[color="Red"]Something is changing. . .

Richard Russell
Dow Theory Letters
December 1, 2006

Russell Comment --November 30, 2006 -- I'm writing this two hours before the opening of today's market. The Dollar Index is down about .17 points and gold has been climbing. As I write, Dec. gold is up 9.20 to 650.90 and Dec. silver is up 26 to 14.03. I have the sense that something is going on, something is changing, in the FOREX market and in the precious metals market. My guess is that it has to do with China and the Asian nations and their holdings of declining US dollar denominated securities.

Chinese monetary reserves have now climbed over the one trillion dollar mark, 70 percent of which are in dollar securities. The Chinese are watching the dollar decline, and they are watching the bearish background for the dollar -- deficits. A major decline in the dollar would represent a disaster for China, and various Chinese spokesmen have recently "suggested" that China speed up is diversification program.

The Dollar Index is the mirror image of the dollar's main competition, the euro. There's been an initial break, followed by a compact little cluster. If the Dollar Index falls out of this cluster, we can expect another sharp decline. As I said, "something is changing." Up to now, the dollar has been declining "lightly and politely." And I'm wondering if a further less polite decline in the dollar is on the way.

[color="Gray"]Extracted from the Nov 30, 2006 edition of Richard's Remarks

[color="Red"]The Dollar Dam is Breaking

By: Richard Benson, SFGroup

Treasury Secretary, Henry M. Paulson, is rushing off to China next month and will lead a delegation to Beijing for the inaugural meeting of the U.S. – China Strategic Economic Dialogue. He’ll be taking high-ranking Administration officials with him, including Federal Reserve Chairman, Ben S. Bernanke. Because Hank and Ben are responsible for stabilizing the financial markets and need to work together to try and stabilize the dollar, their activities in China will undoubtedly be closely watched worldwide.

Hank and Ben are also part of the Working Group in a team which includes the heads of the SEC and the Commodity Futures Trading Association, commonly referred to on Wall Street as the “Plunge Protection Team” (PPI). This Team has the entire United States Treasury at their disposal and this trip to China could undermine faith in the Administration’s ability to fix the massive Trade Deficit problem in an orderly manner. Preventing another 1987 “Black Monday” is on the Agenda, but the investing public will never be told that it is.

The China trip means that the ticking time bomb at the bottom of the dollar dam needs to be defused before it blows up, and the value of the dollar is swept away. Both the Republican Administration and the Democratic Congress want China, and the rest of Asia, to end their policies of manipulating their currencies down, by building up massive foreign exchange holdings. The new Congress is tuned into the fact that China has tariffs of 25 percent on imports such as autos, and is very tired of seeing American labor slaughtered. (In 2007 GM, Ford and Chrysler – as well as auto parts suppliers such as Delphi – are buying 100,000 workers out of their jobs or just “letting them go”.) To make trade fair again, Congress is willing to take the action of imposing tariffs if China and Asia do not revalue. In turn, China may threaten to dump their dollars, unless the Fed keeps interest rates high. If China starts selling dollars, the dam will break.

Not only does the U.S. owe a net $3 trillion to foreigners, we now pay more in interest overseas than we collect from abroad. Foreigners hold $13 trillion in dollar assets that are at immediate and painful risk to any dollar weakness. Indeed, that volume of liquid assets is just about equal to the total GDP. A 30 percent drop in the dollar, could cost foreign investors an easy $3 trillion in lost purchasing power, not to mention the loss to U.S. citizens who own over $46 trillion in dollar net worth assets. Our leaders must find a way to lower the U.S. Trade Deficit, or risk the dollar losing its unique position as the World’s Reserve Currency. This fact alone warrants the trip to China.

America’s currency problem is a very sad day for the Republic. It used to be that the Federal Reserve policy was set simply with domestic economic policy in mind. In years past, we could virtually ignore the dollar in setting monetary policy because it was totally secure in its role as the World Reserve Currency. But today, because of our country’s profligate fiscal and over-easy monetary policies, the dollar has been undermined so much so that, sadly, it may be no more secure as a store of value than the citizens of Baghdad are, walking the streets.

The Federal Reserve must now be aware that the dollar has held its value on the world exchanges for two reasons: First, compared to the Euro, Yen, or Yuan, America has the highest interest rates by far. We pay carry traders to borrow in Yen at less than one percent and invest in U.S. assets, creating an artificial financial demand; Second, we have winked and have done nothing but talk as the Chinese, Japanese – and the rest of Asia – have manipulated their currencies down to rob America of its factories and keep consumers dumb and happy with artificially low interest rates, and excess consumption. All the while, the Asians have ended up with America’s money.

