.79	($1,120.00)
Net Profit/Loss On Open Positions									($282.50)

Account Balances

Current Cash Balance	$29,388.17
Open Trade Equity	($282.50)
Total Equity	$29,105.67
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$29,105.67

---------------------------------------------

Cashed out: $20,000.00
Total value: $49,105.67
Weekly return: 0.4%
2009 YTD return: -41.3% :(

Prior year's results:
2008: -8%
2007: 175%
2006: 60%
2005: 805%

Initial stake: $2,000.00