Is a Dollar Intervention Coming Soon?

Today's commentary is by Jack Crooks, editor of World Currency Options and new editor of The Money Trader.

Dear A-Letter Reader,

In his book The Alchemy of Finance George Soros wrote...

"I contend that financial markets are always wrong in the sense that they operate with a prevailing bias, but the bias can actually validate itself by influencing not only market prices but also so-called fundamentals that market prices are supposed to reflect."

In short, the dollar may be playing an unusually large role in its impact on the fundamentals at this point. In other words, everyone is bearish on the buck, so it's dropping. And maybe that's a bit more justification for the central banks to intervene to prop up the dollar.

Playing By the "Rubin Rule:"
Don't Intervene Unless You Have To!

But here's the thing: Central bankers dare not violate the "Rubin Rule" (as much as we think former Treasury Secretary Robert Rubin is a political opportunist, and not exactly one of our favs, he did establish a successful rule for intervening).

As Treasury Secretary, Rubin wanted to wait for a near-term trend to develop before committing funds for a currency intervention. If the buck can get out of its own way for a bit, and establish more than a three- or four-day trend, just maybe we see some action from central bankers. That is a pure SWAG on my part!

The buck is back on the ropes after a sharp two-day slide. Lackluster housing and durable goods data on Wednesday didn't help stocks or the dollar. I now include stocks, Dow Transports, as dollar coincident, because that's what we've seen of late.

What's interesting to me is I noticed the Transports line shoos-ting its little head above the near-term resistance mark. Will the Dow Industrials tag along?

Meanwhile, the U.S. dollar index (which measures the buck against the world's strongest currencies) is dropping again naturally.

But after what we've seen, you have to ask is this a test of the low? Was the recent move a head fake? Lay down your money! This is getting close to make or break time.

There is no change to either the daily or weekly trend in the dollar. That means the path of least resistance is still clearly down.

But I'm still clinging to the thinning reed of hope that the recent Fed actions, despite all the free-market damaging criticism, just might do the trick - at least in the short-term.

More Surprising Market News...
On the Other Side of the Pond

Yesterday, the British pound showed similar weakness. It wasn't a huge surprise because we're aware that the U.K. economy is facing the same rough patches and less-than-fluid credit markets.

But the big dip this week likely came in reaction to central bank-speak. The Bank of England (BOE) governor Mervyn King let the doves out of the bag.

The BOE head hauncho called for some extra liquidity to assist banks in greasing up local credit markets. He also made it clear they need temporary adjustments to lending facilities. Sound familiar? It should. Adjustments to lending facilities are one part of the Fed's multi-pronged, makeshift approach to reforming the financial system.

By far, traders reacted mostly to King's comments that BOE rate cuts may not be far off.

But what is surprising is that the British pound rallied all the way back from a sharp sell-off to finish the day higher on Wednesday.

Surprising price action in these markets of late is becoming a 24-hour affair!

JACK CROOKS, Editor
World Currency Options

EDITOR'S NOTE: Dollar intervention or not - the very fact that they're discussing a possible intervention says that the world no longer trusts the dollar's longevity. You shouldn't either. Now you can trade up your dollars on the venerable US$3.2 TRILLION foreign-exchange ("forex") market - just like the pros do. Jack Crooks will show you how. Click here.

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Call a Spade a Spade, and a Haven a Haven

In the United States House of Representatives, where I had the honor to serve for eight years, there is a strict rule against Members using "unparliamentary" or "offensive" words. Should a speaker use such language, any other member can object and demand that "the words be taken down."

Indeed, I once used this parliamentary device on my late colleague from New York. I effectively silenced the Honorable Bella Abzug, when she accused all Republicans of being "racists."

This ruling is so serious that the offending Member will not be allowed to speak again on that day, except by motion or unanimous consent.

In fact, the House Speaker has ruled certain words are so inherently offensive that the offending member is out of order per se. These include words like accusing another Member of being a "Nazi."

I cite this quaint House rule because it appears to me that the world's demagogues are trying mightily to make us believe that the words "tax haven" denote places that are inherently offensive. They try to make you believe that completely legal, free-market centers are full of the dirty cash and hidden assets from tax evaders. (See my former A-Letter comment "Why Tax Havens Are a Blessing.")

