‘Watershed’ increase for dollar

By Peter Garnham in London and John Authers in New York

Published: August 8 2008 19:17 | Last updated: August 8 2008 19:17

The US dollar enjoyed its biggest one-day jump against the euro in eight years on Friday, as the long-running tendency of the dollar to weaken while commodity prices strengthened went into a dramatic reverse.

Against a trade-weighted basket of currencies, the dollar was at its strongest in four months. Meanwhile, there was a further sell-off of crude oil, which touched a low of of $115.61 a barrel – down more than $4 on the day. This was the lowest level since early May, and more than 20 per cent below its record high of $147.27 a barrel set last month. Non-energy commodities were also down more than 20 per cent from their peak.

The shift in sentiment was triggered by comments from Jean-Claude Trichet, president of the European Central Bank, who warned on Thursday that growth in the eurozone would be “particularly weak” in the third quarter.

This sparked speculation that the ECB would be forced to abandon its hawkish monetary policy stance and start cutting interest rates, a vital source of support for the euro.

“This is the watershed week for the US dollar,” said Marc Chandler, currency strategist at Brown Brothers Harriman. “The magnitude of the dollar’s moves and the breaking of key technical levels suggest that a major shift in the outlook toward the dollar is occurring as massive positions are adjusted.”

Other analysts described the widespread buying of dollars as “capitulation”.

The dollar rose to a five-month high of $1.5055 against the euro and climbed 1.3 per cent to $1.9189 against the pound, the currency’s strongest level since November 2006.

Traders said the violence of the move was testimony to the extent to which the market had been surprised by economic weakness outside the US and the softening of previously hawkish central bank rhetoric.

“Mr Trichet was unable to convince the public that the ECB had not been surprised by the eurozone’s economic downturn,” said Ulrich Leuchtmann at Commerzbank. “Therefore, the last remaining rate hike expectations were taken off the table.”

UK economic data has shown increasing weakness this week; officials in Japan warned that the economy was headed for a recession; and the Reserve Bank of Australia said it was planning to start cutting interest rates to head off an impending economic slowdown.

Copyright The Financial Times Limited 2008

Oil City to process 5% of the world's gasoline

A labyrinth of steel and concrete, one-third the area of Manhattan, is rising on the coastline of Jamnagar, India. That's where Reliance Industries is spending $6 billion to expand a massive refining hub into the world's biggest and most sophisticated oil facility. When it's done, it will process 5% of the world's gasoline. Once the facility is up to speed, 100% of its refined products will be exported, with 40% expected to make their way to the U.S.

Jamnagar's facilities sprawl over 13 square miles and reach heights of more than 30 stories.Make no little plans," the architect Daniel Burnham once said. When it comes to oil refining, that could certainly be the slogan of Mukesh Ambani, chairman of Reliance Industries and India's richest man. In the late '90s, Reliance spent $6 billion and employed 75,000 workers to build a world-class oil refinery at Jamnagar, India, a seaside town in the northwest state of Gujarat, in just four years. "This is not merely a refinery," Ambani said at the time, "this is an inspiration." Now Reliance is more than doubling the size of the facility, which, when completed in December, will claim the title of the world's biggest (overtaking a South Korean complex), with an output of 1.2 million gallons of gasoline per day, or about 5% of global capacity.

The expansion, begun in October 2005, is being managed by San Francisco-based Bechtel. It will cost another $6 billion and employ 70,000 workers to lay 13 million feet of pipe feeding 42 flare towers, which burn off residue gas created when converting crude oil into gasoline and diesel. The refinery expansion will use 28,000 tons of structural steel. About 1.5 cubic meters of cement - enough to fill 600 Olympic pools - have already been poured.

Reliance plans to aim Jamnagar's spigots westward, at the U.S. and Europe, where it's too expensive and politically difficult to build new refineries. Chevron is a 5% investor in the expanded refinery, which will be sophisticated enough to turn harder-to-process heavy crude into fuels that meet the highest environmental standards. The bulked-up Jamnagar will be able to move markets: Singapore traders expect a drop in fuel prices as soon as it's going full tilt.

(http://money.cnn.com)

Traders Are Buying Euro Dollar But Should I sell EUR/USD?

According to the FXCM SSI, a proprietary indicator that tracks the positioning of more than 30.000 traders, retail traders have been aggressively buying EURUSD.

Traders Are Buying Euro Dollar. Should I sell EUR/USD?

Yesterday, the U.S. Federal Reserve left the Fed Funds rate unchanged at 2 percent as widely expected by the market and retail traders have been taking new long positions. In fact, long positions are up by 13.2% since yesterday and the ratio of long to short positions in the EURUSD stands at 1.73 as nearly 63% of traders are long. Yet, in the past, the SSI has been working really well as a contrarian indicator, particularly during trending markets, and the EURUSD could sell off more in the next few days.

Why contrarian traders are normally more profitable?

Generally speaking, more long positions don't necessary suggest more confidence in the direction of the current trend. Indeed, when traders start having adverse movements against their position, many tend to increase the size of their position with the purpose to average down their entry price in one last attempt to recover from previous losses. However, the higher the number of short orders in a bull market the more dangerous is to take additional shorts because many of those traders who just entered the markets are also leaving their protective stop losses just above the current price action. The current positioning for the world’s most heavily traded currency pairs is located in the table below.



