Posted on 11/07/2007 7:10:15 PM PST by DeaconBenjamin
French president warns US it cannot allow currency to collapse as Europe suffers from euro's rise.
The French president, Nicolas Sarkozy, has warned the United States Congress that the US risks triggering "economic war" if it attempts to devalue its way out of trouble by allowing a relentless slide in the dollar.
The stunning remarks came as the greenback plunged to a record low of $1.4731 against the euro, causing a chorus of angry protests from industrial leaders in France and Italy. The dollar breached $2.10 against sterling for the first time since the early Thatcher years in 1981. On Wall Street the Dow tumbled 246.40 to 13,414.50.
Mr Sarkozy spared no sensitivities as he launched into a full-blown attack on the Bush Administration. "The dollar cannot remain solely the problem of others. If we are not careful, monetary disarray could morph into economic war. We would all be its victims," he said.
"Those who admire the nation that has built the world's greatest economy and has never ceased trying to persuade the world of the advantages of free trade expect her to be the first to promote fair exchange rates."
Stephen Jen, an analyst at Morgan Stanley, said the dollar fall had become alarming. "This has been driven so far by Middle Eastern and Asian central banks, but there is a risk that hedge funds will start to join in, and they can be very powerful," he said.
"The most dangerous threat is that the yen will snap back and destroy the 'carry trade' before anybody has a chance to unwind positions."
The $1,200bn (£570bn) yen carry trade has been a huge source of liquidity for asset markets. A sudden reversal could cause a shock to the world system, as in 1998.
The dollar's dive came after comments by Cheng Siwei, vice-chair of China's Congress, suggesting that Beijing would switch more of its $1,340bn reserves away from US bonds. "The euro is rising and the dollar is weakening, and we can achieve a better match of the two," he said.
Simon Derrick, a strategist at Bank of New York Mellon, said it appeared to be a slip of the tongue: "The last thing the Chinese need now is a rapidly falling dollar. Their inflation is already running at 6.2pc." Mr Derrick said the world was on the cusp of a full-blown currency crisis. "The Fed is caught between a rock and hard place. It can't keep rates high enough to fight inflation because of the sub-prime crisis."
Mr Sarkozy's comments came after the French luxury goods group LVMH said it was moving production to India. Airbus stands to lose €100m in profits for every one cent rise in the euro, a loss of €1.2bn since August.
Luca di Montezemolo, head of Italy's business federation, said the high euro was having "devastating effects". Even German companies are starting to suffer. Manufacturing orders dropped 2.5pc in September.
Mr Sarkozy's words were undoubtedly directed at the European Central Bank before today's interest rate meeting. A German-led group of bank governors is pressing for a rate rise before inflation gets out of hand. Any such move would set off a political storm in Europe.
Monteal-based, but have a plant in Wichita.
Don’t forget companies like Honeywell, united technologies, etc...
Parts suppliers will be happily cranking out parts and profits as well.
Is the headline here correct? Is the article from Aug. 2007? Under the European system, 8/11/2007 is November 8 (i.e., tomorrow) not August 11.
Get rid of the Fed. The Fed lowering interest rates to below 1% was what led to the housing bubble.
Abolish the EPA.
Abolish the Dept. of Education.
Abolish the Dept. of Energy.
Abolish Medicaid.
Abolish HUD.
End Welfare.
Get rid of the income tax and IRS.
Abolish the Democrat party.
Then no more problems and capitalism can really create an even more prosperous and wealthy society, a technologically advanced utopia undreamed of where everyone can make more money.
I agree 100% with every single item on your list.
Everyone at FR should be forced to read this article. I’m so sick of people, misinformed, that the usd weak is bad for the us economy. Good grief, just read what these strong currency folk think about their “great” situation.
Oh well, this currency thing is so out of hand right now, can’t last much longer. Pretty soon, Canadians will be buying up all of our r/e, the Japanese will buy all of our golf courses, and the Brits will buy all of our Fish and Chips stands. The humanity...
If everyone makes money, everything will cost more, making the gains a zero sum gain. The cost of everything is based upon what people are willing to pay for it. If you have more than others, everything seems cheaper to you. Beat your financial demographic, that is how you create your “wealth”.
But, I’d be happy to see many fed depts shut down, and have govt more local with the people. Term limits too, man we need that, end this career of politics nonsense.
There’s really no such thing as term limits cuz they just become lobbyists when they’re done “serving.”
You really should read the founding documents of the EU -- after you finish scratching your head (they're enormously vague), you'll either laugh or vomit.
As I had the honour of mentioning to Miss Ingraham a week or so ago, a ‘telegraph’, whether capitalised or not, is merely an outmoded form of communication.
Ping!!! Are you reading this thread back there in the “Show Me State?”
