mjoke,

I don't think the USD will be replaced with another currency or with a baskey of currencies, as the reserve currency, simply because there is no other viable susbstitute. The Euro is far more unstable and susceptible to the price of commodities (at least moreso than the USD), the Chinese Yuan is manipulated, the British Pound is to unstable, especially with UK booting obscene debts, the Australian Dollar is far to leveraged to commodities, etc. The only currency that might replace the USD is the Yen, but the Yen has the problem that it is a heavily diluted currency. I think the USD will stay the dominant reserve currency for a few years, unless there is a currency war or crisis, which would mean you would see the Yen, USD and perhaps gold as the new basket of reserve currencies.

What are the chances that a currency war or crisis occurs within the next 10 years? I'd say 65%. What can cause a crisis in the FOREX market? Extreme levels of debt issuance or disruption in trade, both of which seem very real threats, especially when you have an upheavel in the Middle East that threatens to disrupt global oil trade, and you have developed countries taking on far too much debt that will become increasingly harder to financing (i.e. creating imbalances in the currency itself).

Quote:

Originally Posted by mjoke 

Hey Bull, Do you for-see the dollar being taken off the reserve currency for the world in the future? Oil is already going to be removed from the USD in 2018.

But also its more "the plan" by Russia and china to keep the US in the gutter frankly, since the debt levels without this clout of the dollar, would be staggering to deal with for generations.....

tlee418,

That is why we are all hear for. To learn from one another. Since I operate a stock trading website, I cannot share in detail what I think will happen in 2011 because it would be a disservice to my subscribers. However, in a few words, here are my thoughts of what will happen in 2011.

2011 will be characterized as a year were not much will happen in the way of returns. That is, the stock market will spend the entire year trading between S&P 1090 and S&P 1360. You will get cycles (such as the current one), were you will see market gyrate greatly, but other than that, I am expecting the S&P to end flat to slightly up for the year. To help you spot these market cycles, I am looking for the market to establish three major waves (i.e.cycles). The first cycle will take place between late February and mid April; the second cycle will take place between early June to mid August and the third and final wave/cycle will take place between mid October to early December. In cycles #1 + #2 you will see markets correct, while in cycle #3 you will see the market appreciate. As far as the DXY, I think the DXY will be range bound between 75 - 82 for the year, although I think the DXY will finish around 81 - 82 for the year. As far as bonds, I have the 30- year yield topping out at 4.75%, the 5-year note at 2.30% and the 2-year note at 0.8%.

It won't be until late 2012 that markets will correct dramatically. What exactly will drive this correction is still murky. Persistently high oil prices, a currency war or crisis, or rising yields are some of the factors that could potential serve as the catalyst to that correction.

I hope this helped somewhat.

Changing gars, Paul Farrel of MarketWatch expects markets to crash. I of course do not share thsi view. Instead (as I described above), I expect markets to correct by about 20% form their highs by the end of 2012. I am not calling for a crash, unless we have oil above $150 for a prolongued period of time or have a full blown currency crisis. 

Excerpt taken from the article -

We want to believe they’re telling us the truth. Silly, huh? Both trapped in this eternal “dance of death” controlled by programs hidden deep in our brains, telling us what to do, telling us to ignore facts to the contrary — till it’s too late, till a new crisis crushes all of us. Phsychology offers us a powerful lesson: Our collective brain is destined to trigger a crash before Christmas 2011. Why? We’re gullible, keep searching for a truth-teller in a world of liars. And they’re so clever, we let them manipulate us into acting against our best interests.

In fact, behavioral science tells us that bankers and politicians are lying to us 93% of the time. It’s 13 times more likely Wall Street is telling you a lie than the truth. That’s why they win. Why we lose. Because our brains are preprogrammed to cooperate in their con game. Yes, we believe most of their lies.

One of America’s leading behavioral finance gurus, University of Chicago Prof. Richard Thaler, explains: “Think of the human brain as a personal computer with a very slow processor and a memory system that is small and unreliable.” Thaler even admits: “The PC I carry between my ears has more disk failures than I care to think about.” Easy to manipulate.

Link to the article - http://www.marketwatch.com/story/market-crash-2011-it-will-hit-by-christmas-2011-02-22

Quote:

Originally Posted by tlee418 

bigbull, what is your opinion on the market in 2011?

