The G-7 Forex Intervention Is A Perfect Example Of How Manipulated The Global Currency Market Really Is

by The Economic Collapse

What do governments and central banks do when they don't like what is happening in the financial markets?  They directly intervene and they manipulate the financial markets of course.  On Friday, the central banks of the G-7 acted in concert to drive down the value of the surging yen.  So why did they do this?  Well, the fear was that a rising yen would hurt Japanese exports at a time when the economy of Japan needs all of the help that it can get.  So, as central banks have been doing with increasing frequency, they directly intervened in the Forex market in order to bring about the result that they desired.  Unfortunately, this is not an isolated incident.  The truth is that foreign governments, central banks and large financial institutions are constantly manipulating the Forex, precious metals and stock markets all over the globe.  You see, in today's global economy the "stakes are so high" that the free market cannot be trusted.

The reality of the matter is that none of the financial markets are really "free markets" anymore.  Not that they are completely rigged, but to say that they are very highly manipulated would not be a stretch.

At least this time the manipulation was made public.  Of course it would have been really hard to hide the fact that all G-7 central banks intervened in the Forex on the same day.

The last time there was such a coordinated intervention in the global currency market was back in 2000 when central banks intervened to boost the struggling euro.

But the truth is that individual central banks attempt to manipulate the Forex all the time.

Some of these interventions become public.  In September 2010, a bold 12 billion dollar move by the Bank of Japan to push down the value of the yen made headlines around the globe but had only limited success.

Another example of this from last year was when the Swiss National Bank experienced losses equivalent to about 15 billion dollars trying to stop the rapid rise of the Swiss franc.

Many nations around the world have become extremely sensitive to currency movements.

In particular, there are several Asian nations that are known to be constant currency manipulators.  For example, Singapore is very well known for intervening in the foreign exchange market in order to benefit exporters.

And that is what this most recent intervention on behalf of the yen was all about.  It was about making Japanese exports cheaper.

But who is going to say no to Japan right now?  It is believed that Japan asked the G-7 to do this, and so they did.

Japanese Finance Minister Yoshihiko Noda told the media the following about this massive intervention in the marketplace by the G-7....

"Given yen moves after the tragic events that hit Japan, the United States, Britain, Canada and the European Central Bank have agreed with Japan to jointly intervene in the currency market."

So isn't the Forex supposed to be a free market?

If you still believe that, I have a bridge to sell you.

According to Kathleen Brooks, the research director at a major Forex trading firm, it looks like there is a certain level that global authorities simply will not allow the yen to rise to....

"It looks as though global authorities are willing to pull out all of the stops to defend the 80.00 level in dollar/yen."

The following is the full statement released by the G-7 defending their currency intervention....

Statement of G-7 Finance Ministers and Central Bank Governors
March 18, 2011
We, the G-7 Finance Ministers and Central Bank Governors, discussed the recent dramatic events in Japan and were briefed by our Japanese colleagues on the current situation and the economic and financial response put in place by the authorities.
We express our solidarity with the Japanese people in these difficult times, our readiness to provide any needed cooperation and our confidence in the resilience of the Japanese economy and financial sector.
In response to recent movements in the exchange rate of the yen associated with the tragic events in Japan, and at the request of the Japanese authorities, the authorities of the United States, the United Kingdom, Canada, and the European Central Bank will join with Japan, on March 18, 2011, in concerted intervention in exchange markets. As we have long stated, excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability. We will monitor exchange markets closely and will cooperate as appropriate.

But it is not just foreign governments and central banks that manipulate financial markets.

If you want to try to make money on the Forex, you had really better know what you are doing, because most "little fish" get swallowed up and spit out.

A number of years ago I actually invested in the Forex and I rapidly learned that it is not a "clean game".  I discovered that there are industry insiders that openly confess that several of the "big fish" in the industry brazenly "stop hunt" and regularly trade against the positions of their clients.

Not that stock markets around the globe are much better.  It would take thousands of pages just to document the well known cases of stock manipulation and insider trading.

And don't get me started on the precious metals markets.  As I have written about previously, very compelling evidence of manipulation in those markets has been handed to the U.S. government and they have essentially done next to nothing with that evidence.

Not that people don't make money in the financial markets.  Some people make a ton of money.  But those people are experts and they know how to survive in a "dirty game".

If you are an amateur, you really need to think twice before diving too deeply into the financial markets.  If you think that you can jump into the Forex or the U.S. stock market and "get rich quick" you are in for a rude awakening.

The financial markets have become a game that is designed to funnel money to the "sharks" and to the "big boys".  Once you put your money into the game, the odds are that "the house" is going to win.

For those that still do believe that the financial markets are a good way to build wealth, at least be prudent enough to get some sound financial advice.  There is no shame in having a financial professional invest your money for you.

But it is no guarantee of success either.  The truth is that millions of Americans have experienced a lot of pain in the financial markets over the last few years.

