At last, somebody with a clout is saying what everybody else knows but doesn’t want to admit – that US debt is, well, risky. One of the managers of Pacific Investment Management Co., (PIMCO) John Wilson, singled out countries with questionable ability to repay their debts. He called them “a ring of fire”. Those countries include Greece, Ireland, Spain, France, U.S., U.K., Italy, Portugal and Japan. In essence, he put both US and Japan in the same category as Greece.
While newsletters and doom-and-gloom specialists have been saying it for years, it is not everyday that a real expert publicly puts a question mark on US debt. After all, PIMCO is a company which runs the world largest bond fund, so its managers are likely people who know their business. Now all we need is for the rating agencies to support this statement with either negative outlook, or rating cut for US, and instead of the “ring of fire” we’ll have a “three ring circus”. Of course, rating agencies are not that progressive, it wouldn’t be politically convenient for them. Some other time, perhaps.
Monday turned out to be rather quiet. Well, “quiet” is a relative term these days. Euro dropped again and keeps falling, with about over 200 pips daily range. Just not very dramatic after recent much bigger moves. Same for the Yen pairs. AUD-JPY, for example seemed to have been just spinning the wheels, but last few hours this cross fell almost 150 pips. It looks puny on current chart, but not a bad move at all. During the so called “normal” market conditions, it would be handily more than an average daily range.
My intentions for Tuesday are to be very active, so most of trades will be taken on short term charts, such as 15M or 5M. For the time frames that I typically discuss here, NZD-JPY hourly chart holds some promise. Chances are, that the price will break out of the most recent consolidation, defined by Friday’s high and Monday’s low. About a 100 pips move is not out of the question, even if it doesn’t come in a straight line. First day of trading has not provided any real clues to what the rest of the week will bring. If anything, it indicates more weakness in these pairs.
Mike K.
You have followed this thread for some time, he US debt. You think it will eventually be devalued or even defaulted on? It is hard to imagined…
Of course it is hard to imagine, but given the size of our debt, how do you propose it gets repaid? And when?
Have no aswer to it. But I don’t think anything really bad is going to happen soon. By soon I mean this or next year.
You’ve been heavy against nzd, cad and aud. What do you think about buying Pound crosses with these pairs?
Jason, probably not. For now usd is a safe haven. But few years down the road- who knows? I’m not optimistic…
Heather, why not? Possible breakouts are near by. Only should have tight stop, if GBP stops falling under its own weight.
I think what could happen is inflation will devalue the USD and the Fed may even right off debt.
But this is minor compared to the est. 26 trillion USD in Credit Default Swaps floating out there. There’s no way the Fed can bail that out and not jeopardize US living standards and social cohesion.
Maybe a new financial instrument will be created to postpone the relatively short term US debt to a longer time period?
Still, this is all troubling considering the USD is a reserve currency.
Tip: buy Gold (physical)
Hi Petros,
However we don’t look at it, over time outlook is not good for US. Sure, right now focus is elsewhere, but eventually it will shift to something else, maybe Pound, then Yen or whatever and finally US and our debt. Just a matter of time….
Mike, I don’t think the surplus countries and all the rest i.e. Europe, Japan, China, Korea (even Taiwan) etc will let the US go under. They’ll bail it out if it comes to that .They all know if the US goes under so do them. In a globalized world economy the multiplier effect of even one sovereign default is profound .Look at Greece for evidence of this.Future G7 meetings will be important indicators of where things will head to and hence currency crosses.
I’m not saying that we will go under. More like when the current round of punishing countries for budget deficits is over, it will make a full cirlce and the US deficit will become an issue, pushing dollar much lower. This could be few months away or couple of years into the future. But it is coming.
[...] the meantime, I was looking to trade NZD-JPY, either way breakout, with a bearish bias. That was covered yesterday. The [...]
[...] with increasing debt had their ratings decreased, or at least issued as stern warning – “negative outlook”, something that should be harmful to the Dollar. On the other hand, such [...]
[...] will react. Most countries with increasing debt had their ratings decreased, or at least issued as stern warning – “negative outlook”, something that should be harmful to the Dollar. On the other hand, such action typically leads it [...]
[...] will react. Most countries with increasing debt had their ratings decreased, or at least issued as stern warning – “negative outlook”, something that should be harmful to the Dollar. On the other hand, such action typically leads it [...]