Month: April 2012

Source: ForexYard

Investor concerns regarding Spanish debt led to an increase in risk aversion on Friday, and caused the euro to tumble vs. its main currency rivals. Furthermore, news that the Chinese economy grew at a slower than expected rate last quarter resulted in safe-haven assets, including the US dollar and Japanese yen, turning bullish. Turning to this week, traders can expect market volatility as significant news from both the euro-zone and US is scheduled to be released. Today, US retails sales data may help the dollar extend its current upward momentum, should it come in at or above expectations.

Economic News

USD – Risk Aversion Leads to Dollar Gains

The US dollar turned bullish vs. most of its main currency rivals on Friday following poor euro-zone news which led to an increase in risk aversion. The EUR/USD fell well over 100 pips for the day and closed out the week at 1.3078. The GBP/USD also dropped around 120 pips to finish Friday’s session at 1.5845. Against the JPY, the dollar had a more mixed session. The USD/JPY fluctuated between 80.80 and 81.15 for much of the day. Eventually, the pair closed out the week at 80.88.

Today, investors will likely be focusing on a batch of US news, including the Core Retail Sales and Retail Sales figures. Both indicators are forecasted to show a slight drop over last month’s. That being said, should they come in at or above their expected levels, the dollar may be able to extend its current bullish momentum. Additionally, the TIC Long Term Purchases, scheduled to be released at 13:00 GMT, is forecasted to come in significantly below March’s figure. If true, the result may negatively impact the dollar.

Later in the week, traders will want to pay attention to the US Building Permits, Philly Fed Manufacturing Index and Unemployment Claims figures. All three are considered important signs of overall economic health, and are likely to generate significant volatility when they are released.

EUR – Euro May Extend Bearish Trend This Week

The euro-zone debt crisis once again dominated the news cycle on Friday, resulting in the common-currency tumbling across the board to close out the week. Worse than expected Spanish bond swaps were the main reason behind the euro’s bearish session. Against the Japanese yen, the euro fell over 120 pips before finishing out the day at 105.79. Similar losses were taken against the US dollar. The EUR/USD closed out Friday’s session at 1.3078, virtually erasing the gains it had made earlier in the week.

This week, the Spanish debt situation is likely to continue influencing the euro’s movement in the marketplace, with any further negative announcements likely to cause the currency to fall further. Additionally, traders will also want to note Tuesday’s German ZEW Economic Sentiment figure. As the biggest euro-zone economy, German indicators tend to have a significant impact on the euro. Analysts are forecasting the figure to come in at 20.2, slightly below last month’s result of 22.3. Should the news come in above expectations, the euro may be able to offset some of its recent losses.

AUD – Chinese Data Weighs Down on AUD

A worse than expected quarterly GDP figure out of China caused the Australian dollar to slide during Friday’s trading session. Chinese fundamental news tends to have a significant impact on the AUD, as Australian exporters rely heavily on demand from China. The AUD/JPY fell close to 100 pips on Friday, before closing out the week at 83.88. Against the US dollar, the aussie fell 78 pips for the day to close at 1.0371.

Turning to this week, aussie traders will want to pay attention to news out of the euro-zone, as it will likely determine the level of risk taking in the marketplace. The AUD is considered a growth-linked currency, and tends to increase in value when positive international news is released. In addition, the Reserve Bank of Australia’s Monetary Policy Meeting Minutes, scheduled for Tuesday at 1:30 GMT, are likely to generate market volatility. Positive news may help the aussie recover some of its recent losses.

Crude Oil – Crude Oil Finishes Week on Bearish Note

Crude oil fell on Friday, following the release of a worse than expected Chinese GDP figure. The figure showed that growth in the Chinese economy fell to its lowest level since 2009, and resulted in fears that global demand for oil would drop as a result. For the day, crude oil was down just over $1 a barrel to close out the week at $102.81.

This week, euro-zone news is likely to determine oil movement in the marketplace. Recent concerns over Spanish debt have weighed down on growth related commodities, like crude oil. Should these concerns persist, oil could extend its recent bearish trend. Furthermore, talks between Iran and the West this past weekend have helped ease concerns that a military conflict will occur in the near future. As a result, supply side fears have eased which could result in the price of crude oil dropping further.

