GEAB N°27 is available! Why LEAP/E2020 maintain their anticipation of a 1.75 EURUSD exchange rate at the end of 2008

- Public announcement GEAB N°27 (September 16, 2008) -

Contrary to what the dollar's staggering upturn against nearly all currencies since the beginning of July 2008 suggests, LEAP/E2020 sees no reason to modify its anticipation about the EURUSD exchange rate at the end of this year. On the contrary, the specific nature and conditions - as they are described in this 27th issue of the GEAB - of the wide-scale manipulation of the US currency index that the US Treasury Department has been operating since the last week of July 2008, with the active support of the US Federal Reserve's " Primary Dealers " and the central banks of China and most probably of Japan and Europe, have convinced our researchers that, besides the fact that it was temporary, the upturn was in fact the sign that the collapse of the dollar system we have been living in since 1945 was gaining momentum.

Since the end of July 2008, many explanations have been provided to the fantastic rebound of the US currency against all leading currencies. These explanations were often focussed on the EURUSD exchange rate, which has obviously become the barometer of the end of the dollar era. Our researchers have carefully studied all these arguments and they came to the following simple conclusion: either they had no other basis than the expectations, interests or obsessions of those who formulated them (1), or all by themselves they were not sufficient to explain such general and sudden move of the US currency.

Hereafter our team analyses two of the three explanations developed in GEAB n°27.

1st explanation: " The whole world economy is now being hit by the crisis, provoking a rush towards quality "

It is certain that the majority of the world's financial operators and investors only realised this summer that Europe, Asia and the emerging markets were also about to be hit by the crisis (" The world plunges into the heart of the global systemic crisis " was the main title of the GEAB's June edition). They had made the mistake to believe in the announcements released by those countries claiming, as always, that all was for the best... until they noticed it was the contrary.

Of course the crisis has impacted most currencies, but they are not reacting simultaneously given the very different conditions between for instance the United Kingdom, the Eurozone, Japan and Australia. But, above all, in consideration of the obvious series of bad news coming from the United States (the nationalisation of Fanny Mae and Freddy Mac for instance will increase significantly the country's already abysmal public debt), the US economy can really not be described as a "quality" safe haven, as Lehman Brothers bankruptcy has just illustrated again. As a matter of fact, as we will see in the rest of the explanation on the dollar manipulation, it is precisely for opposite reasons to " quality " that this operation was set up. In any event, the markets' taking into account a new factor would not normally generate such linear, general, lengthy and uninterrupted process. The famous "invisible hand of the market" is less heavy and determining than that.

This first argument has therefore been considered very insufficient to explain the scope of the movements taking place since the end of July, and totally irrelevant to justify the duration and linearity of the process.

US debt corrected for inflation (in year 2000 dollars) - Source: US National Debt Clock

2nd explanation: " The US went into recession before the rest of world therefore they will come out of it sooner "

Out of politeness, we prefer not to name the reputable media which, all over the world, repeated this " argument ": so much absurdity is either deliberate lying or plain stupidity. What is certain for the vast majority of financial and economic players is that the US are obviously hit by a severe recession, with their financial system imploding because of the subprime crisis and consequences (2). What is probable for most of them now, is that Europe, Asia and the rest of the world will be affected at various levels and will experience some economic slowdown (LEAP/E2020 already wrote in detail the ongoing and upcoming evolution of this process and it is not the time now to come back on that). What is certain also for the majority of investors, is that besides the UK - and Spain to a lesser extent, no major country is affected by such manyfold crisis (real estate, finance, banking, economy, currency, military...) as the US, no one having the faintest idea of how and when it will end. In fact, this "argument" is based on the idea that the crisis currently affecting the US would be less bad - or not worse, to the maximum - than the crises affecting the rest of the world, and that it would not affect the country any more and any longer than it would affect the rest of the world. Those who claim this argument would also like us to believe that all economic and financial investors massively rushed to buy US dollars and to sell their other currencies, even on those days when the Dow Jones was losing 300 points because of very bad economic news! Apparently these global investors display a rather hectic behaviour: they believe in the US dollar but they are selling all their assets tied to the US economy! They are convinced that the US economy will improve sooner that the rest but they are getting rid of their shares of this economy in order to buy US dollars! This kind of behavioural derangement has no more to do with stupidity, it is madness... unless it is a desperate " retreat forward ", and in this case the upward trend is ephemeral and some very serious problems are ahead for the US dollar and US dollar-denominated assets. As we will see later on, it is precisely on this phenomenon that the manipulation played. In any event, the "argument" according to which "the US would get out of the crisis sooner than the others because they got into it before" failed to convince our team.

