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Testy Tuesday – Trichet Talks Up The Dollar

Posted on the 26 April 2011 by Phil's Stock World @philstockworld

Of course you realize, this means war!  

There is nothing funnier or more Earth-shakingly serious than when Central Bankers square off against each other but, as I have been saying, 74 on the dollar index is a line that the rest of the World does not want to see us cross as the other 19 Central Bankers that make up the G20 begin to push back against Crazy Bennie’s printing press.

The first shot across the bow was fired in last month’s G7 emergency session on the Yen and that got the US to behave for a whole week before the Lords of the Fed went back to their weak dollar chanting.  Now Trichet is practicing a little counter-rhetoric of his own, breaking a general taboo amongst Central Bankers and commenting on US currency – indicating he will soften his own stance on the Euro to counter Bernanke’s printing press. 

This is how the hyper-inflation war begins, with each Central Bank cranking up their printing presses to (in this case) create more Euros with which they will buy the Dollars that The Bernanke prints to keep the Dollar strong against the Euro to maintain their trade balance and we already know the BOJ is cranking up the presses but they simply can’t swim upstream against the dual flow of Dollars that is coming out of the Treasury at a rate of $140Bn a month (our increasing debt) and the Fed at a rate of another $120Bn a month.  

Testy Tuesday – Trichet Talks Up The DollarThe Dollars aren’t all new as the Fed uses their newly printed money to buy the Treasury’s newly printed debt (and $56Bn is on sale in the next 3 days alone!).  "I don’t take it lightly that Trichet is talking about the dollar rather than the euro. European policy-makers became alarmed when the euro rose above $1.45 in 2007 and they started to rein in the dollar’s fall," said Minori Uchida, a senior analyst at the Bank of Tokyo-Mitsubishi UFJ, adding that the world’s policy-makers are increasingly worried about the Dollar.  "I wouldn’t be surprised if there were international moves (to stem the dollar’s fall)," he added.   

No wonder people are plowing into metals (and see yesterday’s morning post for tips on setting up your own 450% upside play on gold).  In fact, the iShares Silver Trust (SLV) just passed 11,390 Tons of silver holdings on April 25th and that’s more silver than was produced on the entire planet Earth prior to 1980 - all stuck in a vault and held by speculators at a single ETF.  Yeah, this will end well…

I wrote about the insanity in the gold pits back in November and gold did indeed run out of gas, but is still up 13% since then, following a similar devaluation in the Dollar.  Silver, however, has become the new metal scam of choice and has doubled in the same amount of time as "the poor sucker’s man’s hedge against inflation."  Even better than the rise in silver is the rise of the Pro Shares Ultra-Silver ETF (AGQ), which, although supposedly a 2x track to silver, is up 250% in the same period.  MADNESS or crazy like a silver fox?  We report, you decide…

Testy Tuesday – Trichet Talks Up The Dollar

We shorted AGQ yesterday with a June $345/335 bear put spread at $5.50, which has $4.50 of upside (82%) if AGQ fails to hold $335 (now $345, roughly $46 silver)) at the June expiration (52 days) as we believe it’s entirely possible that sanity may take hold one day.  Trichet’s salvo across the Fed’s bow this morning is just the kind of thing we’re looking for as the adults begin to step in to put an end to Crazy Benny’s reign of terror since it’s now obvious that no one in America is man enough to stop him – least of all you people in the bottom 99%.  

Testy Tuesday – Trichet Talks Up The DollarWe had a long discussion about inflation and the Fed’s motivation in Member Chat last night, so I won’t rehash it here other than to reiterate the numbers on the damage the Fed is doing with their "weak Dollar" policy.  140M US workers, 60M Social Security recipients, 42M Food Stamp recipients, 6M people collecting unemployment and 5M people on Welfare ALL got a 10% reduction in their spending power since the beginning of 2011.  That money was taken out of their pockets as sure as a 10% increase in taxes yet, in order to protect the top 1% from higher taxes – the money is instead extracted from the bottom 99% by reducing the value of the money they are paid (This even has the added bonus of effectively reducing the amount of relative money we pay our workers).  

