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Dollar Demise or Surprise?

Dollar Demise or Surprise?. Presented by Jack Crooks President Black Swan Capital. Agora Financial Investment Symposium - Vancouver 24 July 2009. US$ Index - Where are we?. US$ Index/Commodities/EM Stocks. The dollar smile! Three scenarios!. Source: Stephen Jen, Morgan Stanley.

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Dollar Demise or Surprise?

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  1. Dollar Demise or Surprise? Presented by Jack Crooks President Black Swan Capital Agora Financial Investment Symposium - Vancouver 24 July 2009

  2. US$ Index - Where are we? www.blackswantrading.com

  3. US$ Index/Commodities/EM Stocks www.blackswantrading.com

  4. The dollar smile! Three scenarios! Source: Stephen Jen, Morgan Stanley www.blackswantrading.com

  5. Risk Bid Scenario Major “green shoots” disappointment – rethink! • Double-dip recession • China disappointment • Emerging market crisis Capitulation out of EM Money flow out of China European banking risk Global Rebalancing Hide in US Treasuries www.blackswantrading.com

  6. Global Rebalancing? Overconsumption <=> Overproduction CA Deficit Nations <=> CA Surplus Nations United States <=> China …an end to the symbiotic relationship! www.blackswantrading.com

  7. Upshot of Rebalancing • Potentially an end to the Export Model • Subpar global growth for years [Industrial production crushed for majors] • Heightened pain for emerging markets • Deflation the problem now, not inflation www.blackswantrading.com

  8. US-China Symbiotic Relationship Single Currency Zone Argument www.blackswantrading.com

  9. US-China Symbiotic Relationship Game Over? Single Currency Zone Argument Chinese Government Explicit Stimulus Forcing Asian Trade Partners to Adjust [China surplus up, but exports to West down] X US Consumer Wealth Fading Cap Invest @ 45% GDP X X X Crunch X Seemingly costless Chinese capital? X Money Locked Inside the System X Property & Stock Bubbles www.blackswantrading.com

  10. Exports Crushed! Source: Leto Research www.blackswantrading.com

  11. US Current Account SwingRebalancing is underway… • 50% 6-mo • $35T • Legacy • Non-bank Consumption Savings Free Credit Credit Crunch Implicit Weak Dollar Policy Lower CA Deficit Means US Requires Less Int’l Funding www.blackswantrading.com

  12. Industrial Production Crushed www.blackswantrading.com

  13. Germany in trouble – euro in trouble! Eurostat reports today industrial new orders in the Eurozone declined by 30.1% from a year ago.   In Germany, the decline was 32.2%.  This is the tenth consecutive month of sharp declines averaging above 30% per month.  It seems that industrial contraction in Europe today is twice as bad as in 1929-1930. The fact that export powerhouse Germany leads the collapse raises questions about the euro, whose exchange rate is literally killing German manufacturing. Leto Research, 7/22/09 www.blackswantrading.com

  14. Fallout from 8% growth policies….Banking on a V-shaped recovery! • Front-end load infrastructure build • $1.7 trillion spent in first half, in a $4 trillion economy • Massive inefficiencies and excess capacity • Bubble Trouble…cap controls and fixed currency • Stocks/Real Estate/Banking Lending • Demand slack and no exports mean… • Rising unemployment = Social tension • More consolidation of state power and belligerence www.blackswantrading.com

  15. Japanese Parallel China Creditor Superpower US Stock Market Crash Japan Creditor Superpower • 1988 BOJ formula as US Current Account Improved • Boost stock & property market • Give buffer for export companies to turn inward • Stock & property trigger wealth effect • Stimulates consumers & residential investment Credit Crunch www.blackswantrading.com

  16. Thus if the leader disappoints… • Commodities get whacked! 50% fall left? • Stocks tumble! • The US dollar surges on another major global risk bid! www.blackswantrading.com

  17. Additional Information • Black Swan Capital Website www.blackswantrading.com • Black Swan Email – info@blackswantrading.com • Black Swan Offerings • Currency Currents: Daily Free Global Macro Commentary • Subscription-based letters: • Options • Forex & Futures • Emerging Market Currencies • Currency ETF’s • Managed Currency Accounts

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