Archive for the ‘Currency Watch’ Category

A day of change

Friday, June 5th, 2009

US Treasury Interest rates are starting to accelerate up. The Geithner/Bernanke/Obama “let’s spend our way out of this” isn’t working. As interest rates go up, the fear will start to feed on itself.

If Interest Rates go up very much, companies that have sold Interest Rate Swap contracts are in serious trouble. Companies holding Interest Rate Swap contracts to protect themselves from increasing interest rates will be in serious trouble if their counter party fails. (think AIG)

The biggest loser today in the S&P 500 is ICE (Inter Continental Exchange), which is the place that trades in derivative contracts. ICE has been designated as the “magic pill” by Geithner as a the place where Swap Contracts can be turned into a tradeable commodity, backed by a central clearinghouse. But there is no entity that can possibly “guarantee” $562 Trillion in contracts – not even the U.S. Treasury. It isn’t going to work.

Acting in the way you would expect, as interest rates start to go up, money is starting to come back into the United States, and the dollar strengthened substantially after losing a lot of its value over the past few weeks.

And finally, the rule of law officially ended today . As was widely expected, the US Appeals Court refused to step in front of the speeding Chrysler “rescue”, and told the secured creditors to go pound sand.  100 years of procedures governing bankruptcy and property rights is out the window – Tim Geithner gave the company over to Fiat and the UAW for essentially nothing, plus threw in a big pile of money from the US Treasury,

*** Update ***

The pension plans have filed an emergency appeal to the U.S. Supreme Court to extend the stay at midnight Saturday night.   The Supreme Court has until 4 PM Monday to slam on the brakes.   The Fiat deal was deliberately written as an “emergency” that if it doesn’t happen on Geithner’s schedule, Fiat gets a financial windfall.   I hope we learned something from the $700 billion emergency last fall.

Geithner’s Waterloo

Monday, March 30th, 2009

Sunday, the US Government told Rick Waggoner – the CEO of General Motors – that he no longer has a job.  The government automobile rescue commission has declared that the viability plan is not workable.

Tim Geithner has declared that the problem with the economy is that he hasn’t done enough, not that he has done too much.  At the same time, he is lashing out at banks for being unwilling to take on additional risk.

Markets in Asia responded by dropping over 4%.   Futures suggest the same will happen here.   If you didn’t already sell to take advantage of the recent upswing, you probably missed your chance.

Geithner is now trapped by the reality that the hedge funds are not going to fund his latest toxic solution plan since Congress did the 90% AIG tax thing to punish those working hard to unwind the company.  Add to that the threat of “taking over” the same companies by decree of the Federal Reserve Board of Governors (which has no jurisdiction over anything except its members), and Geithner is in a real dilemma.   If he makes nice with the hedge firms and seeks to protect them from populist retaliation for making big profits by rescuing the banking system – he could face the rath again of those who want his head on a platter.  If he doesn’t shield them, they won’t voluntarily help.

No wonder nobody wants to work for him.

It isn’t working

Thursday, March 12th, 2009

Libor Creeping Up

Despite the central bank interventions to prop up failed banks and flood the world with close to zero percent money, the London InterBank Offer Rate (LIBOR) is going back up.  Almost all US Dollar denominated debt (like that owed by big US corporations and variable rate mortgages) is pegged to the LIBOR rate.   If LIBOR starts to really take off again (like it did last September), the global fat lady is singing.   The central banks our out of ammunition.   It’s time for triage.  Not eveyone is going to make it out alive.

GE, BofA sell $18B in FDIC debt

Monday, March 9th, 2009

Bloomberg Story

Just a day after the FDIC announced it may be insolvent this year – and with responsible smaller banks crying foul (We’re paying for the mistakes of the reckless banks), GE Capital (which was NOT a bank) has issued $8B in bonds guaranteed by the FDIC and BofA (which recently said it was a mistake to accept TARP funds) has issued $8.5B in FDIC backed loans because Credit Default Swaps on their own lending is getting too expensive (because people selling the swaps believe the chance of default is going up).

If CitiGroup is allowed to fail, there is really no doubt the FDIC goes with it.  All the cards are on the table now, and the United States is holding a pair of 3s and bluffing – and the other people at the table know the cards we are holding.

Strength of the Dollar

Wednesday, February 18th, 2009

Contrary to what many people seem to think, and especially promoted by the companies trying to scare people into buying gold – the US dollar has  been getting stronger, not “falling”.

Back before this global panic started, it took about $1.28 to buy one Euro (the most important benchmark currency).  When the panic started breaking out, the US dollar got up to about $1.45 to buy one Euro, but it didn’t stay there very long.  As of today, the dollar is back to $1.25 for a Euro.  While the dollar may decline in the future, for now the world continues to believe that the US is the safest place to weather this storm.