I learn a lot from your post, but I would love you to sum up a bit.

Apart from throwing lavish parties, with $100 oil, the Saudis are building everything they possibly can. Looks like a property bubble in the middle East is in the making. that being said, it won't become an actual threat for a few years (10 at least). Put differently, it will not become a problem until oil trades consistently below $50/barrel, at which point, the Saudis will not be able to fund, let alone maintain some of these profuse projects. Right now, the Saudis are in, but eventually when oil becomes a non-factor or irrelevant (which it will in due time' innovation will force new markets to be created), the Saudis will be out and they too will be left holding the bag. Don't think it will happen? Believe me, it will happen a ot faster than many believe.

Dubai Can’t Kick Building Habit as Property Glut Expands

http://www.bloomberg.com/news/2011-02-22/dubai-can-t-kick-its-building-habit-as-glut-forces-prices-lower.html

The more I dig into the brewing, middle-east bubble, the more certain I am that within the next 20 years it will happen.  Of course, this sort of talk is considered as blasphemous to some or as a conspiracy to others. Its not until the fact that people come to the realization that it was in fact, a fact

This is a good article by the WSJ. To read the entire article however, you will need to subscribe to WSJ

Wall Street Bets on Debt That Doesn't Exist

http://online.wsj.com/article/SB10001424052748704430304576170710897188504.html?mod=WSJ_Markets_RightMostPopular

Fresh from Wall Street's alchemy labs: Credit derivatives tied to General Motors Co. debt. The rub is, no such debt exists.

Ahh, the great minds of Wall St collaborating in the construction of another 'monster' that will surely wreck the economy in 10 years time. Its just always refreshing to see the Wall St financiers create complex trading instruments, that will surely wreak havoc in the future. Think about it. If Wall St was negatively affected by the '08 financial crisis as everyone likes to assume, then why are they re-creating some of the same exotic trading vehicles, that literally led to the destruction of the global economy and to the obliteration of the middle class in America? Keep in mind that these are instruments than not even they, the Wall St. financiers, fully understand.  The sad, infuriating and loathsome part of this is that these people are after it again! I tell ya, you really have to be mentally deranged to this, but hey, who gives a hoot, as long as it makes money and comes  at later cost, no problemo. 'This is American mayn, we do what we want to do, ok?'

*sigh* - The Decadence of America. I said it once and I'll say it again, the average American (and for that matter, the average world citizen) suffers from apathy. Until people recognize this, I'm afraid the perpetual robbery will keep churning. 

At least Charles Ferguson, director of Inside Job let the viewer know whats going on - “Forgive me, I must start by pointing out that three years after a horrific financial crisis caused by fraud, not a single financial executive has gone to jail — and that’s wrong,” he said. Ferguson received cheers for his provocative words.

Oh, and the insder trader at Goldman that leaked company information the public. Somehow I have a hard time conceiving that this is the biggest ponzi scheme out there(coincidence of the release with yesterday's oscars). Some how I think an institution that starts with the letter F and ends with the latter E (two words) is perhaps, just maybe, the biggest ponzi scheme out here. But maybe that just me. Nah, there are others who agree with it to.  Of course, you have to show the public that the SEC is somewhat competent and charge a few big boys with insider trading. 

Quote:

Originally Posted by rando 

Words of wisdon worth reading ten times over.  Shorter-term I am praying for stability in S.A.  Of all the things that could induce the mother of all oil bubbles, their regime falling is #1 on my list.

I came across an interesting correlation (new to me) that I hope helps some of you with your trading.

Most people associate a high VIX level with fear. However what most people do not realize is that institutions hedge their holdings while the VIX is rising. As a result, there is a distinct dichotomy between the correlation of the number of new lows in the NYSE and the VIX itself; that is, if institutional investors are hedged, then a rising VIX does not represent them with a higher risk, because they already have some level of protection. This perhaps explain why markets haven't corrected by the magnitude most has expected. Essentially because there isn't enough plausible fear(s) ($100 is not a plausible fear? oh boy),  that has conduced institutional investors to sell.

Notice that every time 28 or more new lows are registered, institutions begin to panic but the actual sellign does not take place once the 50 threshold is met. I cannot share with you exactly were markets will head (taking this into account), but hopefully this helps clear some of the recent fuss.

