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Quoting Isotonic
Might be easier than reading the books.
THX Iso, that article was enlightening.
Goodbye Mr. Dollar!
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Quoting mrgreen
Quote of the Week ...

“The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation. ”
 - BEN BERNANKE, 11-21-02, Fed Chairman Elect (as of 2/1/2006)

I receive a weekly Gold and precious metals newsletter and as stated, this is the quote of the week. If the printing presses start up, does that mean that, for instance the the USD would drop in value in comparison to the EUR . And what would happen if both Europe and the US were to startup the printing presses at the same time.
And what does the term "positive inflation" mean. Is this what you meant Merlin when you mentioned in your Journal thread about - (my wording here-) a controlled bursting of the housing bubble.

Thank You

What you mentioned is likely to increase inflation pressures whenever the government needs to...As long as the Fed Chairman is a wise guy, things would be fine...But this also means that GOLD and other precious metals are not going down anymore, they are staying there...I am investing in Canada


Thanks,

Nader
i will be glued to my TV today at 10am, laptop in hand so i can see how bernanke's testimony shakes up the markets. thats one of my favorite things to do, i used to look foward to greenspan testimonies for days, and this one will be bigger than anything greenspan meeting in recent years because bernanke is brand spanking new.

anyone have any perdictions for today?

mine is that bernanke will tip his hand that rates will be put on hold in his first meeting.
Relax and be happy.
Well, I think that you got the man wrong Merlin...I didn't see his speech, but I read on the news over the internet that he left the door open..In other words, he said that everything is possible...

By the way, welcome back to the forum, you have been abscent for a long time man...


Thanks,

Nader
yeah he sure did keep the door open. i may have been wishful thinking there the fed fund futures are 90% for another rate hike, so it seems i am way against the crowd on this one. i can see the case for another rate hike, although im still standing firm that they will hold in the first meeting. if im right i could make a killing in the market, because my opinion is so far out of the norm on this subject. not a bad situation!

btw, i was without highspeed internet for a while (yes, it was VERY tough to trade) and it was hard to get on the forum for the past 10 days. its so good to be back on the fiber!!!
Relax and be happy.
Quoting merlin
i will be glued to my TV today at 10am, laptop in hand so i can see how bernanke's testimony shakes up the markets. thats one of my favorite things to do, i used to look foward to greenspan testimonies for days, and this one will be bigger than anything greenspan meeting in recent years because bernanke is brand spanking new.

anyone have any perdictions for today?

mine is that bernanke will tip his hand that rates will be put on hold in his first meeting.
What TV station do you watch to see Bernanke's testimony, Merlin ? I am not from US, but maybe I can watch it too from TV cable.

Cheers,

Jan
Merlin,

From what I have read on some of the fx websites (I think it was forex.com or gftforex) you are right on target. That was one reason we saw the yen drop so drastically over the last couple of days. Although today we have seen a fairly steep reversal. But if the boj does raise their rates this week I think the yen will start to rise and then there is talk that funds that do the carry deal will turn to the franc.

Just my thoughts but anything can and alot of times does happen that doesn't do what I think should. Damnit

Jace
Just an update from cnbc, about the yen. There is now some talk that the boj won't raise rates this week because they have only had a couple of months of non deflation which could explain the yen fall today/last night.
This came at 10:45 a.m. eastern time
Quoting johannbok
Merlin,

From what I have read on some of the fx websites (I think it was forex.com or gftforex) you are right on target. That was one reason we saw the yen drop so drastically over the last couple of days. Although today we have seen a fairly steep reversal. But if the boj does raise their rates this week I think the yen will start to rise and then there is talk that funds that do the carry deal will turn to the franc.

Just my thoughts but anything can and alot of times does happen that doesn't do what I think should. Damnit

Jace
jace, have you too heard from media sources that the carry trade unwind is bearish for the yen? i feel like ive heard it a few times although i can only remember on specific instance (the barrons articles i mentioned).
Relax and be happy.
Quoting johannbok
Just an update from cnbc, about the yen. There is now some talk that the boj won't raise rates this week because they have only had a couple of months of non deflation which could explain the yen fall today/last night.
This came at 10:45 a.m. eastern time
the rate hike could come this week, but its more likely to come next month i think. doesnt matter when it comes really, because the sentiment is already there.
Relax and be happy.
Quoting merlin
jace, have you too heard from media sources that the carry trade unwind is bearish for the yen? i feel like ive heard it a few times although i can only remember on specific instance (the barrons articles i mentioned).
Merlin, I haven't heard of any except from what you said about the article from Barrons. It seems counter intuitive to me for it to be a bearish sign for the yen just like your thoughts. I hope some other people chime in for there thoughts and knowledge.
Jace
In my opinion, there is so much money which is borrowed from Japan in he form of Yens at the lower interest and is being invested or carried in UK and the USA...Raising the rates over the Yen will result in fear for those investors and they will start covering their positions slowly as the rates rise...This is for sure Yen bullish, extremely bullish actually, because the GBP rates are likely to start falling soon, that's why I am very bearish at the GBP/JPY pair...The USD/JPY is likely to see a fall too and a long term trend change in my opinion, because it is evident that no more rate hikes are on the way, or at least, there is just 1 or 2 more left, while the BOJ still has the whole way up....