Technical News

EUR/USD

The daily chart’s Williams Percent Range has entered the oversold zone, indicating that an upward correction may occur in the near future. That being said, most other technical indicators show this pair range trading. Taking a wait and see approach may be the wise choice until a clearer picture presents itself.

GBP/USD

Technical indicators on the weekly chart show this pair range-trading, meaning that no defined long term trend can be determined at this time. The Williams Percent Range on the daily chart points to possible bullish movement in the near future. Traders may want to go long in their positions for time being, but beware of any sudden downward corrections.

USD/JPY

A bearish cross appears to be forming on the weekly chart’s MACD/OsMA, meaning that downward movement could occur in the coming days. Opening short positions may be a wise long term strategy, but traders will want to watch out for any minor upward corrections.

USD/CHF

A narrowing of the Bollinger Bands on the weekly chart indicates that this pair could see a price shift in the coming days. Traders will also want to note that a bearish cross appears to be forming on the same chart’s MACD/OsMA. Should the cross form, it may be a sign of an impending downward correction.

The Wild Card

EUR/JPY

The daily chart’s Williams Percent Range has entered the oversold zone in a sign of an impending upward correction. Additionally, the Relative Strength Index (RSI) on the same chart is right on the border of oversold territory. Forex traders will want to keep an eye on the RSI. If it drops below 30, it will be another sign of future bullish movement.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

By TraderVox.com

Tradervox (Dublin) – The Standard and Poor’s have disagreed with Fitch and Moody’s on the UK economic outlook. The S&P have confirmed UK AAA economic outlook despite the other two warning that the country might be at risk of losing this status. According to a statement from S&P the coalition led by the UK Prime Minister David Cameron have succeeded in ensuring that determined focus is put on curbing the current budget deficit. The statement gave accolade to the political institution in the country for being able to act quickly to economic challenges.

The decision by the S&P has been prompted by the current expectation that the UK government will undertake the bulk of its fiscal consolidation operation. There is also expectation that economic growth will remain in line with the current projections. This decision is in contrast to that of Moody’s and Fitch. The Chancellor of the Exchequer has used negative reports from Moody’s and Fitch to insist that the government should continue with its efforts in deficit cutting. After the report was released, Osborne said in a statement that the S&P ratings are an indication that UK has continued to weather the international debt crisis in Europe.

The sterling pound has increased on these comments rising to 18-month high against the euro. The pound was rose against 11 of the 16 major currencies as before a UK Homes sales report. The sterling pound advanced by 0.4 percent against the euro to trade at 82.18 pence per euro; it had earlier rose to 82.10 pence, which is the strongest it has been since September 9, 2010. It has been one of the best performers in the past month advancing by 0.7 percent.

However, the S&P indicated that the austerity plan adopted by the government will drag on economic growth in spite of the country’s ability to absorb economic shocks improving. In their decision, Moody’s and Fitch had indicated the inability to absorb economic shock as the reason they were giving warnings to UK.

Disclaimer
Tradervox.com is not giving advice nor is qualified or licensed to provide financial advice. You must seek guidance from your personal advisors before acting on this information. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. Opinions expressed at Tradervox.com are those of the individual authors and do not necessarily represent the opinion of Tradervox.com or its management. 

Article provided by TraderVox.com
Tradervox.com is a Forex News Portal that provides real-time news and analysis relating to the Currency Markets.
News and analysis are produced throughout the day by our in-house staff.
Follow us on twitter: www.twitter.com/tradervox

By Central Bank News
Here's today's Central Bank News link list, click through if you missed the previous central bank news link list.  Remember, if you want to submit links for inclusion in the daily link list, just email them through to us or post them in the comments section below.

USDCAD continues its sideways movement in a range between 0.9841 and 1.0050. As long as 1.0050 key resistance holds, the price action in the range is treated as consolidation of the downtrend from 1.0422 (Dec 14, 2011 high), and one more fall to 0.9600-0.9700 area is still possible. One the other side, a break above 1.0050 resistance will indicate that the fall from 1.0422 has completed at 0.9841 already, then the following upward movement could bring price back to 1.0400 zone.

