What do you think about this prediction?
http://halturnershow.blogspot.com/2009/01/monetary-flat-spin-in-progress.html

Thanks Amna, Yes, I don’t know about six months – it might take a bit longer. Have a look at this article by somebody way more qualified than me to comment:
http://www.telegraph.co.uk/finance/4125947/Willem-Buiter-warns-of-massive-dollar-collapse.html

Peter and Amna,
Apparently, H.Turner has been reading Karl Denninger whose accurate 2008 predictions are now followed by his 2009 forecast, seen here http://market-ticker.denninger.net/archives/2008/12.html
Personally, I believe it is the scale and speed of this financial tsunami that makes it most different from previous episodes. I was pleased to see the esteemed Prof. Buiter catch up with the likes of goldmoney.com founder James Turk who has warned about the coming dollar collapse for quite some time. It will be interesting to see if gold falls below $835 in 2009 before resuming its ascent.

Parity between the £ and the USD looks highly likely to me, given the worse state of the UK economy, and its government’s mismanagement. Why anyone would buy UK government gilts is beyond my comprehension.

And what will happen to US bond auctions when the law suits begin to fly? There appears to be a growing number of influential people questioning whether the Treasury and the Fed’s actions are illegal, and unconstitutional – particularly as they refuse to say how much bailout money is going to who, and what for. Isn’t that the sort of secrecy used by the confidence trickster Madoff to get away with his $50BN Ponzi scheme?! Despite serious warnings given to the SEC since 1999? (How many people in The Treasury, The Fed and the SEC were former business associates of Madoff during his Wall Street career, I wonder?)

If the U.S. Treasury and the Fed are found to have conspired with others to spend bailout money on items undeclared to Congress, then the ‘full faith’ invested in them and the $ will vaporise. The dirham, the yen, and the yuan look like safer havens to me. Even the venerable Swiss franc is exposed to incalculable losses in Eastern Europe.

I think the U.S. and the U.K. will resort to some form of exchange controls at some point within 4 years to stem the outflow of citizens’ money, seeking safety abroad.

Karl Denninger is gunning for lawbreakers to be prosecuted including implicated politicians, regulators, bankers, credit ratings agencies, companies who used leverage and sold products based on false claims,accountants signing off inaccurate or dubious company records, and last but not least, homeowners who lied about their income in order to obtain mortgages beyond their ability to repay.

Sounds like an excellent plan to me. After all, how can the U.S. or the U.K. restore confidence to investors, shareholders and taxpayers unless they guarantee that the financial system will be cleared of its massive Ponzi schemes, and financial trickery?

Finally – with apologies for the lengthy comment – honesty may be imposed from abroad. I see the Chinese have mooted the idea of their currency being used to settle contracts among their Asian neighbours; China has slowed its purchase of U.S. bonds in recent months; it is rumoured that China intends to increase its gold reserves, and most importantly, it has given fair warning to the U.S. that it must spend less, and save more.

Happy New Year, Peter. It will certainly be an interesting one…

Peter,

We’re in the U.S. about 1/2 our funds are in metals, most else in short term US treasuries. Wanted to get out of US cash, and put some in FXF, believing Swiss Francs to be safer, what do you think is the best alternative currency to US$ for the next 1 or 2 years?

Thanks for your blog, never miss a day, it’s such a comfort!
Thanks

Actually for the short term I like the UAE dirham – which is dollar linked but you get 6-6.6% on deposit. I am not sure what the rules are for non-residents but the dirham is freely traded, so if you are talking about a significant sum then there ought not to be a problem – talk to HSBC or Standard Chartered Bank. As the dirham is dollar linked I suppose that is an admission that the USD does offer short-term protection – simply because the alternative currencies are in an even worse mess right now. Look at UBS and you have to wonder about Swiss Francs too. Even gold and silver are up and down which does not help much in the short-term. Perhaps you should just take comfort in having cash while others have debts and asset price collapses to worry about! Longer term China is the place to invest USD and asset prices there have come down hugely, though perhaps still have some way to fall: then you would get both a currency and asset price lift.