Since Ben Bernanke is a student of history, it’s likely he remembers when Alan Greenspan was put to the test during the stock market crash of 1987. You may recall this crash was triggered by the dollar taking a nosedive. Think now of those foreign investors, I mentioned earlier, who are holding $13 Trillion in U.S. cash, stocks and bonds. What if they lost 20 percent on the price of their stocks as the stock market sold off, and another 30 percent as the dollar value plunged? Their losses in purchasing power could reach 40 percent! The financial market sell-off would be accelerated by the carry traders who borrow cheap foreign currencies, and could quickly be forced to sell at a really big loss, as the foreign currency moves up against them. The smart investors will dump when they realize the dollar is spiraling downward.

Hank and Ben may not talk openly with Chinese officials about this crash possibility, but you can be sure it’s on their minds. The possibility of a panic and crash from foreigners fleeing the dollar will be with us for quite some time. Therefore, it is highly unlikely in my view that interest rates will be cut until the recession is self-evident. Managing the dollar decline won’t permit the Fed to ease too soon.

So, with the U.S. stock markets up smartly the second half of this year, now is a wonderful time to cash in your chips at the stock market casino and head for the exit door before the mad rush. Remember, if you own dollar assets, a falling dollar can cause havoc to most American and foreign investors. Only those who invest in foreign financial assets or real assets (such as commodities or gold and silver) are likely to be safe and not swept away when the dollar dam breaks.

Great article on the upcoming China trip by the federal monetary authorities!

It seems that the US authorities are going to start playing ultra hard ball with the Chinese authorities over tarriffs and currency prices. Luckily it would appear its not in China's interest to cause too much upheaval, but it won't be easy politically for their leadership to cave in on auto tarriffs and currency rates.

Should be an interesting next few weeks.

The new Congress is tuned into the fact that China has tariffs of 25 percent on imports such as autos, and is very tired of seeing American labor slaughtered.

Suuuuuuuuure they are. Yep, the Democrats are here now and they are going to make things aaaaaaaaaaaallllllllllllllllll betttttttterrrrrrrrrrr. Uh, huh. Why weren't they tired of "seeing American labor slaughtered" twenty or thirty or forty or fifty years ago? Because Congress has nothing much to do with anything. They're just the "Yes sir! Anything you say, SIR!" guys.

ITZ THE JEWS.

Great article on the upcoming China trip by the federal monetary authorities!

It seems that the US authorities are going to start playing ultra hard ball with the Chinese authorities over tarriffs and currency prices. Luckily it would appear its not in China's interest to cause too much upheaval, but it won't be easy politically for their leadership to cave in on auto tarriffs and currency rates.

Hard ball: Itz just pretend.

Like the hard ball we're playing on our southern border.

Luckily it would appear its not in China's interest to cause too much upheaval, but it won't be easy politically for their leadership to cave in on auto tarriffs and currency rates.

All this talk of central banks , what China will or won't do , etc.
EVer think that it just might be pure market forces coming to bear ?
Like , there are just too many dollars out there .

USD Index at 82.93

Euro/usd at over 1.33 and GBP/usd at over 1.98.

USD/jpy at less than 115. Gold at 649 and Silver at 14.02.

Interesting itz. Expect the "solution" to be the Amero to make the usa stronger in the face of Euro oppostion.

Notice that the stock market is NOT a guage of the health of the economy. It's only a reflection of the worth of the dollar in relation to product being traded abroad.

It's an indicator of how much control the Kuwaiti Investment Trust can exert over our markets , using futures . The Kuwaitis and the Saudis have a great debt to the Bush Family . They will do just about anything to support the Bush Family .

As to the Amero , what a disaster . Combining the dollar and the peso would be absolute junk currency .

Fed looks powerless to halt dollar's slide

Submitted by cpowell on 06:55PM ET Friday, December 1, 2006. Section: Daily Dispatches
By Steven C. Johnson
Reuters
Friday, December 1, 2006

http://today.reuters.com/news/articleinvesting.aspx?type=hotStocksNews&s...

NEW YORK -- The dollar tumbled against major currencies on Friday en route to a second week of losses, and this time it's going to take more than Federal Reserve warnings about inflation to stop the slide...

U.S. manufacturing output shrank in November for the first time in 3 1/2 years, according to data from the Institute of Supply Management on Friday, stoking fears that the slowing U.S. economy may be headed for recession.