Daily Forex Analysis

By TraderVox.com

Tradervox (Dublin) – The 17-nation currency dropped against most of the major currencies today as fears of ECB’s unwillingness to restart government bond purchases program were reignited. Klass Knot, who is a member of the ECB governing council, indicated that there was no justification why the bank should buy Spanish securities. These sentiments are against the market expectation that the ECB will restart bond buying instead of embarking on another program of bank loans. These concerns have come at a time when the sovereign debt crisis is worsening.

The Euro/dollar cross broke below uptrend support that has accompanied the pair for the last two months. The fears concerning Spain and other peripheral economies in the region has refused to leave the market and this is expected to push the cross below 1.30. Europe’s crisis is further compounded by the slowing down of Chinese economy which grew at a lower rate than it had been estimated. According to Vassili Serebriakov of Wells Fargo & Co. in New York, the market have resumed of fundamentals looking for economic growth in the region rather than the fiscal consolidation efforts that have been going on.

Wagers have placed their bets on the decline of the Euro against the dollar to the greatest level in five weeks. As such, the euro has declined against the dollar by $1.3078; it had gained 0.8 percent in last two trading days. The dollar fell by 0.1 percent over the last week. The 17-nation currency further declined against the yen by 0.8 percent to trade at 105.83 yen per euro. In the previous week, euro had lost 1 percent against the yen.

Euro’s current bearish trend was sparked by the Spanish bond auction disappointment and later the Italian auction soliciting sentiments that the ECB efforts are losing their effects. Sentiments from government and ECB officials have also foiled efforts to erase losses gained over the last week.

Disclaimer
Tradervox.com is not giving advice nor is qualified or licensed to provide financial advice. You must seek guidance from your personal advisors before acting on this information. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. Opinions expressed at Tradervox.com are those of the individual authors and do not necessarily represent the opinion of Tradervox.com or its management. 

Article provided by TraderVox.com
Tradervox.com is a Forex News Portal that provides real-time news and analysis relating to the Currency Markets.
News and analysis are produced throughout the day by our in-house staff.
Follow us on twitter: www.twitter.com/tradervox

By TraderVox.com

Tradervox (Dublin) – Last week ended with the dollar able to erase some of the losses; however, bad reports from the Jobless claims report and comments from Fed officials continued to pull the dollar market down. This week, Europe will be waiting from the German ZEW Economic Sentiment while the dollar is expected to be affected by the US retail Sales and unemployment claims.

Monday

US Retail Sales for March will be released on Monday at 12:30 GMT. The report is expected to show an increase of 0.4 percent with Core CPI expected to climb 0.6 percent. Another major event will be the US TIC Long-Term Purchases. This report will be released at 13:00 GMT and it is expected to show that US Treasury International Capital dropped after it had surged in January to $101.0 billion from $19.1 billion in December. Economists are expecting to see a drop to $41.3 billion.

Tuesday

Tuesday will be a busy day with three major reports expected. In Europe, the German ZEW Economic Sentiments report will be released at 9:00 GMT; this report is expected to show a decline to 20.2 from 22.3 registered the previous month. The same day at 12:30 GMT the housing industry will release US Building Permits. It is expected the report will show a decline to 710,000 from 717,000 registered in the previous month. Another major event on Tuesday is the BOC rate decision. This is expected at 13:00 GMT where traders and economist expect the BOC to keep the current rates.

Wednesday

Wednesday will be pretty quiet with only one major event expected. At 8:30 GMT, the UK labor department will release the UK employment data. People claiming unemployment benefits are expected to reduce to 6,600 from the 7,200 reported in February.

Thursday

This will be a busy day with three major reports expected from the US. The labor department will be releasing the US unemployment claims at 12:30 GMT. People applying for unemployment claims are expected to reduce from last week’s high of 380,000 to 370,000. Another major event is the US Existing Home Sales report that will be released at 14:00 and economists are expecting a higher value of 4.61 million units sold from 4.59 million. US Philly Fed Manufacturing Index will be the third major report to be released at the same time. A small decline to 12.1 is expected from the 12.5 registered in March.

