Saturday, January 17, 2009

US Dollar Rally is out of stream. DXY, GDX, SLW, AUY, ABX, TNR.v, CZX.v, SST.v, OK.v, MGN.

US Dollar Rally is out of steam now, everything is possible nowadays, but odds are in favor of another waterfall phase for a green fellow. VIX is Topping out from reaction Sell Off in Markets, Markets have retested important low, Gold if fighting back to 850USD level. Bailouts are all Up and coming, after Bank of America we think that our assumption of 2 Trillion Defict is a very conservative one. Rate Cuts by BOE and ECB is out of the picture and USD will be a major play in town: watch the money Flow. TLT is showing that money is likely getting out of the Treasuries with new rally in the markets. Gold and Gold miners are building nice come back from much higher levels relatively to general markets after recent correction. With VIX coming down next week fundamentals will be back into investment decisions and Inflation/Deflation game will be slowly moving into Obama's camp - with proper determination FED will succeed in destroying US Dollar. We can have a lot of spin and distraction in the form of Wars and other games for resources, but you can not run the most leveraged hedge fund in the world US Corp. without destroying its shares US Dollar by diluting it with new shares issued every minute. Why should it be different this time? Just consider the small business case:
US Corp financials highlights:
1. Revenue (GDP) is shrinking due to recession down from 12 trillion.
2. Profits (TAX revenues) are going sharply down: higher unemployment, employed are moved down in the income chain, Corporate taxes are down, Real estate taxes are down. Muni are estimated by Bill Gross short of 1 Trillion to keep schools, police and hospitals running.
3. Your Deficit is rising - you need and Willing to spend more then you can afford in order to prevent Deflation Death Spiral and recognised insolvency of all banking and insurance system with Dow below 7000. It is a Survival mode with System Integrity at stake now. Your Deficit is close or even bigger then 16% of GDP.
4. You are able to sell Treasuries so far to finance this Deficit, but realisation is coming that with it and Quantitative Easing in the form of plane vanilla printing money, your most desired outcome - Inflation will bring demand for higher rates and collapse in Treasury Bubble.
5. Your balance sheet is expanding exponentially with assets in the form of junk bought or guaranteed in order to save financial system and your liabilities are in the form of "AAA paper". General Bernanke was arguing in LSE last week that he is making Credit Easing instead of Quantitative Easing and it is more important what you are buying into your assets side of the balance sheet then pure amount of money creation and credit expansion. We can hardly agree with him: different names for Rubbish you are buying from insolvent banks will not outplay your solid new debt issuing and capital dilution destroying the shareholders value.
6. You can Dream about GM work force arrangement - you have your baby boomers going out of work force in droves and Unfunded liabilities for another 50 trillion dollars.
7. In order to save the company, US Corp. management decided without proper disclosure to issue shares in the form of new US Dollar and expend credit.
You have to consider: Do you like this company, its business model and management? Will other people continue to buy its shares? Is there another more solid investment opportunities? Can potential fraud be exposed in the form of issuing new shares to pay out its Debts and coming liabilities? Can its investment rating be downgraded (only by investment community S&P and Moody's will continue to Trash Spain and Greece) spreads become bigger (on what?) and its service of debt become unmanageable? The question is when?
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