Why will the dollar rally?

[gonebroke2]

[ QUOTE ]

i'll now offer even money on those terms that goldman sachs does not report 1 quarter of negative earnings in the next 5 quarters.

Barron

[/ QUOTE ]

I changed my mind. I will take that bet. Same amount as our gold bet. Reply to confirm.

[DcifrThs]

[ QUOTE ]
[ QUOTE ]

i'll now offer even money on those terms that goldman sachs does not report 1 quarter of negative earnings in the next 5 quarters.

Barron

[/ QUOTE ]

I changed my mind. I will take that bet. Same amount as our gold bet. Reply to confirm.

[/ QUOTE ]

confirmed.

bet is that goldman sachs will not post 1 quarter of negative earnings (i.e. a quarterly loss) for the next 1.25 years (5 quarters) starting Q42007-Q42008.

same terms as our gold bet.

Barron

[PLOlover]

[ QUOTE ]
i'll completely neglect (count as zero) all gains goldman claims on level III trading activities. specifically, all gains on assets/sales that are "marked to model." in this case, of the $8bil trading profits, i'd count only 5.5bil of trading profits instead of the $8bil reported due to $2.5bil of level III profits.

[/ QUOTE ]

http://www.atimes.com/atimes/Global_.../IK03Dj03.html

[ QUOTE ]
Nov 3, 2007


Page 1 of 2
THE BEAR'S LAIR
Level 3 storm about to hit Wall Street
By Martin Hutchinson

There's a mystery on Wall Street. Merrill Lynch wrote off $8.4 billion in its subprime mortgage business, a figure revised up from $4.9 billion, yet Goldman Sachs reported an excellent quarter and didn't feel the need for any write-offs. The real secret of the difference is likely to be in the details of their accounting, and in particular in the murky world, shortly to be revealed, of their "Level



3" asset portfolios.


[/ QUOTE ]

[PLOlover]

[ QUOTE ]
what?? the fed (rightly or wrongly) is not "pumping money to them" as it is to the economy in order to attempt to reduce the chance of a recession. the last quarters growth #s were rediculously good and probably won't last another quarter or two.

the employment situation also looks amazing especially given all the turmoil in the credit markets.

one very real possibility is that it will take a few months to a year or so for the turmoil to work its way into the real economy...

...but, it will also take many months (about 6, maybe more w/ the housing mechanism in poor shape) for the effect of interest rate cuts to work their way through to the real economy.

so the fed is simply trying to move in ahead of any huge fall in growth, not specifically to prop up failed insurers. bernanke (and his counterpart at the BoE) is aware of the moral hazard that can lead to similar problems in the future and i don't think he is happy about having to cut rates w/ inflationary pressures so high and growth still pretty strong in order to avert the big threats to growth down the line.

that being said, it is very clear the fed has a bias for lower rates.

anyways, i think i went far to deep given the level of your post...short answer: "lol, the fed could raise rates and goldman would still post a profit & the fed isn't cutting rates w/ goldman sachs's bottom line in their scope"

Barron

[/ QUOTE ]

I'm pretty sure the fed is pumping money in, no matter what you might call it.



http://www.washingtonpost.com/wp-dyn...102601211.html
[ QUOTE ]
Fed's Stealth Bailout

By RACHEL BECK
The Associated Press
Friday, October 26, 2007; 1:35 PM

NEW YORK -- There's no need to wait for a government bailout of the distressed banking system. The Federal Reserve has already begun doing so.

[/ QUOTE ]

http://onlinejournal.com/artman/publ...cle_2452.shtml

[ QUOTE ]
Secondly, a massive bailout as the Bernanke Fed has undertaken raises the question of moral hazard present in any massive central bank rescue intervention, after it has failed to properly regulate the risky activities of the banks it supervises. Indeed, by accepting mortgage-backed securities as collateral for huge more or less longer-term loans to American banks and brokers, at reduced interest rates, the Fed is in effect rewarding the very institutions which acted the most irresponsibly over the last four or five years, while saving its own face for having failed in its regulatory mission. The message is loud and clear: American financial institutions can indulge in creating "innovative" risky artificial credit instruments, shifting the risks to unsuspecting borrowers and investors while reaping juicy fees and rewards, and when things turn sour, as can be expected, the Fed will come to their rescue and bail them out with cheap and extended loans. That is a good way to carelessly encourage greedy and out-of-control financial institutions to create successive disorderly and disruptive financial crises.

[/ QUOTE ]


http://www.bernankepanky.com/blog/20...ed-securities/
[ QUOTE ]
Bloomberg reports:

The Federal Reserve added $19 billion in temporary funds to the banking system through the purchase of mortgage-backed securities to help meet demand for cash amid a rout in bonds backed by home loans to riskier borrowers.

The Fed accepted only mortgage-backed debt as collateral for this morning’s weekend repurchase agreement. Losses in U.S. subprime mortgage investments have been rippling through global credit markets, driving interest rates higher and sinking share prices. The Fed also added $24 billion yesterday, the most since April, as demand for cash increased.