Friday

Euro-zone German IFO Business Climate is forecasted to drop to 109.6 from 109.8 registered in March. It will be released at 8:00 and later Canadian Inflation Data will be released at 12:30. A decline to 0.3 percent is expected from 0.4 registered in March.

Disclaimer
Tradervox.com is not giving advice nor is qualified or licensed to provide financial advice. You must seek guidance from your personal advisors before acting on this information. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. Opinions expressed at Tradervox.com are those of the individual authors and do not necessarily represent the opinion of Tradervox.com or its management. 

Article provided by TraderVox.com
Tradervox.com is a Forex News Portal that provides real-time news and analysis relating to the Currency Markets.
News and analysis are produced throughout the day by our in-house staff.
Follow us on twitter: www.twitter.com/tradervox

By MoneyMorning.com.au

It was a perfect sunny autumnal day in Melbourne yesterday.

Conditions were perfect for a barbie. So in honour of my sister visiting from England, we laid on a spread at Cowie HQ yesterday afternoon.

There was a mix of poms, pommie ex-pats, and true-blue Aussies in my backyard, and the talk quickly turned to sport. Someone might have said something about a certain urn being back at a certain cricket ground. The Aussie reply was that ‘well we got our own back by sending Warnie in to sort out Liz Hurley, mate’. Fair point.

Then we got onto just how expensive it is for Brits to come over here now.

Ten years ago, a pound sterling bought about $3s. Now it buys just $1.50. The Aussie has doubled in that time. Not just that but the higher cost of living makes it more unaffordable for visitors. So, if you see a hungry looking backpacker walking around Melbourne today, it might be my sister, so please offer to buy her some lunch!

How China is Using Gold to Internationalise

Around the time we were chatting about the exorbitant Aussie dollar, China announced it would increase the trading range on its currency, the renminbi, from 0.5% to 1.0%. This means the currency has more scope to rise and fall in response to economic forces.

It has been a long five year wait since China last relaxed the trading band. The reason this is such a big deal is this is a big step towards the renminbi (RMB) becoming a floating currency like the Aussie, euro or yen. This is an essential step if China wants to ‘internationalise’ its currency.

China has been building the foundations for the RMB’s use internationally over the last few years. The latest milestone has the China Development Bank planning to offer loans in renminbi to the other BRIC countries, Brazil, Russia, India – as well as South Africa.

Having an international currency promotes trade, cutting the US dollar out of the equation. The ultimate goal may be to pitch the renminbi as a reserve currency to compete with – or displace – the US dollar.

To really sell the RMB as an international currency, it helps if it is backed with a significant amount of gold. China would never openly admit this, but a snippet from an embassy in China, via a wikileaks story, as good as confirmed it last month:

“The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold’s function as an international reserve currency. They don’t want to see other countries turning to gold reserves instead of the U.S. dollar or Euro.

Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar’s role as the international reserve currency. China’s increased gold reserves will thus act as a model and lead other countries towards reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the RMB.“

China has long been the world’s biggest gold producer, with all of this gold staying within its borders. China is now adding to this with huge gold purchases on the international market. Every time the price dips, as it is now, China buys dozens of tonnes of gold. Chinese buying started in earnest halfway through last year. At the current rate, China will overtake India as the world’s biggest gold consumer.

With China buying on the dips in a big way, it will be hard for the gold price to fall far. So why isn’t it soaring? India is the other big gold importer, and a few factors have slowed gold buying down there.

Last year India imported 969 tonnes of gold (roughly 20% of total gold imports in 2011).

But Indian gold imports slowed down towards the end of last year.

The main reason for this slowdown is that the value of the Indian currency, the rupee, fell 17%. This effectively added 17% to the price of gold for Indian buyers. And because the gold price was rising at the time, it meant Indian buyers had to pay as much as 35% more for gold in the second half of last year. Imports fell as Indians waited for the price to come back to a more affordable level.

