WAS SOMEONE READING?

Right on cue, the Chinese began chattering again about the dollar. Must have been reading the blog for they answered the question about gold as well. They appear not to like the direction of our currency, complained about fiscal policy and announced that they are buyers of gold which they will do carefully so as not to upset the price. Can the phrase, "A Peking Put" be far behind? As expected, the dollar continued to meander downward, oil and other commodities creeped upward and interest rates remained in place as the latest economic report--the Fed "Beige Book," was appropriately beige in its outlook. I'm going to ask my smart buddy Larry what this is all about but he'll probably tell me the Chinese are just making a bit of noise and are still caught in the dollar trap about which we have spoken. I wonder. While all of this was going on then went off and borrowed a bunch of SDRs from the IMF which they need about as much as Carter needs more pills.

While all of this international intrigue was going on, the G-20 mob was back from Basel tutting and putting about not having to worry because new, tough, regulations were just around the corner, echoed by Barney Frank who assured the American people on TV this afternoon in a conversation with the fetching Ms. Burnett that HE hadn't forgotten about new regs either. I'll sleep better tonight. In the mean time, the big banks must be just coining it in their trading rooms with the dollar showing one way traffic in an FX sense whilst at the same time becoming the new "carry trade currency" replacing the Yen in that role. Now what's the carry trade you ask? Well, simple. You simply borrow a gazillion in a currency with a low interest rate and invest it in a currency with a slightly higher interest rate. Or to put it another way, Goldman Sachs goes to their friends at the Fed in N.Y. and says, "I'd like to have a gazillion dollars at no interest, please" (they are always the gents), exchanges it into Euros, and buys Bunds at 3% or so. So here they are with a 3% positive "carry" but what makes it even better is that they are about as sure as they can be that with the fiscal and monetary policy we have in place at this time there aint no way they are going to see the Euro lose value against the buck. In fact, in addition to the interest carry, they will probably make a profit on the FX or if they are not risk takers (HA!), they can hedge the thing forever. What a country! And everybody is doing it. Not just our guys. Deutsche Bank doesn't even have an FX risk on the other end. Meanwhile, down on the farm, the local commercial real estate biz aint so good. Unfortunately, there isn't a simple answer or any way to make it "fair." Of course, at the end of the year a lot of money is going to be paid out in bonuses to folks whose magic trick was to maintain a beating heart. I think I'll go make myself a drink.