Numbers Speak a Clear Language

Thursday, September 20, 2007

A list of today's records reads like this:
  • Gold climbs to a 28-year high at $737
  • Oil closes at the all-time high of $83.32
  • The Federal Reserve Dollar falls to an all-time low at $1.41 to the Euro
  • The Canadian Dollar trades on a par with the Federal Reserve Dollar for the first time since 1975
Next to this Thursday proved that the 2-hour relief rally in Treasuries after the Fed's rate cut was only such. The 10-year yield raced 15 basis points to 4.67%.
Maybe these rapid moves base on first signs that now Saudi Arabia says "bye bye" to the Federal Reserve Dollar, a currency moving closer to its collapse with every day.
From The Telegraph:
Saudi Arabia has refused to cut interest rates in lockstep with the US Federal Reserve for the first time, signalling that the oil-rich Gulf kingdom is preparing to break the dollar currency peg in a move that risks setting off a stampede out of the dollar across the Middle East.
"This is a very dangerous situation for the dollar," said Hans Redeker, currency chief at BNP Paribas.
"Saudi Arabia has $800bn (£400bn) in their future generation fund, and the entire region has $3,500bn under management. They face an inflationary threat and do not want to import an interest rate policy set for the recessionary conditions in the United States," he said.
There are indeed few fiat currencies one can safely hide behind these days.
The British Pound got whacked after the Bank Of England made a U-turn and will now bail out banks who had lent money to the wrong clientele.
From the International Herald Tribune:
The Bank of England has abruptly reversed its policy of refusing to ease lending standards, offering to inject cash into British money markets amid criticism that it had not done enough to stem a credit squeeze that has undercut one of the largest European economies.
Days earlier, the governor of the Bank of England, Mervyn King, said the bank would not follow the Fed and the European Central Bank by putting cash into a system where banks had stopped lending because of volatile conditions, saying such moves encouraged risky behavior by banks and sowed the seeds of future financial crises.
The central bank said it would provide funds at a three-month maturity and would accept "mortgage collateral" at an auction of £10 billion, or $20 billion, in loans next week in order to "alleviate the strains in longer-maturity money markets." The bank will still charge a penalty rate of 6.75 percent, it said.
The bank said it would also make three further offerings at "weekly intervals" to reduce the gap between the benchmark rate of 5.75 percent and the rate banks charge to lend to one another. Banks have been reluctant to lend to one another because they prefer to keep their own money while it remains unclear how much longer the credit squeeze might last.

Still not convinced inflation turns from an isolated problem into a wide-spread fire?
Turn to China which today announced a price freeze on many commodities. China's inflation rate climbed to an 11-year high of 6.5%.
From chinadaily:
China's top economic planner has ordered a suspension in government orchestrated price hikes in the latest efforts to keep inflation in check.
"In principle, there will be no new price-raising measures by the government this year," the National Development and Reform Commission (NDRC) said in a notice, co-signed by five other agencies including Ministry of Commerce and Ministry of Finance, published on its website on Wednesday.
An approval from the NDRC is needed if any local government feels it has to increase prices on certain products "under special conditions", according to the notice.
The order applies only to prices under government control, such as gas, oil, water, electricity, and other prices of crucial goods and services that affects the livelihood of the public, including public fares.
Although the government has no control over most of the prices in China, this price control measure will help prevent a hike in firms' costs, thereby eliminating part of the pressure for further price increases.

For my part this is enough bad inflation news to follow a simple investment strategy: Long precious metals. The leverage - if at all - is up to your taste.


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