Does anyone have facts and figures to indicate how tightly linked the Canadian economy is to the USA economy? If the USA does down the pan, how likely is it that Canada will follow?

And how are the Canadians doing on personal liberty issues, compared to for example the UK ( see http://www.no2id.net )

From The Telegraph today:

The turnover in gold increased by 58pc in 2008 to a record $20.2 trillion, according to International Financial Services London, a body that promotes the City of London. Silver trading also saw a dramatic increase during the year, rising by 39pc to a new record of $2.6 trillion.
The growth in turnover was partly due to an increase in prices of precious metals during the year, with gold reaching its highest ever price of $1,011 per ounce in March, IFSL said.
Daily reported net trading in gold on the London Bullion Market Association (LBMA) averaged $20bn in the first 11 months of 2008, a rise of 45pc on the same period of the previous year. Daily trading in silver on the LBMA increased by 32pc to $2bn.
“The actual volume of London market turnover is probably three to five times the reported turnover because transactions which are netted out do not appear in the published statistics,” IFSL added.
Futures and options trading of gold on exchanges increased by more than 80pc in 2008 to a record $5.1 trillion. Trading of silver also hit a new high, rising by 60pc to a $1.2 trillion.
Exchange traded gold and silver funds have been the strongest source of growth in demand since their introduction in 2003, IFSL said.
The price of gold is expected to average $910 an ounce in 2009, 4.3pc more than last year, according to a panel of 20 analysts, traders and investors surveyed recently by Bloomberg.

To John Newbound.
I hope you don’t mind me answering your question. Here is one answer:-
Essentially, the Canadian dollar is a commodity currency. Commodities rise first when economies recover.
Only the least indebted governments and their currencies stand a chance of surviving this oncoming ‘tsunami of credit’ (Greenspan).
Just my opinion, and here is the list: Canadian $, Norwegian krone, UAE dirham, Chinese yuan.
The yen is benefitting from a violent reversal of the ‘carry trade’; foreigners buying yen at low rate to invest in higher yielding foreign stuff. I won’t call it assets. It is stuff…stuffed full of toxic derivatives – a weird financial concoction that is the end of the financial world as we know it; a cancer eating the body politic, and the productive parts of the economy. A bit like a leech.

This too shall pass, and thoughtful people taking action instead of merely complaining will prosper once again, it seems to me. Just my one opinion.

Also, a good idea to keep reading Peter. I don’t know him, but his analysis is helpful.

Wednesday was not a good day this week:

Index Last Change Change %

DJIA 8,200.14 -248.42 -2.94%
NASDAQ 1,489.64 -56.82 -3.67%
CAC40 3,052.00 -145.89 -4.56%
FTSE100 4,180.64 -218.51 -4.97%
DAX30 4,422.35 -214.59 -4.63%

Hourly Action In Gold From Trader Dan
Posted: Jan 14 2009 By: Dan Norcini Post Edited: January 14, 2009 at 3:54 pm
Filed under: Trader Dan Norcini
Dear CIGAs,
It was another one of those mass long liquidation days by index funds and hedge funds as nearly everything that remotely resembled a commodity or was associated with commodities was jettisoned in favor of paper IOU’s (also known as US bonds). About the only commodities that I could see that were in the plus column today were the grains, particularly the soybean market which found buying on drought fears out of South America and wheat which found support out of hard freeze fears. Corn went along for the ride. Other than that the continued idiocy in the futures markets continues with panic buying one day giving way to panic selling the next.

My only comment to Trader Dan: the sooner we put a bottom in this market the better, and that could be April-June time at this rate – the capital markets will have to bottom well before a turnaround in the economy (and there has never been an exception to this rule) so the sooner the better. Perhaps the bailouts and stimuli are not impressing anybody now – most likely they are fund that have to sell to meet growing redemptions.