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  1. #1
    Join Date
    Apr 2008
    Location
    Christchurch, New Zealand
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    1,125

    Default Intervention in the Forex Market

    This is very important

    Without the understand gained from reading this article, you will not realise the absolute rubbish spouted by so called experts in the mainstream media.

    In summary:

    There has been intervention in the Forex market, pushing up the US$

    IMO your Forex decisions can only be sensible if you appreciate this.

    Here's the article:

    Central Bank Intervention, CA July Foreclosures, and Consumers Tap their Credit Cards
    http://www.chrismartenson.com/Central-Bank-Intervention

    My view? I think this level of intervention and central-style planning is destined for failure and that the central banks are ill-advised in their efforts. Instead of helping to reduce the very imbalances and moral hazards that brought us to the brink of systemic collapse, they are now encouraging a deeper foray into those territories.

  2. #2

    Default

    Steve

    I haven't read the article (I always say that don't I. It's actually true, btw).

    Central bank intervention in forex markets is

    a) nothing new

    b) (typically) nothing to worry about.

    re: A. Central banks have often intervened in forex markets (going back decades). Usually the exchange rate is allowed to float freely (the so called "clean float"), but in reality every now and again the central bank that supports said currency will be active in the market, either buying or selling. That's when a clean float becomes a "dirty float". How dirty does it get? Well that depends on how much they intervene and how much and how often they intervene.

    Re: B. Typically it is nothing to worry about because central banks have as much a right to buy and sell currency as the next person / organisation. They used to intervene mostly to test the voracity of a given trend and to make speculation unattractive*. I say used to because whether they can actually do it effectively now, I don't know. I read or heard somewhere that as much as $US 25 trillion in forex is traded daily and that about 75% of that is speculation (buying and selling by people who have no real interest in the currency per se). Central banks have super-deep pockets but $25 trillion per day every day is one hell of a current to try and divert (and that trading amount will only get larger, imho).

    Just on B. The way I see it, a central bank buying up currency isn't much different from if a company buys it's own shares. So long as it is done in a transparent fashion. If the Fed thinks the $USD is cheap, then good on them for buying it. If they're right they'll make a fortune (when the finally sell down) in years to come.

    Anyway, I'll leave you too your "worst possible interpretation of reality" thread.


    M

    * For example, in 1998 during the "asian financial crisis" the RBA bought up $AUD mostly because they felt it had been oversold on the back of "guilty by association" speculation. They did what they could to break the downward trend as they did not see it as being a fair representation of the underlying fundamentals.
    Last edited by Mark_B; 11-08-2008 at 08:59 PM.
    Comments may not be relevant to individual circumstances. Before making any investment, financial or taxation decision you should consult a professional adviser.

  3. #3
    Join Date
    Apr 2008
    Location
    Christchurch, New Zealand
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    Default

    Quote Originally Posted by Mark_B View Post
    Steve

    I haven't read the article (I always say that don't I. It's actually true, btw).

    Central bank intervention in forex markets is

    a) nothing new

    b) (typically) nothing to worry about.

    Mark,
    1. You don't surprise with the first point

    2. You do surprise me with (a), because I felt sure you were going to claim I was another x-files fan

    3. Re (b), I didn't say it was something to worry about. I said it was important.
    I say that because IMO if you don't understand what is happening, you can easily get completely the wrong end of the stick, and make poor investment decisions.

    I note with interest that all media reports I've read so far, make no mention of CB intervention. Instead it seems magically all the sectors that were toast a few weeks ago, with no fundamental changes, are now the cats pyjamas.

    Of course actions like that tend to have unintended consequences.

    I found your post interesting. It's a pity you jump to wrong assumptions about what I am saying.

    Anyway, I'll leave you too your "worst possible interpretation of reality" thread.
    Last edited by Steve Netwriter; 11-08-2008 at 11:35 PM.

  4. #4

    Default

    Quote Originally Posted by Steve Netwriter View Post
    It's a pity you jump to wrong assumptions about what I am saying.
    Oops.

    Sorry, my apologies.

    Here's a little gem from the rusty vault that is my brain. Back when I was at Treasury (as in Canberra) in 2003 the boys (and girls) from the Australian Office of Financial Management had taken a little punt on the $AUD.

    Anyway, come September or so (later in the year) and all the Departments and agencies have to front up to Senate Estimates Committees (basically a panel of real life Senators, mostly from the opposition at the time, who grill you on what you do looking for dirt on the government [it's called democracy and accountability]).