The tax-hungry politicians, and their lap-dog media, made the most of the recent criminal act in Liechtenstein. In case you missed it, the German government bribed a FORMER Liechtenstein bank employee to sell them the names of foreign account holders. And then the Germans tried to imply the mere act of having a bank account is automatic proof of tax evasion (which of course, is ridiculous).

The latest chapter in this coordinated attack on havens is an outrageous demand by the newly re-elected Spanish government. In short, the Spaniards want to "black list" Gibraltar simply because it is a tax haven.

Spanish officials claim to believe that because "The Rock" is indeed, a tax haven, the territory shelters corrupt businesses, tax evaders and money launderers. They want the hardly impartial Organization for Economic Cooperation and Development (OECD) to investigate this alleged criminal conduct.

Peter Caruana, the Chief Minister of Gibraltar, disputes these claims: "If the Spanish government is saying that the Gibraltarian authorities are not cooperating with Spain in the way we cooperate with other countries, that is simply untrue," he said.

This latest complaint is the long series of attacks by the Spanish government against the British overseas territory. It comes just weeks after Spain criticized both Gibraltarian and British authorities for failing to secure a stricken ship in disputed waters off the peninsula.

The actual truth is that Gibraltar has a much better record in regulating its financial services than Spain does. In fact, almost every independent international organization that measures financial activities has said so. The latest very positive International Monetary Fund (IMF) report on Gibraltar shows just how wrong Spanish officials are to criticize. It once again proves the clean reality of how The Rock operates.

Gibraltar has fashioned itself into a dual purpose residential tax haven for high net worth individuals from around the world. The Rock is also a professional base for tax-free international business corporations and trusts. Gibraltar imposes no capital gains, wealth or estate taxes.

Find out about Gibraltar and other offshore havens where you may be able to lower or avoid taxes completely, click here.

BOB BAUMAN, Legal Counsel

Oil Maverick Sends Mixed Signals, Confuses Markets

In my A-Letter on Wednesday, I commented:

"Recognizing the shift in consumption and rising inventories, Texas oil maverick, T. Boone Pickens, has turned bearish on oil in 2008. His hedge funds, which have earned a fortune for investors are now shorting oil."

Just to make sure we set the record straight, I want to be very clear about Boone Pickens, his hedge funds and his current thoughts on oil and gas.

Let me start by saying that it seems Mr. Pickens has confused the markets by delivering conflicting views about oil's near-term direction.

Two weeks ago in an article in the venerable Wall Street Journal, Mr. Pickens exclaimed that he thought oil "had to come down" over the near-term after a dizzying rally topping at US$110 per barrel last month.

Then, only a few days ago in a separate interview with CBNC, Pickens forecast a continuation of US$100-plus oil in the wake of tightening supplies, which is the case following lower than expected inventories released Wednesday morning.

Pickens also admitted he was probably wrong betting against oil and gas (e.g. shorting) during the first quarter. For the first two months of 2008, Pickens' hedge funds tanked 14%, according to The Wall Street Journal.

Pickens is probably the world's foremost authority on energy trends and easily one of the richest oil gurus. He still believes oil prices can remain high in the foreseeable future. I imagine, and this is pure speculation, that Pickens is now long oil and gas as we shortly conclude the first quarter.

Hedge fund managers like Pickens often change investment positions like the weather. It's hard to accurately gauge exactly where they stand on any given trading day, and as evidenced in recent interviews, Pickens has probably cut his short oil and gas positions this week.

Yet demand weakness for oil continues in the United States. Total oil product demand averaged 20.3 million barrels a day over the past four weeks, down 2.2% compared to 12 months ago.

I still have a problem believing crude oil prices can continue to rally from current levels.

The United States is in an economic recession and still the world's largest net consumer of refined energy products. In my eyes, the "easy money" in oil is over as this bull market matures. Since the 2001 recession, spot crude oil prices have skyrocketed a cumulative 425%.

So in short, whether or not Boone's shorting crude oil, I definitely am.

ERIC ROSEMAN, Investment Director

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