Table of Contents
Foreword xi
Preface xiii
Acknowledgments xvii
Chapter 1 Gold and the Dollar 1
End of Bretton Woods System Marks Gold’s Takeoff 2
Fed Tightening and FX Interventions Rein in Gold Rally 3
Central Banks’ Gold Sale Agreements 5
Gold-USD Inverse Relation 6
Recent Exceptions to the Inverse Rule 6
Using Gold to Identify Currency Leaders and Laggards 8
Gold’s Secular Performance 11
Valuing Currencies via Gold 13
Golden Correlations 14
Don’t Forget Falling Gold Production 16
Gold and Equities: Hard versus Monetary Assets 16
Equity-to-Gold Ratios 19
TheRoleoftheSpeculators 21
Gold Is Part of a Larger Story 22
Chapter 2 Oil Fundamentals in the Currency Market 25
From a Gold Standard to an Oil Standard (1970s–1980s) 26
Oil Glut and Price Collapse (1981–1986) 32
The Super Dollar of 1980–1984: The World’s Third Oil Shock 34
World Intervenes against Strong Dollar (1985–1987) 39
Iraq’s Invasion of Kuwait and the Gulf War (1990–1991) 41
The Asian Crisis and OPEC’s Miscalculation (1997–1998) 44
Oil Thrives on World Growth, Dot-Com Boom (1999–2000) 46
Iraq War Fuels Oil Rally, Dollar Flounders, China Takes Over (2002 to Present) 46
Summary 49
Chapter 3 When the Dollar Was King (1999–2001) 51
The Major Theories 52
Annual Performance Analysis of Individual Currencies 53
Summary 70
Chapter 4 The Dollar Bear Awakens (2002–2007) 71
2002: The Beginning of the Dollar Bear Market 71
2003: Dollar Extends Damage, Commodity Currencies Soar 78
2004: Global Recovery Boosts Currencies against U.S. Dollar 84
2005: Commodities Soar alongside Dollar, Carry Trades Emerge 90
2006: Dollar Vulnerable as Fed Ends Two-Year Tightening 94
2007: Record Oil Boosts Loonie, Helpless Fed Hits Greenback 102
Lessons Learned 108
Chapter 5 Risk Appetite in the Markets 111
Carry Trades in Foreign Exchange 112
Using Risk Appetite to Gauge FX Flows 121
Tying It All Together: 1999–2007 134
Chapter 6 Reading the Fed via Yield Curves, Equities, and Commodities 137
Yield Curves and the Economy 138
Types of Yield Curves 139
Rationale of Inverted Yield Curve Implications 142
Effectiveness of Yield Curve Signals’ Implications 142
Greenspan’s “Conundrum” Proved Bernanke’s Problem 143
Implications for Growth, Stocks, and Currencies 145
Tying Interest Rates to the Gold-Oil Ratio 153
Conclusion 158
Chapter 7 U.S. Imbalances, FX Reserve Diversification, and the U.S. Dollar 161
The U.S. Twin Deficits 162
U.S. Current Account Deficit: Old Problem, New Challenges 165
Adding the Budget Balance to the mix 169
Financing the Deficits: The Path to Unsustainability? 170
Dissecting U.S.-Bound Foreign Capital Flows 172
U.S. Stocks and Bonds Vie for Foreign Money 173
Capital Flows Shift Identities 177
Foreign Direct Investment and M&As 179
How Long Will Foreign Capital Be Available on the Cheap? 181
Don’t Ignore U.S. Investors’ Flows Abroad 182
Currency Reserve Diversification: OPEC and the Middle East 185
Further Currency Diversification Is Inevitable 187
The View Ahead 189
Chapter 8 Commodities Supercycles and Currencies 191
The Current Commodity Cycle versus Previous Cycles 193
Dissecting Commodity Classes 196
Commodities and their Currencies 207
Developing World to Maintain Ripe Outlook for Food and Grains 208
Energy Efficiency Not Enough to Halt High Oil 214
Copper and Gold to Shine on Long-Term Fundamentals 219
Commanding Heights or Common Bubbles? 223
Chapter 9 Selected Topics in Foreign Exchange 225
Revisiting Yield Curves 225
Is Dollar Stability a Necessity? 230
How Far Will Commodities Outstrip Equities? 236
U.S. Politics and the U.S. Dollar 240
Conclusion 247
Bibliography 249
About the Author 251
Index 253
