Are They Bombing Out The Buck?
"When you combine ignorance and leverage, you get some pretty interesting results."
-Warren Buffett
Last night CNBC had clips of Maria Bartiromo interviewing Tim Geithner. That was quite the combo. Combining economic ignorance with the levered long leader of the willfully blind is pretty interesting Mr. Buffett, indeed!
On the question of leverage, Geithner proclaimed his mystery of faith stating that "credit is the oxygen"...
On the question of plans to address the Burning Buck... well... Geithner didn't have any...
I couldn't make this up if I tried, but rather than provide Bartiromo with a proactive plan to address the Currency Crisis, Geithner said that he doesn't usually talk about daily activity in the currency markets. Timmy, understanding that the daily analysis is more of a real-time risk management approach, how about weekly or monthly? Quarterly? Annually? Newsflash: the US Dollar is down another -2.2% this week and has lost -16% of its value since March! Wakeup.
Never mind the marked-to-market price, Geithner went on to point out that the US Dollar's strength was most readily apparent when the world was screaming with fear. Finally, he concluded that, as a result of how the US Dollar acted during last year's apocalypse, the US Dollar's strength remains readily apparent.
This guy was serious. Under this line of thinking, I guess all we have to do is create another Global Leverage Crisis and we'll get our currency back! While hope is not an investment process, I can only hope that the Chinese and Japanese didn't watch the YouTube of those CNBC clips...
This morning the Buck continues to Burn. Are they Bombing Out The Buck? Or are they just getting started? Niall Fergusson at Harvard thinks that the bombing is going to be for another -20% down move in the US Dollar within the next 6-12 months. I like Niall's research, a lot. But Niall, if that happens... all I have to say is 'lock the barn doors Sally', because every American with a pitchfork is going to be coming at those of us who work in Financial Services.
Away from not trusting him, my biggest issue with Tim Geithner has to do with competence. He doesn't do global macro, so I don't think he really has any idea how to approach this secular Global Currency Diversification exercise. Being a New York centric banking man has its privileges to the Groupthink Suite.
If Geithner's answers pertaining to the US Dollar last night weren't alarming enough, here's what the Treasury issued as a statement to The Client (China) this morning:
"Both the rigidity of the renminbi and the reacceleration of reserve accumulation are serious concerns which should be corrected to help ensure a stronger, more balanced global economy consistent with the G-20 framework"...
Again, I couldn't make this up if I tried, but Geithner is so clueless right now that he is choosing to antagonize the Chinese in the Treasury's semi-annual report on currency policy. The Chinese are already a net seller of US Treasuries and Dollars. What are you doing Timmy? Wakeup.
If you are looking for another opinion on this other than mine and Fergusson's, here's Alan Greenspan's this morning: "I'm not overly concerned about the most recent decline in the dollar"...
Gee, thanks Alan. You haven't been concerned about this country's currency for a long time. Now your boy, Bernanke, is following your lead. We issue our citizenry a ZERO percent return on their savings accounts, fire up the inflation machines, and are teeing up Investment Banking Inc. to pay out more bonuses on the back of this Piggy Banker yield curve in 2009 than we did in the year that preceded this said "Great Depression"!
Never mind the long term implications of the US Dollar trading close to 38 year lows. This, of course, is all just fantastic for the US stock market in the immediate term. We Bomb the Buck, and everything priced in bucks reflates. Yesterday, I called this the Minsky Meltup. Today, I'll call it the same.
The Minsky Model isn't one that the levered loan originators of Investment Banking Inc. like to read about. Shhh - keep that under wraps. Ignorance and leverage is a powerful compensation structure for those who have an entitlement to game the US Financial System.
My immediate term upside resistance level this morning for the SP500 is at yet another higher-high (1103) and my immediate term TRADE support line is at another higher-low (1069). Meltem' up boys, and hope that the American people are as ignorant as Geithner in understanding that the last crisis was born out of a weak-dollar debt-financed asset-price-appreciation bubble.
Best of luck out there today and have a great weekend with your families,
KM
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