Click here to enlarge

Looking at this chart, you can see that after falling for the last four months of 2011, the gold price in rupees has now come back to its long-term trend. This is partly thanks to the rupee rising by 6% this year. This should help more Indian gold buyers come back into the market, and increase imports again.

Keep An Eye on Gold Buying by India

There is another reason Indian gold imports should increase from here. Indian jewellers have just finished a three-week-long strike in protest of a new 4% tax on most gold jewellery. So for nearly three weeks, they all shut up shop until the government agreed to back down. For most of March, the world’s biggest army of gold buyers had nowhere to buy gold. Imports into the country all but stopped. Now they have re-opened, there is three-weeks-worth of buying to catch up on.

With this latent buying hitting the market, and the Indian gold price falling back to trend, we should see Indian gold imports rise. And with the world’s biggest consumer back in the game, the gold price should start to recover.

I heard over the weekend that India has already come back into the physical market in size. Even if Indian demand doesn’t recover straight away, this is an opportunity for China to pick up what India can’t afford.

In the Market for Gold Mines?

I think what China will need to do to step up its gold purchases, and secure future supply at a good price, is buy gold mines around the world.

This has started happening.

Late last year, China Gold International Resources Corporation, one of China’s largest gold producers, acquired a mine in Central Asia, and now might pick up more in Canada and Mongolia.

A Shanghai-based group has since picked up a controlling interest in an Eritrean gold project, Zara Mining.

And just last week, Zijin Mining Group made a bid for an Aussie gold stock, Norton Goldfields (ASX:NGF). This is a 150,000-ounce-a-year producer with plans to increase production to 220,000 ounces over the next four years. You can expect to see a lot more of this, if China wants to seriously ramp up its gold reserves.

A serious move by China to increase gold reserves by acquiring projects is great for gold investors. Firstly, speculation over takeovers can often give share prices a nudge.

More importantly, because these mines have a long mine life, it tells investors China’s plans to buy gold take a long-term view.

China Builds its Gold Reserves

China has been busy, but its official gold reserves are only worth US$55 billion. The core Euro countries of Germany, Italy and France have around US$430 billion of gold, and the US claims to have US$424 billion of gold.

But it’s been three long years since the People’s Bank of China last updated us on its gold holdings in 2009, when the count was 1054 tonnes. This was almost double the gold it had when it reported before that in 2003. We can safely assume China has been adding to its official reserves in the last three years. It’s anyone’s guess how much by.

If the amount of gold the Euro nations and the US government have on their books is any guide, you can see that China needs eight times more gold than it last reported to confidently back its currency for internationalisation. That would take the world’s entire annual mine output for at least three years.

This makes Chinese gold demand the most important of all the gold price drivers, and a very good reason to be bullish on gold long term.

That’s why I read yesterday’s news – that China has made another important step towards internationalising its currency – as being a very bullish result for the long-term gold price outlook.

China’s gold demand should support higher gold prices, but it’s not all good news for gold bugs. China’s growth also means a growing military power. And this may pose a threat to some of the gold producing countries close to its borders that Aussie gold producers are operating in.

Over the next four years, China’s military budget will grow to almost half that of America’s. There is growing geopolitical chess game playing out between the two. With the arrival of US marines in Darwin, it is a game that Australia is firmly part of.

What this means for investors is a story for tomorrow.

Dr. Alex Cowie
Editor, Diggers & Drillers

The Conference of the Year “After America” DVD

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How China is Driving the Gold Price

By MoneyMorning.com.au

The energy sector’s surge may lead some to believe that the rush is now on.

Well, not so fast.

We need to understand the primary concerns moving forward.

Those are direction and conviction.

The energy sector got slammed worse than the overall market as a whole when it was going down, and it advanced quicker when it increased.

So, what will happen from this point onward?

The safe answer is to suggest mostly lateral movement over the next several months. And that is what most of the TV pundits are doing.

And as usual, they are going to miss another boat.

What has happened is the first wave in the next move up. It is, therefore, actually the end of a beginning cycle that will put both prices and volatility for energy in general – and for oil in particular – back on the radar.