Here is a chart that shows the correlation between the # of new lows and the S&P 500 (it is a bit outdated, but the point of the graph is to show this relationship).

Awesome posts, keep them coming.

A good article I came across over the weekend.

The Fix for High Oil Prices? Regulate the Speculators

Excerpt taken from the article - As the crisis in Libya continues to shake world oil markets, a rising chorus of voices in Washington is calling for President Obama to release millions barrels of oil from our 727 million-barrel Strategic Petroleum Reserve (SPR), The New York Times reports. With gasoline prices up 33 cents a gallon in the last month, that's a tempting idea. The government tapped into the SPR after Hurricane Katrina in 2005 and during 1991's Persian Gulf War. In both cases, the moves took pressure off oil prices.

But is the current situation such an emergency? No way. After all, Libya represents a mere 0.5% of U.S. oil imports, and Saudi Arabia is increasing its production to make up the difference. There has been no sudden increase in demand for oil, nor has there been a truly significant drop in supply. In fact, refineries -- which convert crude oil into gasoline and other chemicals -- are operating at a relatively low 88.4% of capacity, according to the U.S. Energy Information Institute.

So why are oil prices going up so much? Speculators.

Oil speculators using cheaply borrowed money to bet on rising oil prices and a falling dollar are playing on media-fueled fear to make big profits. The good news is that stopping those speculators would be easy: Regulators should demand higher margin requirements. By cutting off their easy ability to gamble with cheap debt, the regulators could push speculators out of the market and relieve consumers from pain at the pump.

Last time we had a huge run-up in oil prices was 2008 when oil hit $147 a barrel. When the Commodities Futures Trading Commission -- the body that's charged with keeping the trading pits honest -- investigated, it discovered that 81% of the trading volume in oil was being conducted by speculators. Put another way, businesses that actually use the oil, such as airlines, were doing just 19% of the trading. The vast majority was done by hedge funds and investment banks to make a quick buck.

The Dodd-Frank financial reform law requires the CFTC to do something about speculators, but they've managed to delay the implementation of so-called position limits until 2012. According to Heatingoil.com, the CFTC will be at least a year late in complying with the Dodd-Frank requirement that it limit speculators' ability to drive up oil prices.

Another good article I came across (highly recommend everyone reads it). In a nutshell, the author makes the case that the expansion of the monetary base is merely an off-set of the greater de-leveraging phase that is currently going on. Put differently, the expansion in the monetary base is off-setting the decrease in loan demand (i.e. the de-leveraging of credit). This in turn leads to very little actual inflation, since the money that the Federal Reserve is supplying to the banks with is a) not being serviced to the economy (i.e. it is not loaned out) and b) the addition of new reserves at banks basically means the public sector (i.e. the government) is expanding via credit (debt - i.e. providing the grease if you will to the engine) while the payroll sector shrinks via credit.

With that being said, is the Federal Reserve (and other central banks) to blame for the commodity boom? Yes and no (in my opinion). Current policies handed down by the Fed have not directly led to inflation, but it has indirectly led to inflation. What? by keeping rates at zero for an extended period of time, the fed has allowed for rampant speculation within the commodity complex. So in a sense, speculators are to blame, but wait, who enforces the rules on traders, ah yes, the SEC, CFTC, etc, so in a sense, yes, it is the Fed's fault because they little to pressure on agencies, which they have power over, to implement sound regulatory rules that would eliminate or at least reduce the risk of speculation. Now, what do you think will happen when people realize that little inflation will actually percolate into the economy over the coming years? You got it, commodities are going to get hit, as the expectations set by investors of higher prices (as directed by inflation) will not be met. This is why I stated that this commodity rally would end in 2011 in the 'the Coming Commodity Bubble 2009 - 2011), essentially because a rate hike (which as I have stated in thsi thread before, will most likely in late 2011) would put the final touches to this bubble. Does that mean gold and silver are bad long term investments? No, there are still good investments in my view, but your best off waiting for a pullback. Keep in mind that the Fed wants to keep input costs high for quite some time to try to draw demand, and the only way of doing so is by keeping commodity prices high, so in a sense, there is a conflict of interest here. One thing is for sure. The Fed has become so intertwined to the economy, that if it stops becoming the major market player, the music will stop. This ultimately means that the Fed's exit strategy is a bit more difficult than the entry. Can the Fed possibly exit with no credit demand on the consumer end?  