What is the FXCM SSI?

SSI stands for Sentiment Speculative Index. The SSI is based on proprietary customer flow information. It is a real-time snapshot of the positioning of more than 30K retail traders given by the FXCM Execution desk. The absolute number of the ratio itself represents the amount by which long orders exceed short orders or vice versa. A negative number indicates that the majority of traders are net short while a positive number indicates that the majority of traders are net long. The FXCM SSI is published every week on DailyFX.com.

(http://dailyfx.com)

Freddie Mac sinks to $800m loss

By Daniel Pimlott in New York

Published: August 6 2008 13:59 | Last updated: August 6 2008 14:41

Freddie Mac slipped to a deeper net loss in its second quarter and revealed plans to slash its dividend as its credit losses doubled because of rising delinquency rates and higher foreclosures.

Freddie recorded a loss of $821m, or $1.63 a share, in the second quarter compared with a $151m, or 66 cents a share, loss in the previous quarter. The loss is its fifth in the last six quarters.The company made a profit of $729m in the same quarter a year ago, and revenues have fallen 28 per cent to $1.69bn since then.

Richard Syron, chief executive, said he still planned to raise capital even after Hank Paulson, the Treasury secretary, stepped in to bail out the company and larger rival Fannie Mae. The two giant mortgage financiers have taken billions of dollars of mortgage losses.

Freddie Mac and Fannie Mae, created by Congress to increase mortgage financing, own or guarantee 42 per cent of the $12,000bn in outstanding US home loans. The companies have massively expanded their role in the mortgage industry in the wake of the subprime crisis, after many other lenders went out of business or dramatically scaled back their mortgage operations.

Freddie shares fell 14.5 per cent to $6.87 in early Wall Street trading. Fannie, which is scheduled to report earnings later this week, dropped 11 per cent to $12.06.

Credit losses doubled to $2.8bn, while the company wrote down the value of subprime and Alt-A securities by $1bn.

It plans to reduce its quarterly dividend to 5 cents or less a share from 25 cents a share.

Congress last month extended authority to the US Treasury to buy unlimited equity stakes in Fannie and Freddie and offer them financing to bolster confidence after their stock price plummeted. The Federal Reserve was also given permission to lend directly to them.

Freddie said that its estimated regulatory core capital was $37.1bn at the end of the quarter, about $8.4bn above its statutory minimum requirement, and $2.7bn above the 20 per cent mandatory surplus applied by its regulator.

“We are capitalised above regulatory requirements and we continue to have open access to the debt markets,” said Buddy Piszel, chief financial officer.

“Freddie Mac was created to ensure the continued flow of funds to America’s homebuyers, and we are pleased to be fulfilling that important mission,” Mr Syron added. ”At a time of severe stress in the housing and credit markets, we are successfully providing critical liquidity and stability.

“We remain committed to raising $5.5bn of new capital and will evaluate raising capital beyond this amount depending on our needs and as market conditions mandate.”

Copyright The Financial Times Limited 2008

Sen. McCain on whether Sen. Obama should have given a speech in Berlin

Questioning speech, forgetting Canada

Posted: Thursday, July 24, 2008 3:35 PM by Mark Murray

From NBC's Mark Murray
In his interview with NBC's Kelly O'Donnell, which will air on NBC's Nightly News tonight, McCain questions whether Obama should have given a speech in Berlin before becoming president.

"I would rather speak at a rally or a political gathering any place outside of the country after I am president of the United States," McCain told O'Donnell. "But that's a judgment that Sen. Obama and the American people will make."

However, on June 20, McCain himself gave a speech in Canada -- to the Economic Club of Canada -- in which he applauded NAFTA's successes. An implicit message behind that speech was that Obama had been critical of the trade accord. Also, McCain's trip to Canada was paid for by the campaign. Questioning speech, forgetting Canada Posted: Thursday, July 24, 2008 3:35 PM by Mark Murray

(http://firstread.msnbc.msn.com)

Does the state of the economy predict the election?

Trend - 8/4/08 Obama 316, McCain 209 Ties 13

Does the state of the economy predict the election? No, but it sure gives a hint. Here is a graph from Andrew Gelman, a professor of statistics and political science at Columbia University showing how the popular vote for the party incumbent in the White House relates to economic growth. There is clearly a strong correlation.

Based on this model, Obama is predicted to get 53% of the vote.

There are two clear outliers in the graph: 1952 and 1968. Both can be explained fairly directly. In neither year was the economy an issue at all. In 1952, the popular general Dwight Eisenhower, who won WWII, promised to end the stalemate that had been going on in Korea for two years. The hapless Adlai Stevenson wasn't running on continuing Harry Truman's economic policies. He wasn't even Truman's Vice President. In 1968, the economy was booming but the dominant issue was the unpopular war in Vietnam and the starting gun for the culture wars (fired by Mayor Daley's police force in what was later called a "police riot."). The economy wasn't on the agenda at all that year.

(http://www.electoral-vote.com/)

5 Yr Gas Prices (USA Average)