As the global economy becomes even more unstable, the manipulation of the financial markets by governments and by central banks is going to become even more dramatic.

As financial markets around the world crash and rise and crash again a whole lot of people are going to be wiped out financially.

You don't have to be one of them.

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PREPARING FOR THE “BANG”

by Decision Point

My wife is something of an insomniac, so she listens to a lot of nighttime talk shows — not the best cure for insomnia, I’ll bet. Recently she told me about the comments of some guest on some talk show — sorry, but that’s as good as I can do for attribution — who had an analogy for the U.S. financial woes. He said we are like a person who makes $50,000 a year, spends $75,000 a year, and has $375,000 in credit card debt. Hopeless is what it is.

From Mauldin and Tepper’s Endgame: The End of the Debt Supercycle: There is a limit to how much debt you can pile on. As the work of Reinhart and Rogoff points out in This Time It’s Different (2009), there is not a fixed [emphasis mine] limit for debt or some certain percentage of GDP where it all breaks down. Rather, the limit is all about confidence. Everything goes along well, and then “bang!” it doesn’t.

“Confidence” has always been the keyword in financial markets. We get a daily diet of economic news with a determined spin about how the economy is gradually improving, but in the background the Fed and the politicians keep digging a deeper hole of debt. And the story is the same around the globe — governments trying to exacerbate the threat of horrible levels of debt by piling on even more debt.

The real question is if the collapse really will be a “bang!” moment, of whether there will be some kind of advance warning upon which we can act. As a technical analyst I believe there will most likely be a gradual deterioration ahead of the “bang!”, and we must assume that the deterioration has gone too far when the 20-EMA crosses down through the 50-EMA. To illustrate this point, let’s look at two of the most catastrophic financial events in the last 100 years — the 1929 Crash and the 1987 Crash.

The first chart is of the Dow Industrials in 1929. Note that the 20-EMA crossed down through the 50-EMA about two weeks ahead of the Crash. Some will complain about the two whipsaw signals earlier in the year, but this kind of activity characteristically precedes major tops and part of the cost of doing business if you want to avoid major declines. To mitigate the damage of these whipsaws, our timing model only generates a NEUTRAL signal (instead of a SELL) when the crossovers occur above the 200-EMA.

Next is the 1987 Crash. It is hard to see, but the 20/50-EMA crossover occurred four days ahead of the crash. Again, there was a short whipsaw earlier in the year.

Bottom Line: Catastrophic market events are usually a big surprise to most people, but they rarely take place without giving some advance technical warning signs. The moving average crossover has been a reliable, though by no means perfect, signal for impending trend changes. It is certainly one way we can attempt to be prepared ahead of the “bang!”.

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Is This Why Bill Gross Dumped Treasuries?

By Global Macro Monitor

A couple of revealing charts from the Fed’s Flow of Funds data.   Both show net flows into Treasuries by creditor type and the Federal Government’s borrowing during each quarter.   Note, the quarterly data is annualized.

The first chart illustrates how QE2 flushed domestics out of Treasuries and effectively funded 63 percent of the budget deficit in Q4.  The Treasury is prohibited from directly selling bonds to the central bank, but effectively finances the government through POMO.

Given that a large portion of the Rest of World category are central banks recycling BOP surpluses,  it’s likely that 90 percent of the U.S. budget deficit in Q4 was funded by central banks.    You think this may have anything to do with what’s happening in the commodity markets?   That is, the central banks’ printing presses providing the fuel for speculators?

Furthermore, we ask: who is going to finance the U.S. budget deficit when QE2 ends, especially at a sub 3.50 percent 10-year Treasury rate?  Bill Gross knows!

>

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Japanese Fallout May Hit U.S. Treasury Bonds

By: John_Browne

Japan is facing two meltdowns in the wake of its devastating earthquake. The first, and more critical, is the meltdown at the Fukushima I Nuclear Plant, 150 miles north of Tokyo. Surely, this is the greater near-term threat. But long-term, another threat looms, having to do with the Japanese government's response to the former.

As the fourth largest economy in the world, behind the EU, US, and China, any major setback in Japan likely will have widespread repercussions. Japan is also the third largest holder of US Treasuries, behind the United States and China. While it is too early even to assess the Japanese damage accurately - let alone to forecast the full implications - it is possible to see the potential for a meltdown of the US Treasury market and international monetary system.

Current estimates hold that the Japanese disaster has already lowered world economic growth by a full percentage point for the year.

Leaving aside massive international aid, a complete nuclear meltdown, or other escalations, Japan already will have to spend a massive amount of money to cope with the current disaster. This raises the question: from where will such an enormous amount of money come?