Note: The author did not make a distinction that needs to be made. Total loan demand (including student loans) is actually upward sloping (i.e. increasing); ex-student loans and loan demand is shrinking. Also, remember that the U.S economy grow via credit (debt). So no matter which sector picks up the slack (public or private), the public is being swamped with bigger debts to boot.

We have entered into a new paradigm in the financial world. Whether it is better or worst, I'll let each of you decide. You know where I stand.

Link to article - http://seekingalpha.com/article/256913-on-the-myth-of-exploding-u-s-money-supply

Rando,

Good post. Most companies and countries for that matter, are not demanding  as much commodities (or building their inventory base) as they did before (i.e. between early 2009 and mid 2010), mainly because companies understand better than anyone that if they were to buy now, they would be facing a smaller to negligible profit margin in the future because of the added cost (i.e. rising prices) that they must assume, should they decide to produce or transport the commodity. Add to this the fact that a rate hike is around the corner, implying that the cheap transaction of goods  services that U.S corporations operating abroad and U.S consumer is close to being over. It not will know require an increase in demand (not an increase in quantity demand as we've seen in recent years) to keep profit margins elevated (or to offset the rate hike. Remember, most countries that engaged in money laundering, excuse me, debt enslavement, pardon me again, I mean money printing, have already begun to raise rates. The U.S, although a bit in a bind, must also raise rates soon to keep costs contained. Of course. the Fed will keep rates as close to zero for as long as loan and consumer demand, at different levels increase). That being said, since loan demand continues to fall, consumer demand is also falling. Now we must make the following distinction; there is consumer demand don't get me wrong, but only at low prices. This is part of the reasons corporations have done so well in the last 3 years or so - they've essentially been able to buy 'stuff' on the cheap via the debt markets (at 0% or near 0% interest) and sell them for a slightly higher price (whatever price they can match on the market). This of course is not characteristic of a sturdy bull market. I tell you what companies are doing though (and you can tell by the block sizes for some of these trades). Their hedging their exposure to the underlying asset (or commodity) they produce or transport by buying futures contract on the commodity, in the spot futures market. Why can they do this? again, because debt is cheap.  So in a sense, corporations hedging their risk (i.e. in an attempt to flatten out their risk curve) are forming part of the growing speculation, within the commodities complex.

The game (because that is really what is has become) that the Fed is playing is simple. Be the lone buyer of 'stuff' until the consumer regains its footing and starts spending (by means of credit/debt). Of course, the consumer is by no means ready to demand more debt, when it hasn't even de-leveraged themselves from the last bubble. The part that is really infuriating is that once this is over, the public (i.e. consumer) will still be faced with a higher debt burden than before, thanks to the out of context spending by the public sector. In other words, the only way to keep the credit bubble growing is to you guessed it, create a bigger one until the short term imbalances work themselves out (this is based on the fact that prices re-adjust to their equilibrium in the long run).

Above I mentioned how the Fed, with all of the power that it has, has done little if anything to push the SEC (its co-partner in crime) to raise margin requirements in an attempt to curb speculation. Well,  here is another shocker, the SEC isn't eliminating references to rating agencies, which means no accountability whatsoever has been brought the table.

By the way Rando, and I know I said thsi before, but I enjoy reading your posts. Keep them 'em coming

Hey, S.E.C., That Escape Hatch Is Still Open

Link to article - http://www.nytimes.com/2011/03/06/business/06gret.html?_r=1

Note: For those who did not read the above post, I highly recommend you read alongside the article.
 

Quote:

Originally Posted by rando 

Well if this all plays out as the author is expecting, and which would not surprise you BB, then a slew of emerging markets are currently filling their warehouses with a lot of expensive rice, grains, and other commodities.  This of course is the catalyst for the last leg of the boom, where the late/panicked bidders are bidding against themselves, all too common in markets.  Not to mention China and others frontloading a potential correction in PMs, offsetting their profit timelines by as much as a year, maybe several.  There really is no end to the diabolical genius of those who are truly in control of what's behind the US/Wizard's curtain.  FInal proof of this would be found in the timing of the US either standing pat or buying with regards to their PM reserves... not that they will really ever be able to afford them without magic money.