Impact of recent financial crises on investment banks (Dark blue: duration; Light blue: severity) - Sources: Morgan Stanley / Oliver Wyman

In this issue of the GEAB (N°27), our team details the mecanisms at work in this large manipulation of the dollar index orchestrated by US and Chinese authorities. They also anticipate the disastrous outcome of this operation which contributed to accelerate the ongoing process of disintegration of the US and global financial system. Panic now reigns in Washington (and New York) as much as in Beijing, and the consequences over the next 12 months have become very predictable in the eyes our researchers. LEAP/E2020's operational advice and strategic recommendations are there to help protecting oneself against the impact of the crisis.

 A "direct hit" is blowing on the global financial system and it is therefore important to understand who will be the next resident in the White House at this crucial moment of US and global history, all the more since the name of this resident is no more a secret for our team as the result of the election has been programmed. It is in the next issue (GEAB N°28) that LEAP/E2020 will update their yearly anticipatory calendar of the global systemic crisis, and give their analysis of the situation concerning the Eurozone, Russia and Asia.

---------

Notes:

(1) In the field of currencies where speculation, history, nationalism and strategy are intermingled, obsessions are very common.

(2) Every week now, at least one bank, big or small, goes bankrupt. And the US government must assimilate whole segments of the financial economy, as in the case of Fanny Mae and Freddy Mac, and of Lehman Brothers.

Mardi 16 Septembre 2008

In the same category:

SEQUENCE 6 - 'Very Great Depression' in the US, social unrest and army's growing influence on public affairs (2nd quarter 2007 - 4th quarter 2009) - 24/08/2008

Traffic Info LEAP/E2020 - May 2008 - 12/05/2008

From now on the GlobalEurope Anticipation Bulletin is also available in Spanish! - 14/03/2008

Special offer! Each new subscriber gets Special Edition 'GEAB/SUBPRIME CRISIS: Causes, development, consequences and strategic advice'... because an in-depth understanding is required to secure oneself - 12/08/2007

GEAB Archives Offer (1) - Six archive issues of your choice for 50 euros - 22/01/2007

French prospectivist, Pierre Gonod, analyses LEAP's work of anticipation - 30/08/2006

