Sunday, August 1, 2010

Defensive Currencies will continue to FLOURISH ---Yen and Swiss Franc


I strongly believe that the defensive currencies like Yen and Swiss Franc will continue to be supported and trend upward over the coming months. Historically speaking , Swiss franc has been very very stable for the last 57/58 years. There are even more reasons why this will happen — let’s delve into several of these reasons now.

Housing incentives just ended and mortgage approvals just dipped to a 13-year low as a result. Also, the Bush tax cuts that were enacted in 2001 and 2003 are set to expire at the end of this year unless Federal Reserve Chairman Ben Bernanke’s advice is heeded.

Bernanke recently told Congress that he favors preserving the Bush administration’s tax cuts to help the faltering U.S. economy. You know the economy is still riding on thin ice when the Fed governor suggested this. I’m sure that came as a real shock to Pelosi and the Democrats who want to allow the Bush tax cuts to expire and even raise taxes.

I’m sure they hated Bernanke’s comments because he was basically reiterating what the Republicans said needed to be done for a while now. It seems that the Republicans are more in tune to the economy right now than the Democrats.

Even Treasury Secretary Tim Geithner said that employers are very cautious about hiring and that they are trying to get more productivity out of the same workers because they fear that the economy isn’t growing fast enough to support hiring new workers.

Geithner also stated in a recent interview that the economy wasn’t growing fast enough. It seems that the Fed and Treasury are singing the same tune overall. The recovery figures are questionable. Currency manipulation is a big game. We are heading for protectionist controlled system.

So things aren’t looking so hot economically right now. Seems the some of the folks on Capitol Hill just don’t want to spook investors too much and let them know entirely how bad it is.

The economy shouldn’t get any better over the coming months either because historically the third quarter is a rough one. Consumer spending is bleak because consumers are saving up for Thanksgiving, Christmas, and other year-end holidays. So they cut back in order to spend more in the fourth quarter. Recession is not a business cycle but a consumer cycle. Simple

This is one reason why many major stock corrections happen during this time. Many stock market crashes have happened in the months of September and October, for instance. Watch out for the big news for the second round of printing money. Fed will commence quantitative easy in September/October-2010....

Another concern of mine is the weekly unemployment claims numbers. They were nose-diving (which would have been a good thing), but now they are treading sideways and seem to be hinting that they could begin to rise again soon.

Also, I don’t think investors are comforted by the passing of the recent financial reform bill that allows the government to break up large corporations that pose systematic risks to the economy. After all, it would be at the government’s discretion and not the company’s discretion if it was a candidate to be broken up.

It’s things like this that make me feel like we’re moving into more of a socialist type of government than a democracy.

Of course, the final reasons all have to do with the potential for an outbreak of wars.

We know that the United States has sent naval ships over to South Korea to train with that country. They’ve just started up their training exercises together, and North Korea is now threatening to use its nuclear weapons as a result.

Then there’s Iran — as of June, the United States and United Nations put sanctions on Iran due to its insistence on continuing its uranium enrichment program. Not only has Iran been cut off all over the world now, but the U.S. Treasury has threatened international banks that are accepting dollar transactions from Iran. The Treasury stated that they run the risk of being banned from the U.S. banking system.

At the same time, Iran is stating that it may stop receiving payments for its oil in dollars or euros and that it may instead choose to receive payments only in the UAE’s dirham.

All of this is tightening down the bolts a bit more on Iran and could spur it to take action sooner if it were to lash out. The first country that they would lash out at would be Israel. of course. Israel knows that and that’s why it may do a pre-emptive strike upon Iran first before that country is fully able to develop out its nuclear weapons.

Honestly, if any of these actions above happen [or any combination of them], it will cause the defensive currencies to do quite well over the coming months, and it will hurt the higher-yielding currencies as investors run for cover.

So get ready for some crazy times that most likely lie before us. It’s not going to be pretty out there, but for the currency investor there’s always opportunity no matter what happens. That’s the good news.


I am sure many of the euro bears are shocked by the currency’s rally to above 1.30 Thursday morning. Euro lost 17% of its value in 6-months against Dollar and is now bouncing back. It’s not surprising to me.

There are some things we must realize about currencies. As we are on a pure fiat system right now, everyone can print and spend as much as they want with no consequences. What made me laugh about the dollar bulls calling for a euro collapse was that they were looking for the euro to collapse against the dollar. Like the dollar is some kind of safe haven with the insane policies of endless spending going on at the federal level.

What we must realize is that currencies, for the most part, are just floating abstractions that are linked to nothing. They tend to trade on sentiment.

An indicator I watch is the Daily Sentiment Index, which tracks the sentiment about currencies by traders.

When the consensus is too bearish, you want to buy. When it is too bullish, you want to sell.

Last autumn, when the U.S. dollar was falling, the sentiment index saw a low reading of 4 percent. Not surprisingly, the dollar bottomed and saw a huge rally in early 2010.

The sentiment on the euro then hit 3.7% in May 2010 right before the euro really began to rally big time.

Because there is really no fundamental backing behind most of the currencies, you must buy them on bouts of fear and declines.

The euro saw such extreme sentiment back in May and rallied.

I would not be surprised that — after a short-term pullback — it continues this rally to the 1.35 to 1.40 range. THE GOLDEN RULE IS "when it comes to currencies: buy during negative sentiment"

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