I am, of course, referring to the 1970s fiasco of ''sovereign loans''. The chairman of Citibank at that time, Walter Wriston, famously and wrongly said, as his reason for backing sovereign loans so strongly, ''Countries don't go broke''.
Technically he was correct. None of his sovereign customers declared bankruptcy, or, if you prefer, ''went broke''.
They did, however, one day simply decide not to pay back the loans. And Citi took a HUGE hit, willy-nilly.
It's probably a bit late to buy puts on Citi shares (but, one never knows how bad things might become for them...), but -- speaking as a professional trader -- look for a bottoming in Citi's share price to be a signal to start getting long in the USD.
Or not. Your choice. I've made mine, and will be doing exactly as discussed above in 3, 5, 7 months or so...depends on when Citi's share price starts making a bottom.
Good trading to you, and FReegards!
I agree except for the part about abolishing the democrat party. No, we need to keep them in a museum so that future generations will remember how stupid some Americans were so that they will never repeat their mistakes.
Yes, propaganda. Must-Split-French/American Alliance!
Another way of spotting the bottom, or turn in direction for the USD, will be in other countries. The USD went into a strengthening cycle after the Bank of England crisis, which later spread to Mexico, then Asia....
The USD finds itself in a position to be a revers correlator to the price of oil, euro, cdn, china, gold, and all sorts of other “trades”.
When it does turn, I’ll bet you agree, it will be so fast as to be amazing, something we’ve never seen before. Just look how fast this meltdown in financials has been?? Dang, I saw it coming, but never anticipated how fast things would go down/to zero.
I got out at the perfect time on financials, and had been in since 99/00. I’m not anxious to go back, usually wait 2 years. It does take 4 qtrs of earnings to get this out of the system, plus the dividend cuts, nasty stories, fed investigations, testimony to congress and all that mess hasn’t even started to happen yet.
And wait until the “models” of level two, start to recalc based upon actual credit downgrades by the ratings agencies.
Before I get back into financials, I want the media to have found something else to talk about, volume to dry up, and bad news to no longer affect the stocks. But I’m pretty old fashioned...
Exactly! I’ve been saying this for months, and that I believe it’s being done ON PURPOSE to break up the EU.
The pressures on Germany are amazing - Germany accounts for 90% of ALL exports of the EU, and they’re getting drug down like crazy right now.
Italy is the country that relies the most on exports, and they’re getting pummeled.
Make it such an economic penalty to be part of the EU, and you will split the EU apart. Add in Sarkozy and Mertel both being capitalists, toss in Poland’s penchant for complete economic freedom, and we have the makings of a split of the ONLY economic block that could pose a threat to overtake the US.
No, this devaluation is happening on purpose, to break the EU, and it appears to be working beautifully...
However, no mistaking it, we're reasonably close on to the point where it will be both proper and prudent to buy megaban shares. 7 months? 2 years? I won't split hairs here -- nobody buys the bottom tick, and it's futile to try in my view.
Another thought, for what it's worth, for perhaps more adventurous traders. Given the current price of wheat (any type you like, except possibly durum), wheat acreage is going to go up hugely in the Northern hemisphere in the coming year. So will soy acreage. The interesting thing is the crop year differential.
Next July contract is called 'new crop' wheat, unquestionably to be affected as huge planting intentions become known, while the July soybean contract is 'old crop'. We've X amount of beans and X won't change until next August at minimum. As you know if you've looked, beans have LOST in price to wheat most of this year, and certainly in the past 4 months on a same-month-contract basis. The contract month that has **not** lost in the past 4 months is July '08 -- beans have actually gained a few cents on wheat (both ''Chicago'' soft red and ''KC'' hard red).
Not sure when to do this, right quickly I should think, certainly before the end of the month, but I really can't see buying July '08 beans and selling July '08 wheat as being anything but profitable IF one is willing to sit for a bit of risk. Several imponderables are still in the mkt, particularly for wheat. The Russians are still mulling over tariff increases/surcharges, and the Aussie wheat crop is hurting and no one is ready to say how badly (or, at least, not with any degree of accuracy).
Ah, well, the fascination of mkts, eh? Not joking with you at all; I fancy the long beans/short wheat trade is a sizeable winner into about next February, perhaps even longer if we should see a couple of specific developments. If you've an interest (NO, I'm not a broker or a hedgie, I'm not soliciting you for anything at all except your possible curiosity), I can post the optimum historical dates for this trade at your convenience. Or, you can look them up yourself at my website, which is devoted to statistical and historical analyses of futures prices.
Please advise if you've an interest in such information, or, if not, just tell me to go trade megabank shares, heh heh heh.
Again, good trading to you!
Me too.
Rove!!!!
You magnificent Bastard!
I read your book’
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