"The data is starting to drive home the point that the Fed, despite its concerns about inflation, will have to cut rates next year," said Greg Salvaggio, vice president of trading at Tempus Consulting in Washington, D.C.

Making matters worse for the dollar, recent economic data from the euro zone, particularly Germany and France, has showed robust growth, and suported the case for the European Central Bank to lift interest rates to 3.5 percent this month...

Analysts say that clears a path for the euro, which surged above $1.33 for the first time in almost two years on Friday, to hit $1.35 in the coming sessions, and possibly test its December 2004 record high above $1.36.

"The floodgates are open, and for lack of a better metaphor, the rats(Big Jew:rolleyes: ) are jumping off the ship," Salvaggio said, adding that a euro at $1.35 and sterling at $2, a level it hasn't hit since 1992, are within reach by early next week

NY Fed's market-rigging post goes to Goldman Sachs economist

Goldman's former chief economist, Bill Dudley, will become the New York Fed's market operations chief. According to The Wall Street Journal, "The New York Fed's markets chief is manager of the central bank's 'open market account,' responsible for implementing the central bank's interest-rate decisions through operations in the bond and money markets. He also overseas foreign-exchange intervention on behalf of both the Fed and Treasury. ...

"The markets chief is also a point person when the Fed needs to intervene during periods of turmoil. ...

"He doesn't have direct experience in markets, although he frequently advised Goldman's traders on how to react to economic news."

Can you imagine the media wailing and general outcry if as many Exxon or Halliburton executives were appointed to posts in the Environmental Protection Agency, Department of Energy, and Commerce Department as Goldie execs have been appointed to White House, Treasury, exchange, and Fed positions? And now we have an ex-Goldie guy responsible for overseeing the New York Fed's market-fixing operations, which includes gold. Most people do not rea http://www.mramseyking.com/thekingreport.htmllize that it is the New York Fed that is responsible for fixing the markets. How convenient! ...

http://www.mramseyking.com/thekingreport.html

Fed looks powerless to halt dollar's slide

Submitted by cpowell on 06:55PM ET Friday, December 1, 2006. Section: Daily Dispatches
By Steven C. Johnson
Reuters
Friday, December 1, 2006

http://today.reuters.com/news/articleinvesting.aspx?type=hotStocksNews&s...

NEW YORK -- The dollar tumbled against major currencies on Friday en route to a second week of losses, and this time it's going to take more than Federal Reserve warnings about inflation to stop the slide...

U.S. manufacturing output shrank in November for the first time in 3 1/2 years, according to data from the Institute of Supply Management on Friday, stoking fears that the slowing U.S. economy may be headed for recession.

"The data is starting to drive home the point that the Fed, despite its concerns about inflation, will have to cut rates next year," said Greg Salvaggio, vice president of trading at Tempus Consulting in Washington, D.C.

Cut Rates ?????? Then what , watch the dollar collapse and the NYSE/NASDQ plunge ? HUH ?

Cut Rates ?????? Then what , watch the dollar collapse and the NYSE/NASDQ plunge ? HUH ?

Dollar slides further on manufacturing data

-Jim

Cut Rates ?????? Then what , watch the dollar collapse and the NYSE/NASDQ plunge ? HUH ?

One interesting thing is if the dollar is collapsing it could prop up the markets. For example if the dollar depreciated 10% in one year, stocks could fall by 10% in real terms, yet have the same nominal value.

One interesting thing is if the dollar is collapsing it could prop up the markets. For example if the dollar depreciated 10% in one year, stocks could fall by 10% in real terms, yet have the same nominal value.

You're, absolutely correct! But this has already been the case, and will be to a increasing extent in the future.

Over the precious five years or so, the dollar has lost about 50% of its value. At the time this began the DJIA was at a high of 11,500. It is now at about 12,500. But it isn't in actuality. The DJIA is really at about 6,000 - 6,500 when adjusted for the dollar devaluation. The market has actually dropped by 50%, despite the apparent increase in price.

This is a precise example of what I was trying to convey, and unsuccessfully, in a previous post regarding what I see coming][color="Red"]Update - By coincidence, this point is discussed eloquently and in great detail. with comprehensive examples (wholly unlike my previous attempts) by expert Marc Faber on this weeks Dec 02 FSN financial broadcast at: http://www.netcastdaily.com/fsnewshour.htm

I just got an extra large wheelbarrow for the wife to use to carry the money to the store to buy a loaf of bread.

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