If only that were enough to subsidize the extension of the Bush Tax Cuts, I’m sure the bottom 99% would be THRILLED to reduce their lifestyles by 10% or go 10% further into debt to protect the wealth of their masters – after all, that’s the American Way isn’t it?  We won and those of you in the bottom 99% lost and it’s not right for you to envy success – that would be Commie Talk – so you will worship us and support us and wish to be us and we will tax you 10% of, not just your current salary – but 10% of every penny you have ever saved for your entire life ($42Tn of retirement savings) – in order to make sure we aren’t inconvenienced by all this belt-tightening nonsense that you need to go through to pay back the debt you racked during the last round of unfunded wars and tax cuts for the wealthy.   

Testy Tuesday – Trichet Talks Up The DollarThis is a very good thing and, on behalf of the top 1% and I thank you for it.  As we discussed in yesterday’s post, we speculated on oil in my Christmas Day Postand we already made 450% on that trade.  

That’s a really good one because, in addition to devaluing everything you own, our speculative purchases helped drive the cost of oil up from $87 a barrel to $112.50 a barrel (29%), which you support every time you gas up.  Don’t worry though, we can afford to fill our limos – we made 450% on our oil bet.  I’m sure you did well too as certainly the average citizen buys a lot of energy futures on the way to the gas station.  

We also had phenomenal returns on our Housing Bet (XHB) – even though housing itself went down.  Isn’t that great, rich people can make money in the markets no matter what using derivative contracts that ordinary investors aren’t even allowed to trade in most retirement accounts!  We also had a tremendously successful bet on Food speculation, with a $1,300 gain on each $380 invested (342%) in just 4 months – think of us when you go grocery shopping – we thank you very much!  

Testy Tuesday – Trichet Talks Up The DollarSo please, poor people – don’t whine to us that you don’t know how to make money in America.  We were 4 for 4 in that post and it was made immediately available to the public at the time as a Christmas present – all you had to do is unwrap it and take some of that extra speculative cash you have lying around and place your bets along with us and you too could enjoy the American dream.  

That’s why you protect the wealthy isn’t it poor people?  You keep thinking that some day it will be you in the top 1% so you allow this ridiculous system to continue where the Federal Reserve robs 297M people every single day and gives the money to the top 3M (see "The Dooh Nibor Economy").  And then, when we foreclose on your homes you blame the Democrats – man are you guys stupid!   

Of course we’re not just doing it to you, the bottom 99% in this country.  You guys simply don’t have enough money to feed the beast that makes up the wealth of the top 1% – no, we are exporting inflation all around the world to fund our derivative betting and that’s what Trichet and his fellow Central Bankers (not Central Banksters like we have in this country) are finally fed up with.  

Testy Tuesday – Trichet Talks Up The DollarChina is preparing it’s people for a shocking 5.5% rise in CPI for April by pre-announcing the number and spinning signs that it may be improving ahead of the report.  The PBOC has raised the Reserve Capital Ratio on their 5 largest banks to 11.8% in order to take some hot money out of circulation and, hopefully, take a little pressure off prices.  This is the highest reserve requirement pegged by the PBOC in 20 years but it’s still lower than the 14.87 Captial Adequacy Ratio that is the average of the World’s top 100 banks.            

There’s a “high likelihood of a significant deterioration” in banks’ asset quality after the two-year credit boom, Fitch Ratings said April 12. Fitch lowered its outlook on China’s long-term, local-currency rating to negative because of the risk that the government would have to bail out its banks. A downgrade would be the first on China’s debt since July 1999.

Asia faces a “serious setback” from surging oil and food prices that are fueling inflation and threatening to push millions into extreme poverty, the Asian Development Bank said.  The region’s growth may be reduced by as much as 1.5 percentage points should the pace of gains in oil and food prices seen so far this year persist for the rest of 2011, the Manila-based lender said in a statement today. Domestic food inflation in many Asian economies has averaged 10 percent this year, an increase in prices that may push an additional 64 million people into extreme poverty, defined as living on less than $1.25 a day.

For poor families in developing Asia, who already spend more than 60 percent of their income on food, higher food prices further reduce their ability to pay for medical care and their children’s education.  Left unchecked, the food crisis will badly undermine recent gains in poverty reduction made in Asia.

Meanwhile, our markets continue to party like it’s 1999, or the Summer of 2008 – take your pick!  

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