Loading...
Symbols:
Authors:

Foreign Treasury Buying and the Dollar Rally: Debunking a Theory

by: Michael Shedlock August 29, 2008 | about stocks: UUP    
Michael Shedlock

Michael Shedlock

About this author:
Become a Contributor Submit an Article
  • Font Size:
  • Print

Here is an interesting theory stipulating that foreign central banks are behind the rally in treasuries and that in turn is causing a rally in the dollar. Please consider Foreign Central Banks Behind Rally In US Treasuries.

The huge amount of US Treasury purchases which has sent that chart nearly vertical helps to explain the continued rally in the US Dollar. It is a near certainty that something has been transpiring behind the scenes involving various Central Banks in regards to the US Dollar. Should any of this Foreign CB buying abate for any reason whatsoever, the Dollar will lose all of its support immediately. With yields on US Treasuries headed firmly lower only a foolish investor would see bonds or notes as a safe haven given what we all know about the real rate of inflation here in the US in contrast to the absurd and mentally insulting numbers that the knavish feds are dishing out.

I repeat my main assertion - Foreign Central Banks are behind the rally in US Treasuries and as a consequence the rally in the US Dollar.

Theory vs. Practice

Inquiring minds, being the inquiring minds that they are, want to see just how well theory stands up to practice. Let's match up the chart of custodial treasuries from the article above with a chart of the US$ for the exact same timeframe.



Custodial Holdings of Treasuries for Foreign Central Banks vs. US$ Index

(click on charts to enlarge)

 

So much for that theory.

Related Articles

This article has 8 comments:

  •  
    Aug 29 10:10 AM
    I don´t get it. To me it seemed like the graphics matched the theory.
    Reply
  •  
    Aug 29 10:13 AM
    given that every sane person thinks the fed has overshot with the rate cuts, buying treasuries is a sure loser now and in the foreseeable future.
    Reply
  •  
    Aug 29 10:39 AM
    Rate cuts insane? Not at all, just too much too fast without balanced economic overall restructuring plan. Greenspan warned us, we don't listen. Yet, how could he have possibly known - why he must be privvy to the upper levels of financial hanky-panky, of course.
    Reply
  •  
    Aug 29 11:07 AM
    rate increases must occur to wring out inflation... and since we've got such "good" GDP numbers, well, we can afford it! :-)
    Reply
  •  
    Aug 29 04:20 PM
    Buyitcheap, don't forget that the (magical) inflation number used for the GDP calculations was 1.2% so we really don't need to do anything about it. ;-)
    Reply
  •  
    Aug 29 05:26 PM
    LOL Cesar - well said!
    Reply
  •  
    Aug 29 05:44 PM
    Weak dollar high oil price, everyone except Opec looses, while all economies tank. The Central banks are doubleing down their treasury investments to protect there value. There is intervention.
    Reply
  •  
    Aug 29 06:54 PM
    To quote Jim Sinclair:

    "The greatest waste of time are sales from strategic stockpiles and currency intervention as they confirm the uptrend"....

    ....and that is exactly why they have to be fervently and constantly denied by dot gov, the CB's, and their shills. Mike, why are you making such a fuss over this, ranting about debunking conspiracy theories? The last few of your pieces at your blog have been inane rants attempting to deny the undeniable. Unbacked fiat currency, by definition, only has value because of government laws, enforced by men with guns, that declare it to have value. Central banks exist to control and manipulate its value. Without government decree and central bank support, fiat currencies would be seen as exactly what they are: paper. Therefore, government action to support the "valuableness&quo... of the paper can safely be assumed. It is no stretch at all to also assume that foreign CBs would be willing to collude in such a scheme, as the Japanese have recently admitted (while denying they actually did engage in the activity). Did you miss that?

    Given your die-hard deflationista status, I suppose it's possible that you cannot allow the possibility of government intervention in the currency and PM markets, since to admit that possibility would be to admit the unthinkable....gasp!.....

    I try to remain open-minded, but seeing as how you have built your reputation on deflation, I can see how inflation would be a dire threat to you worthy of such an ongoing and emotional response.
    Reply
More Comments on UUP »
More by Michael Shedlock
Investment Resources
Money Managment
Research
Seeking Alpha provides these ads as a service to its leading contributors
Articles on related themes
Charts
Dollar/Currencies
Bonds
Earnings