Finanskris  kreditkris  dollarraset  olja  oljekrig  oilwars  USA  FED  nyliberalism  nyliberal  neoliberal  skojare  liberaler  kollapsen av nyliberalismen  militär keynesianism  Bush  Clinton  McCain  Förenta Staterna  George W Bush  liberal kris  den osynliga handen  Bernake  Greenspan  kreditkrisen  finanskrisen  bankkrisen  konsument krediter  skuld  nationell skuld  räntenivå  recession  konjunktur strukturell kris  national debt handelsbalans utlandsskuld  nykeynesianism; internationell ekonomi  ekonomiskt läge  globalisering  internationella förhållande  amerikansk ekonomi  bankväsendet  finansmarknad  avreglering  pension  globala rånet  nyliberal skojeriet  neoliberalism  neocons  financial crisis  bank crisis  recesion  depresion  economics  voodoo economics  freakonomics  Federal reserve  Dollar Collapse  neokeynesianism interest rate  obligations  CDOs  state obligations  economic colapse  the dollar empire  monetary policy  national debt  state debt  credit crisis  credit card  mortgages structured investment vehicles   financial asset   credit crunch  Bank of England   financial panic   Individual Voluntary Agreement   toxic packages   sub-prime mortgages  privatization  deregulation  foreign debt  dollar asssets  dollar collaps  the invisible hand  neocons  debt mortage loans  mortage debt  consumer debt  bonds  trasure bonds inflation  consument price index  producent price index  energy price  oil price  bonds price  stocks  stock  Wall Street  financial markets  militar speditures  structural crisis trade balance  Globalisation  Globalization  globalism  Globalisering   IMF  world bank  corporate bond equities markets  disarray; the banking system  collapsing  consumer spending  tax revenues  national debt black holes  Closed Economy The Black Economy  Recession  Leverage  Treasury Bill  Asymmetric Information  The Long Tail  Demand Forecasting  Monetization  Monopoly  Monopsony  Duopoly  Oligopoly olja  oljekrig  oilwars  USA  FED  nyliberalism  nyliberal  neoliberal  skojare  liberaler  kollapsen av nyliberalismen  militär keynesianism  Bush  Clinton  McCain  Förenta Staterna  George W Bush  liberal kris  den osynliga handen  globalisering  internationella förhållande  amerikansk ekonomi  dollar collaps  the invisible hand  neocons  militar speditures  structural crisis trade balance  Globalisation  Globalization  globalism  Globalisering   IMF  world bank  corporate bond equities markets  disarray; the banking system  collapsing  consumer spending  tax revenues  national debt black holes  krigsförbrytare  war criminals  Democracy  liberal democracy  dictatorship  fascism  McBush  11/9  9/11  terrorism  War on terrorism Russia  Georgia  Bush  Putin  south Ossetia  War nuclear  Nato  Election 2008  Obama  McCain  Iran  11 september   Accounting    Asset  Asymmetric information Autarky Average cost    Average propensity to consume B  Barter system  Bonds Budget    Business economics C   Call money market Capital Capital Asset Pricing Model    Capital market line Commerce Commodity Company    Corporate finance Credi Currency D   Depreciation Diversification Duty E   Economics E cont. Efficient frontier F   Finance Main Page    Gini coefficient    Microfinance Price floor Equity    Financial economics    National stock exchange    Budget deficit Sample  Financial instrument    Fixed capital Foreign exchange rate    Future value H   Hedge funds I   Industry Inter-connected Stock Exchange L  Lending Loan M   Macroeconomics    Money Supply Money changer Money market N  Normal distribution O   Option    Over-The-Counter Exchange of India P   Present value Price Product  Profit R  Repo rate    Return on investment Risk Risk management S   Secondary market    Security Market Line Sell Share Share certificate Standard deviation    Stock  Stock market T  Tariff  Taxation Time value of money  Treasury bonds Y   Yield Z   Zero-coupon bond  Foreign policy law of the United States  imperialism  noninterference  nonintervention  regionalism  axis-of-evil  Bill of Rights  blow-back  budget  capitalism  caucus  civil rights  collateral damage  depression  disinformation  doublespeak  fascism  free speech  free enterprise  Federal Reserve System  FDIC  globalization  mpeachment  inflation  laissez-faire  MSM   Mainstream media  Neo-liberalism  Neo-conservative (Neocon)  New World Order  outlays  POTUS  propaganda  privatize  recession  revenue enhancement  republic  SCOTUS  Supreme Court of the United State  SEC  social security  subsidy  think tank  tyranny  terrorism  unilateralism  Weapons of mass destruction  antiterrorism  expansionism  geopolitics  neocolonialism  neoliberalism  ultraconservatism  Dollar Collapse  Credit Default Swap  CDS  Credit derivatives finance  Credit-default swaps on Fannie and Freddie  Credit Default Swaps and Financial WMDs trade  quote market  dealer  the bid  strategy  investors  lower the overall cost  shares   principal  mortgage  outstanding. Average life    weighted-average time   receipt   future cash flows  using as the weights the dollar amounts  principal paydowns. Average maturity The average time to maturity  securities  mutual fund  Changes in interest rates  bondholders and stockholders  Dow Jones Industrial Average  contract  financialoptions contractstraded  Corporation  financial institutions   bids  offers  tradedbonds  bond government agency   corporations created  manage a revenue-producing public enterprise. authority bond  municipal bond  margin protections  incorporated  authority bond contract  institutional investors  transact block business  purchase  sale   security  Markets   price   free interaction of prospective buyers  sellers floor  stock exchange  stocks preferred  dividend discount model   share  equity  low price-earnings ratios  high dividend yield  futures and options  contract  executed  exchanges   closing period  taxpayer  cash flow   risk  profit   asset value exceeds market value  A security  collateralized  Stock Price Riskless Indexed Notes. Zero-coupon four-year bonds repayable  security   commodity  financial_institution   syndication. This implies the entity that agreed and negotiated the project financing structure  bank  underwriter entitled to syndicate the loan or bondissue  convertible arbitrage index arbitrage  and international arbitrage  profits differences  price  extremely similar  security  currency  commodity  traded  two or more markets  Lower-rate refunding issue proceeds  invested Treasuries  first call date  interest rate Preferred Stock  equities  call provision in a municipal bondindenture   right of redemption  issuer  interest payment  general equities  order to buy or sell  quantity of stock  convertible securities. Interest  accumulated  market value  discount bond  liability  pension plan  strategy  available information forecasting techniques  better performance  buy  holdportfolio  asset  protected  potential loss  insurance  hedging Adjustable rate   convertible securities  interest rate   dividend adjusted standard market rate  outside control of the bank or savings institution  Treasury bonds.