[/ QUOTE ]

http://www.smirkingchimp.com/thread/10628
[ QUOTE ]
Consider this article in Sunday's UK Telegraph:

Barclays and Royal Bank of Scotland have lined up emergency funds of up to $30 billion from the US Federal Reserve to bail out American clients caught up in the global credit crunch.

The Fed's board of governors wrote to both banks 10 days ago, granting them access to funds for customers "in need of short-term liquidity"

The letter to RBS made particular reference to investors holding mortgage-backed securities -- which have been at the centre of the sub-prime crisis. ("Barclay's, RBS prepare emergency credit with Fed", UK Telegraph)

[/ QUOTE ]

http://www.larouchepub.com/other/200..._bailouts.html
[ QUOTE ]
Some $400 billion in extraordinary injections of central bank liquidity, into the banking systems, were carried out Aug. 9-21, and are still continuing.

[/ QUOTE ]

http://www.dailyreckoning.co.uk/arti...allow0482.html
[ QUOTE ]
Feds Bail Out Big Banks As Fast As Their Buckets Allow

Today comes word that the Feds are bailing out the big banks as fast as their buckets allow. It is the biggest bailout in five years, say the reports. with big banks averaging about $2.7 billion per day in loans from the Fed. These injections of cash are said to be forced by the fed itself rather than the result of desperation on the part of member banks. Still, recent estimates put the increase in US money at nearly 50%, annualized. The Bank of England took the high road on these bailouts until yesterday.

[/ QUOTE ]

http://www.telegraph.co.uk/money/mai...1/cnfed121.xml
[ QUOTE ]
Barclays and Royal Bank of Scotland have lined up emergency funds of up to $30bn (£15bn) from the US Federal Reserve to bail out American clients caught up in the global credit crunch.
...
t is similar to those offered to Citigroup, Bank of America, JPMorgan Chase and Deutsche Bank at the height of the credit crunch.

[/ QUOTE ]

[CrushinFelt]

If anyone wants action on gonebroke's side of the bet let me know. I'll offer the same stipulations as written by Barron.

[The once and future king]

Im thinking of getting involved in some bear v bull gambool action, but I want a more sophisticated bet. When I have worked out a relevant metric I will offer terms.

[DcifrThs]

[ QUOTE ]
If anyone wants action on gonebroke's side of the bet let me know. I'll offer the same stipulations as written by Barron.

[/ QUOTE ]

just ask gonebroke2.

he may want to gain more exposure to the inevitable losses at shaky goldman sachs.

Barron

[DcifrThs]

[ QUOTE ]
[ QUOTE ]
what?? the fed (rightly or wrongly) is not "pumping money to them" as it is to the economy in order to attempt to reduce the chance of a recession. the last quarters growth #s were rediculously good and probably won't last another quarter or two.

the employment situation also looks amazing especially given all the turmoil in the credit markets.

one very real possibility is that it will take a few months to a year or so for the turmoil to work its way into the real economy...

...but, it will also take many months (about 6, maybe more w/ the housing mechanism in poor shape) for the effect of interest rate cuts to work their way through to the real economy.

so the fed is simply trying to move in ahead of any huge fall in growth, not specifically to prop up failed insurers. bernanke (and his counterpart at the BoE) is aware of the moral hazard that can lead to similar problems in the future and i don't think he is happy about having to cut rates w/ inflationary pressures so high and growth still pretty strong in order to avert the big threats to growth down the line.

that being said, it is very clear the fed has a bias for lower rates.

anyways, i think i went far to deep given the level of your post...short answer: "lol, the fed could raise rates and goldman would still post a profit & the fed isn't cutting rates w/ goldman sachs's bottom line in their scope"

Barron

[/ QUOTE ]

I'm pretty sure the fed is pumping money in, no matter what you might call it.



http://www.washingtonpost.com/wp-dyn...102601211.html
[ QUOTE ]
Fed's Stealth Bailout

By RACHEL BECK
The Associated Press
Friday, October 26, 2007; 1:35 PM

NEW YORK -- There's no need to wait for a government bailout of the distressed banking system. The Federal Reserve has already begun doing so.

[/ QUOTE ]

http://onlinejournal.com/artman/publ...cle_2452.shtml

[ QUOTE ]
Secondly, a massive bailout as the Bernanke Fed has undertaken raises the question of moral hazard present in any massive central bank rescue intervention, after it has failed to properly regulate the risky activities of the banks it supervises. Indeed, by accepting mortgage-backed securities as collateral for huge more or less longer-term loans to American banks and brokers, at reduced interest rates, the Fed is in effect rewarding the very institutions which acted the most irresponsibly over the last four or five years, while saving its own face for having failed in its regulatory mission. The message is loud and clear: American financial institutions can indulge in creating "innovative" risky artificial credit instruments, shifting the risks to unsuspecting borrowers and investors while reaping juicy fees and rewards, and when things turn sour, as can be expected, the Fed will come to their rescue and bail them out with cheap and extended loans. That is a good way to carelessly encourage greedy and out-of-control financial institutions to create successive disorderly and disruptive financial crises.