Thanks,

Nader
looks like the yen is starting to move! too bad it's because of the dollar weakness...
Relax and be happy.
An unwinding of the carry trade would absolutely be bullish for the yen.

Personally I think too much is being made of this "end of quantitative easing" by BOJ. Everybody and their mothers are looking for BOJ to start raising rates so they can buy the currency, and for that reason alone we can expect that it is going to be a very long and drawn out process. Japanese exports are critical to the recovery and a sturdy yen won't be doing them any favors.



Don't forget that they were exactly where they are now back in 2000. It looked like an end to deflation and so they started raising rates. I think it lasted about 8 months and they dropped them back to zero again because it tanked the economy. If anything well see maybe 10-30 basis points this year, and i don't see it happening until at least Q3. Their definitely going to want more confirmation of a recovery this round.



I see the latest "policy change" statement as purely a saber rattling technique. They have had an easy money policy for so long and the Japanese Gov. has been pushing them so hard to keep rates low, that a lot of people were starting to believe they would let inflation get out of control. They just showed the world that they are watching and will stay on top of the problem. It would be dangerous to anticipate that the policy change is going to lead directly to a US style 1/4 point per meeting tightening cycle.



The real Yen play will not come from anything BOJ does, but from the rest of the world. Once the Fed stops tightening, USD/JPY is going to drop like a stone. If the UK lowers rates, it will have the same effect.



But in all fairness, I don't trade on fundamentals. I keep up with them because the news generates volatility and the fundamentals affect psychology. Trading the USD/JPY predominantly I develop my own opinions, but I have been surprised before. So I could be dead wrong...
well today we get the statement from bernanke. a few weeks ago i predicted that he holds at 4.50%, but with fed funds pricing in a 99% chance that he raises 25bps, i would be a fool to hold on to that prediction. i do, however, think there is a good chance he holds at 4.75% (thats why im long july fed fund futures) and if that is the case it will show up in today's statement.

today is a BIG day, can you feel the excitement?
Relax and be happy.
Quoting merlin
well today we get the statement from bernanke. a few weeks ago i predicted that he holds at 4.50%, but with fed funds pricing in a 99% chance that he raises 25bps, i would be a fool to hold on to that prediction. i do, however, think there is a good chance he holds at 4.75% (thats why im long july fed fund futures) and if that is the case it will show up in today's statement.

today is a BIG day, can you feel the excitement?
Merlin how are you this morning?

So let me see if I have you right, You think that this rate hike is in the bag, but future ones may be put on hold? Or, do you think this one is on hold also?

SMJ
Today is a HUGE day! I don't know what there going to do, but if they maintain the status quo, we get a decent dollar rally. If they hold rates today we get a huge selloff. The highest probability is a rate hike with a statement change, but I have no idea what should happen simply because that's what is priced into the markets.

I'm personally hoping they hold rates. If they do it will be the biggest profit day of my life thus far...
I am trying to understand the theory behind economics here. Is this correct?
If the fed raises interest rates, the dollar will go up
If the fed holds interest rates, the dollar will go down

If this is correct, what is the reason why raising interest rates will cause the dollar to go up? And, what is the reason why holding interest rates where they are will cause the dollar to go down?
It may seem like a simple question, but the answer is probably far more complicated then would be expected. I'll try and answer the economic implications of interest rates on currency valuation after the announcement (if I start now I'll miss it...). But for the moment we can just say that todays movement will not really be about economics, it will be about expectations.

The general perception (which can easily be derived by watching price action after announcements) is that higher interest rates are good for the dollar. The higher the rates the more investment capital can be expected to flow to dollar denominated assets (provided inflation is "expected" to remain contained). Everyone is expecting that we will get an increase today and one more at the next meeting.

If thats what they get, not a whole lot will happen. If that doesn't happen, fear and greed will take over the market as people reposition themselves to account for the updated information.

Check back later today for a better answer, I need to get ready for the announcement...
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