Is the Dollar Dead

A lot of observations are being made that in the past few weeks of major geopolitical unrest in the world, the dollar has continued to devaluate.  In past history when events like these occurred investors flocked to the dollar as a safe haven, so it was expected that the dollar would rise during these troubling times.  This has drawn many to the conclusion that the dollar is now a weak currency and is no longer a safe haven.  The following 2 charts is a view of the dollar index short term and longer term.

The following is a CNBC interviews illustrate the point a little more.  i think Rick Santelli makes an astute observation that "the  Dollar doesn't seem to have the international cache that it use to".

Larger countries (China, Russia and India) are slowly moving away from the U.S. dollar as a reserve currency by creating bilateral agreements between each other and smaller countries to exchange goods/commodities in their own currencies.  Keep in mind that prior to these agreements when a  country wanted to buy a commodity it had to be traded in dollars (hence the reserve status), which created demand for dollars.  Demand for dollars causes the dollar to increase in value/strength.  If the bilateral agreements continue to grow, then only trade with the U.S. will be done in dollars and lets face it, the best thing we export these days is inflation. 

Fed POMO Update

The FED performed another POMO (Permanent Open Market Operation) purchase today in the amount of $1.967 billion dollars.  This brings the total since November 3rd 2010 (when the FED announced the printing of $600/900 billion dollars in printing) to $369.519 billion dollars.  The total since August 17th 2010 is $433.979 billion dollars.

OPERATION 1 - RESULTS

Operation Date:	02/23/2011
Operation Type:	Outright Coupon Purchase
Release Time:	10:15 AM
Close Time:	11:00 AM
Settlement Date:	02/24/2011
Maturity/Call Date Range:	08/15/2028 - 02/15/2041
Total Par Amt Accepted (mlns) :	$1,967
Total Par Amt Submitted (mlns) :	$9,942

Housing Data Slowing

This week the Housing Permits, Starts and Completions report was released.  As you can see from the chart below starts were up by 76k, Permits were down by 65k and Completions were flat in January.  If you dig back in history (will work on getting the history together for this) you'll see that completions are inverted from starts and completions are trending down.  My takeaway from this is that many have contracted for a house, but quite a few are not able to get all the way through the process for various reasons.  

A few points, how anybody expected housing to continue growing forever, I do not know (not a sustainable model).  Another point is that just because there are completions doesn't mean that the property actually settled and transfered to a buyer, some sits on the market un-owned (do not have the data on how much though).  An interview from King World News showed that this is just adding to the already excess inventory on the market which will further depress prices in housing.

Weekly King World News Interviews

This week King World News interviews Greg Weldon, Bill Fleckenstein, Jean-Marie Eveillard, & Rick Rule.  Great interviews discussing hot topics that are relevant to all of us right now.  Topics cover food, inflation, metals, currency and such.

Greg Weldon - Discusses his thoughts on commodities and the equities market, where there could be a lot of people stuck when everything changes.  Greg talks about the FED's printing money and the interest that will come due on our debts soon (as well as increasing interest rates).  Greg also discusses that house prices are going to go down instead of appreciating for a while, due to too much supply.  As central banks (other than the U.S.) increase their interest rates due to food inflation, the U.S. dollar will depreciate further.

Bill Fleckenstein - Discusses the breakdown in confidence in the U.S. dollar by certain people (Bill Gross, Marc Faber and etc).  Bill also talks about the fact the deflation argument was always invalid because the FED would never allow it to happen (as witnessed by the FEDs printing).  Bill points out that the money printing is creating multiple manias and it is not going to end well.  He points out that metals still have a way to run as people realize their fiat currency is being made worthless.

Jean-Marie Eveillard - Discusses metals, the bond market and economy.  He thinks the bull market in the Bond market will be over soon as their has been a 30 year bull market in bonds and the returns on bonds are still puny.  Jean-Marie believes the policies in the U.S. (according to the Austrian school of Economics) is highly inflationary.  

Rick Rule - Discusses his thoughts on silver and how their is a shortage in physical delivery of silver.  Rick says the April, May time frame silver may really move higher due to this physical storage issues.  Also, silver is in backwardation as physical is going for more money than the futures market.  Rick believes the physical demand for gold is so high now that gold will not pull back below current levels.  Rick also discusses the fact that energy prices will go higher in the near future (especially oil).  He believes oil will be a huge disruptor on the economy in the future.  Rick sees Natural gas demand will go up again due to demand.  He discusses changes in agriculture and food shortly due to multiple reasons.

Weekly Unofficial Problem Bank List

CalculatedRisk released its "Unofficial Problem Bank List" yesterday revealing that 951 institutions and $418.6 billion dollars are at risk.  From the prior post we lost 4 banks this past week which 4 were removed from the Unofficial Problem Bank List and 2 additional removals due to mergers.  There were 13 additions to the list (please see the post here).  Check the list (highlighted above) to see if your bank is on it and please check TheStreet.com's Bank Safety data to see where your bank ranks.

Weekly M1 and M2 Money Supply

M1 and M2 money supply contracted for the week ending February 4th 2011.  M1 money supply contains currency, travelers checks, demand deposits & other checkable deposits.  M2 money supply contains M1 and retail money market mutual funds, savings & small time deposits.  M1 decreased by -1.84% and M2 increased by 0.063%.  M3 is what we really need to be looking at but does not get published anymore (since 2006).  Please see M3 below which is provided by shadowstats.com.  

Weekly Bank Failures

This week we had 4 banks fail, bringing the total to 22 banks in 2011 so far.  The following banks failed this past week; Citizens Bank of Effingham in Springfield Georgia, Charter Oak Bank in Napa California, San Luis Trust Bank FSB in San Luis Obispo California and Habersham Bank in Clarkesville Georgia.  It looks like Georgia and California are off to the races to be in the forefront (mainly Georgia).  In 2009 Georgia took the lead with 25 banks failed out of a total of 140 that year and in 2010 Georgia was #2 with 21 banks failed out of 157 total.

Weekly Initial Unemployment Claims

Sorry for the late post, I am catching up on my data for the week.  The weekly initial unemployment claims tipped up this week, which turned out worse that expected.  Initial claims is the number of persons that filed for unemployment for the first time in the prior week.  The forecasted numbered called for 401k, but the actual headline number came in at 410k.  Last weeks headline number of 383k was revised up to 385k.  The revisions delta in the data has gone from overshooting (when it was presumed things were getting better) back to undershooting (which is our new norm for the past few years).  

Money Fund Flows This Week

Fund flows were released on Wednesday ( Sorry for late post, busy week) and showed a continuation of two things; Money flowing back into domestic stocks and money flowing out of municipal bonds (I think it is safe to say the trends are in place now).  Domestic stocks had in-flows of $4.921 billion dollars and foreign stock in-flows tipped up a bit to $928 million dollars.  The taxable bond market had in-flows of $3.027 billion dollars and municipal bonds continued to sell of due to municipal debt concerns with out-flows of -$1.466 billion dollars.