The U.S. Dollar Death Dance - by Jim Willie
The US Dollar rally in the last several weeks has been remarkable. At closer examination, it highly resembles a spurt prior to death. Imagine an old man who just had a heart attack, lost feeling in certain body parts, his mind not working right, plenty of nonsense gibberish coming from his mouth, and now he is dancing hard on some last gasps. The vast liquidation movement is akin to the old man going through an embalming process while dancing atop the tables at the funeral parlor, as bidding proceeds for his cadaver.Are Americans last to realize the financial structure destruction means the US Economy does not enter a recession, but rather a bizarre unprecedented disintegration? It seems so. The liquidation of speculative positions, the massive de-leveraging, the payout's of defaulted bonds, these events are the opposite of developments toward revival or resuscitation, like business investment!! Liquidation is the exact opposite of investment, and precedes job cuts, not job creation.
What is pushing the US Dollar up cannot be construed as anything remotely resembling healthy factors. In no way whatsoever does it resemble investment. It is more like paid off death contracts, paid off death investments, paid off transfers from toxic US bonds into what are falsely regarded as safer US bonds with a guarantee from a crippled USGovt. Foreign financial entities are liquidating on massive scale. They need a tremendous amount of US Dollars in order to complete transactions. Also, a tremendous amount of US Dollars are needed for CDSwap payout's as defaulted bonds are resolved. Almost all CDSwap and other credit derivatives are paid out in US Dollars The Lehman Brothers payout was full of lies, again. The Lehman Brothers total volume of corporate bonds was $160 billion, but $400 billion existed in total CDS volume tied to them! It is no surprise that the Dow and S&P500 stock indexes fell hard (by almost 400 points on Dow) and on the Lehman resolution day. And market mavens boasted of no impact on the Lehman funeral date! Big disruptive events are occurring in the distribution system. Letters of credit are routinely being refused by export nations who distrust US sources. A fall of 10% to 20% in shipping traffic to western US ports has been reported. Ships are empty at Asian ports, some even loaded but interrupted on their voyage to US ports and European ports. Many details are given in the October Hat Trick Letter reports. Even manufacturers of shipping vessels are being severely affected, as credit has interrupted construction projects. Indian suppliers are often demanding 100% upfront on costs to east coast retailers, again showing the distrust. Almost total attention has been given to banks and credit markets and stock markets. The US Economy is moving from recession toward something different from depression. The current interruption could actually be more like disintegration. Short-term credit is soon to interfere greatly with truckers and railways in distribution channels on the domestic side, much like letters of credit are wrecking havoc on the overseas shipper side.
1 comment:
"The Lehman Brothers total volume of corporate bonds was $160 billion, but $400 billion existed in total CDS volume tied to them! It is no surprise that the Dow and S&P500 stock indexes fell hard (by almost 400 points on Dow) and on the Lehman resolution day."
Your $400 billion notional value estimate comes from a Credit Strat at Citigroup in London. It was wrong and he has subsequently reduced his number.
The amount of CDS on Lehman Brothers was $72 billion in Notional Value.
http://www.dtcc.com/news/press/releases/2008/dtcc_processes_lehman_cds.php
After a default, the notional value of CDS collapses dramatically as the same investor has both bought and sold CDS.
The actual amount lost (and gained) on Lehman CDS is on the DTCC web site. It was $5.2 billion... less than 1/20th the amount lost on Lehman bonds.
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