[/ QUOTE ]


http://www.bernankepanky.com/blog/20...ed-securities/
[ QUOTE ]
Bloomberg reports:

The Federal Reserve added $19 billion in temporary funds to the banking system through the purchase of mortgage-backed securities to help meet demand for cash amid a rout in bonds backed by home loans to riskier borrowers.

The Fed accepted only mortgage-backed debt as collateral for this morning’s weekend repurchase agreement. Losses in U.S. subprime mortgage investments have been rippling through global credit markets, driving interest rates higher and sinking share prices. The Fed also added $24 billion yesterday, the most since April, as demand for cash increased.

[/ QUOTE ]

http://www.smirkingchimp.com/thread/10628
[ QUOTE ]
Consider this article in Sunday's UK Telegraph:

Barclays and Royal Bank of Scotland have lined up emergency funds of up to $30 billion from the US Federal Reserve to bail out American clients caught up in the global credit crunch.

The Fed's board of governors wrote to both banks 10 days ago, granting them access to funds for customers "in need of short-term liquidity"

The letter to RBS made particular reference to investors holding mortgage-backed securities -- which have been at the centre of the sub-prime crisis. ("Barclay's, RBS prepare emergency credit with Fed", UK Telegraph)

[/ QUOTE ]

http://www.larouchepub.com/other/200..._bailouts.html
[ QUOTE ]
Some $400 billion in extraordinary injections of central bank liquidity, into the banking systems, were carried out Aug. 9-21, and are still continuing.

[/ QUOTE ]

http://www.dailyreckoning.co.uk/arti...allow0482.html
[ QUOTE ]
Feds Bail Out Big Banks As Fast As Their Buckets Allow

Today comes word that the Feds are bailing out the big banks as fast as their buckets allow. It is the biggest bailout in five years, say the reports. with big banks averaging about $2.7 billion per day in loans from the Fed. These injections of cash are said to be forced by the fed itself rather than the result of desperation on the part of member banks. Still, recent estimates put the increase in US money at nearly 50%, annualized. The Bank of England took the high road on these bailouts until yesterday.

[/ QUOTE ]

http://www.telegraph.co.uk/money/mai...1/cnfed121.xml
[ QUOTE ]
Barclays and Royal Bank of Scotland have lined up emergency funds of up to $30bn (£15bn) from the US Federal Reserve to bail out American clients caught up in the global credit crunch.
...
t is similar to those offered to Citigroup, Bank of America, JPMorgan Chase and Deutsche Bank at the height of the credit crunch.

[/ QUOTE ]

[/ QUOTE ]

so to recount the story:

Barron: goldman sachs is a strong institution that doesn't need fed liquidity pumping to survive.

PLO: then why has fed pumped money to them?

Barron: it hasn't pumped money to them so much as entire economy (thinking we were still talking about GS issue)

PLO: links to well known fed liquidity operations (bailout if you will) during the credit crises where goldman sachs wasn't even involved nor drew on (nor could it draw on) fed's discount window.

Barron

[Shoe]

Because it is the mighty, mighty dollar!

Seriously though, the dollar is not going to become worthless. It might continue to slide a bit more but I think most of you are severly understimating the strength of the U.S. Economy and the strength of the country in general, long-term.

Get greedy when others are fearful.

[DcifrThs]

[ QUOTE ]
Because it is the mighty, mighty dollar!

Seriously though, the dollar is not going to become worthless. It might continue to slide a bit more but I think most of you are severly understimating the strength of the U.S. Economy and the strength of the country in general, long-term.

Get greedy when others are fearful.

[/ QUOTE ]

to be fair, the US dollar is a fundamental nightmare.

one of the major things a number of fantastic macro hedge fund managers do is sort out countries by deficits/surpluses.

from strongest to weakest:

dual surplus (fiscal and CA)
single surplus (CA)
single surplus (fiscal)
dual deficit (fiscal and CA)

the weakest countries are the ones whose currencies are the most fundamentally weak. the US is a dual deficit country in the extreme.

the good news is that the dollar is still viewed as a reserve currency and the US is a very attractive place to invest in terms of the stock market and financial innovation we've shown over the years.

further, the most recent GDP number (though very likely to be revised down) showed a huge increase in exports (in part thanks to the weak dollar obv). in 2007 Q3 exports of goods contributed 1.73% points to GDP. compare that with the 6 previous quarters of .50, .07, .73, .56, .49, and 1.1. actual RGDP growth in those quarters was 3.8, .6, 2.1, 1.1, 2.4, 4.8.

so overall the demand for US goods is quite large now and doesn't really show any signs of slowing (our biggest export markets are 1) canada ($161.7bil), 2) mexico ($90.5bil), 3) japan ($41.4 bil), and 4) china ($41.2 bil)

none of these countries (with the exception of japan) is showing any signs of economic weakness...and none of them is looking likely to reduce imports from the US.

NOTE: this is only as it relates to GDP. in the CA sense, we still have huge import/export issues though the actual deficit is falling...still very large though.

so net net, we have good and bad news. the problem si that the bad news is nowhere near being corrected by the good news. global imblaances (of which we are a major contributor) still persist and are only being corrected ina small way now. so the US being a still large dual deficit country is a bad thing for the US dollar long term.

Barron