    Anyhow this little punt had turned into a paper loss of over $600m on the $AUD.

    And boy did they cop a hiding.

    As a postscript the $AUD's fortunes did suddenly reverse and they ended up making a tidy profit, but to this day I can picture them getting absolutely disected by the SEC at the time.

    Great viewing.
    Comments may not be relevant to individual circumstances. Before making any investment, financial or taxation decision you should consult a professional adviser.

  5. #5
    Join Date
    Apr 2008
    Location
    Christchurch, New Zealand
    Posts
    1,125

    Default

    No worries Mark

    I guess it's not on YouTube

    I must admit, I did wonder why the RBNZ bought US$ when they intervened, rather than Yen. IMO they could have made a packet.
    Do you know ? If so I'd love to know

  6. #6

    Default

    I don't know, sorry. I'm not connected in those circles in NZ.

    And your guesstimation would be at least as good as mine.
    Last edited by Mark_B; 12-08-2008 at 12:00 AM.
    Comments may not be relevant to individual circumstances. Before making any investment, financial or taxation decision you should consult a professional adviser.

  7. #7
    Join Date
    Feb 2008
    Location
    Wellington NZ
    Posts
    1,802

    Default

    The international banking cartel told the RBNZ to buy dollars

    The cartel needs everybody in sync hence why interest rates are dropping when as any body knows in inflationary enviroments they should be going higher

    Theres a triple play happening here very obscure very hard to to get your head around...

  8. #8
    Join Date
    Sep 2007
    Location
    Auckland
    Posts
    8,325

    Default

    Oh Badger, where have you been? We haven't been hearing about the international banking cartels for at least a week.

    Perhaps it's hard to get your head around and understand because it's fiction. And a load of bollocks?

    David

  9. #9
    Join Date
    Apr 2008
    Location
    Christchurch, New Zealand
    Posts
    1,125

    Default

    Badger,
    Do you have any links ?

    It's not an area I've looked into in any detail. CB intervention is a given. Mark agrees to that, and I hope it's fair to say that if Mark agrees, then it's far from a conspiracy theory. (I hope that's fair Mark).

    Japan certainly openly have talked about intervention. And I think it's well known how important the Yen is.

    I was wondering whether a CB buying Yen "was not the done thing" in CB circles.


    Now to present an unbiased view, I should mention Mish's blog, which puts a very different view. Not one I agree with, but there you go.

    Currency Intervention And Other Conspiracies
    http://globaleconomicanalysis.blogsp...and-other.html

    Japan halted its currency intervention in March of 2004 according to the International Herald Tribune article
    This in particular is VERY odd because I've read statements from Fukuda only last year about intervening at a lower level (110 to 100).

    Anyway, plenty of links in there for anyone interested.

  10. #10

    Default

    Quote Originally Posted by Steve Netwriter View Post
    CB intervention is a given. Mark agrees to that...
    Be silly of me not to. Occasionally CB's boast about it.

    Quote Originally Posted by Steve Netwriter View Post
    and I hope it's fair to say that if Mark agrees, then it's far from a conspiracy theory. (I hope that's fair Mark).
    That they do it -> not a conspiracy.

    The reasons for why the do it -> well I guess this is where some theorists might go to town.

    For what it is worth (and I said this before) CBs have as much a right as you, me, George Soros, or the next mega-rich person or hedge fund to buy and sell currency.

    It's been happening for decades. It gets mentioned in the textbooks. It's hardly a secret.

    And if they're buying and selling currency, who really cares. After all, their money is the same colour as yours. And they have to pay what you pay.

    Think of them as a large fund. One difference though - while I am sure they don't go out of their way to lose money, they're not neccesarily in it to make money (so what I am saying is that they don't operate under the same motivations as (for example) Soros' Quantum Fund).

    Two general principles in forex (from a CB perspective)

    1. A stable currency is highly desirable for any nation.

    2. A currency that is of "fair value" is also desirable (ideally you want a stable currency within a certain band).

    That's what I'd say they'd be working towards.

    And I don't believe there is anything sinister in that.

    M
    Last edited by Mark_B; 12-08-2008 at 12:34 PM.
    Comments may not be relevant to individual circumstances. Before making any investment, financial or taxation decision you should consult a professional adviser.


 

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