Japan could borrow. However, with a debt-to-GDP ratio of some 200 percent, or twice as bad as that of the United States, and with the main credit rating agencies exercising more scrutiny than before the Credit Crunch, raising funds will be difficult at an economic rate of interest. Moreover, Japan will likely be spending a large chunk of its foreign exchange reserves to buy oil to replace its lost nuclear power generating capacity - diminishing its collateral in the eyes of creditors.

Japan could follow the US example and "paper over" its problems. But without the benefits of being the international reserve currency, the Japanese would immediately feel the effects of domestic inflation. The Bank of Japan has already pumped out ¥8 trillion ($98 billion) in the wake of the earthquake, but it is unlikely to try to match the Fed's $600 billion printing spree this quarter.

So, if Japan is limited in its ability to borrow or print money, it may have to sell part of its vast holdings of US Treasuries.

At the end of last month, the US Treasury had outstanding debt worth some $14.19 trillion. This represents 96.8 percent of the total $14.66 trillion value of business generated within the United States for the entire year of 2010. It is just short of the $14.294 trillion debt limit set in 2010 by a profligate Democrat Congress. To put it in perspective, the US government now owes $91,400 for every working American. However, this represents only some 22 percent of Washington's $62 trillion of unfunded obligations, which include Social Security, Medicare, housing, and other guarantees.

Japan is the third largest holder of US Treasuries ($877 billion), behind China ($896 billion) and the Fed ($1.108 trillion). Should Japan start selling Treasuries in large amounts to fund the repair of its economy, it could have a serious effect on US interest rates and the market value of Treasuries the world over. US bonds are widely held by central banks, international banks, and insurance companies, which already are concerned about their funding of loss claims arising from the damage in Japan.

Thus, a Japanese selloff could trigger a liquidity crisis like the one following the collapse of Lehman Bros. and AIG. Large institutions may not be willing or able to bear with US bonds through a steep correction.

Western economies are on thin ice as it is, even without a shock in their presumed "safe" asset.

Stock markets in the EU and US are weakening, destroying large amounts of private wealth and potential consumer confidence.

Further, the EU is facing the reality that the financial rescue programs it organized to save some of its members are not working. China and Japan offered to help. Now Japan may not be able to fulfill its promises. This could reignite further speculative downward pressure on the euro.

It seems that while we are all concerned about the effects of nuclear meltdown on the residents of Japan, we should also be aware that the fallout could spread further in the financial markets than it does in the atmosphere. Just as Californians are stocking up on iodide pills as a precautionary measure, investors should be stocking up on hard assets. After health, it's vital to guard your wealth - especially in emergency times like these.

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Coffee squeeze may yet drive prices to record high

by Agrimoney.com

The rally in coffee prices could last for at least another season, and take out records set in the 1970s, driven by a market squeeze that will drive supplies to their tightest in 50 years, Rabobank said.

The tightness in the market for arabica coffee, traded in New York, which has already driven prices to 34-year highs looks set to increase further in 2011-12, as robust demand encounters a falling supply of the beans.

That will be an off-year in the two-year production cycle in Brazil, the top grower, leaving world output of arabica beans – generally considered the better quality coffee type – down 7.4% at just under 78m bags.

Although stocks are set to rebuild somewhat in the current season, "the surplus built up is not expected to be sufficient to counter the lower production expected in 2011-12", the bank said a report.

'Significant upside risk' 

"As demand growth will continue, we expect the stocks-to-use ratio for 2011-12 to be the lowest for the last half a century, resulting in high prices and continued competition for beans."

The report added that "significant upside risk" remained for prices, even after a doubling in the past year.

"If production is threatened by weather, prices could take out the record set in the 1970s."

Changing tastes 

The market tightness has been spurred by years of modest growth in arabica output, and little prospect of a significant uptick given the time needed for coffee trees to establish.

Meanwhile, demand for the beans has shown a significant increase, in line with a taste for upmarket coffee, such that even a 25% rise in prices of some US brands over the last nine months is not expected to dent consumption much.

Indeed, US demand is expected to remain flat in 2011-12 and grow by 2.0% in the European Union, while hitting 2.8% in Brazil, which is closing in on America as the top consumer of the beans.

"The growing demand comes despite the higher price tags," Rabobank said.

"The consumption of coffee was very resilient during the financial crisis, and we believe it will continue."

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I Hate Corn Ethanol.com

By Barry Ritholtz

So on a lark today, I grabbed a new URL: IHateCornEthanol.com

I was thinking that with all this newfound talk about fiscal responsibility, perhaps it might be time to put an end to one of the dumbest Energy/Ag subsidies in the history of the US: Burning food (corn) for fuel.

I do not have any issue with alt.fuels — but they have to make sense. Ethanol does not.

I am thinking of some interesting ideas to use this with in the coming 2012 Electoral season:

• Get candidates to sign a pledge to do away with Corn Ethanol Subsidies

• Clearing house for all corn ethanol related research, news, data.

• Community / Message board for ethanol related haters

Any ideas? What should be done of value with this web site?

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