No move up in oil is accomplished by regular, easy to calculate increments.

But one genuinely new factor has emerged.

And it will dictate more of our investment moves.

Riding the Wave of Anticipation

The return of instability, marked by price acceleration both up and down (but on aggregate leading to higher price levels), will be taking place over shorter periods.

This is an important new wrinkle to understand. It introduces a novel risk element into the equation while, at the same time, setting the stage for increasing profits. Those profits will develop over shorter time periods for the investor who is capable of riding ahead of this curve.

I call this development compression, and it has a pervasive impact on how you should approach to the market.

Traditionally, major market swings were thought to be rare. They were thought to be infrequent enough to be discounted by longer (and relative) periods of apparent stability. Value destruction or inflation would take place, but then a protracted period of consolidation would follow.

With the introduction of volatility indices (VIXs) – for the Dow, S&P, more focused market sectors, oil – analysts began charting the instability and (surprise, surprise) paper cutters found ways to trade derivatives off VIX figures.

Today, just about every TV talking head will tell you that volatility is subdued, at inordinately (some are even saying “historically”) low levels. What they don’t factor in is a very important subsector pressure that is rapidly developing.

(Remember, these are the guys who predicted seven of the last two market swings!)

This is not hitting the market across the board, although when it erupts it will have market-wide effects. It is centred in the energy sector and in oil investments specifically.

Compression takes place when considerable change occurs over a short period.

More of the result takes place in a rapid advance or contraction.

We are now about to witness a similar development in the broader oil market.

Some of this (as ever) is the result of geopolitical events – primarily the approaching European embargo of Iranian oil imports, the simmering “Arab Spring,” global demand levels, and emerging regional supply imbalances. Other causes include the continuing spread between Brent crude oil prices set in London and West Texas Intermediate (WTI) set in New York.

That spread increases volatility on both sides by distorting actual supply-demand calculations and magnifying pricing distortions for the bulk of daily oil trades worldwide using these two benchmarks as a base.

We have become so accustomed to those factors that they serve as 30-second “explanations” for the TV folks.

Unfortunately, these explanations do not really explain anything about the real wave coming.

Two Aspects of the New Reality are Coming Fast

Two new factors will undermine the previous way of looking at things. The new reality will not look much like the old one.

First, the cycles of compression will intensify.

In other words, not only will more be happening over shorter periods, those periods will be occurring with greater regularity. The time between peaks or valleys will itself compress, as will the activity within the deviations.

The usual assumption that a “normal” period will follow the instability, allowing the market to repair itself and establish a new trading equilibrium will be severely tested.

The technicians will have greater difficulty reading and interpreting their graphs.

Measuring the ripples from throwing a rock into the water is one thing. What we are going to experience is the equivalent of somebody throwing a handful of rocks in a short period of time.

It will distort the ability of traditional analysis both to define and explain what is taking place.

Second, once this cycle begins, it is likely to be derailed only by a major outside (exogenous) event.

The 2008 oil-pricing spike did not end because of something that happened within the oil market. It ended because of the demand and credit constriction resulting from an external collapse – the subprime mortgage mess.

I have been writing for some time now that the usual internal safety valves tempering oil-pricing fluctuations are having less and less success. That sets the stage for accelerating movements in oil being subject to more extreme outside restraints.

These continuing compressions will ultimately lead to an energy equation that demands significant change, both in terms of sourcing and usage. But that is still some time off.

What we have now is rising instability and pricing dynamics that will provide some real opportunities to make substantial profits.

There is a new trading environment emerging.

What we are experiencing is not the beginning of the end, but the curtain is coming down on the first act of a new play.

This is the end of the beginning.

And as the new rush moves in, we intend to trade in advance of it.

That’s where the big money is going to be.

Dr. Kent Moors
Global Energy Strategist, Money Morning (USA)

Publisher’s Note: This is an edited version of an article that first appeared in Money Morning USA

From the Archives…

The Deep Ocean Frontier For Mining Profits
2012-04-013 – Dr. Alex Cowie

The Turkish Economy: Knocking At The Door
2012-04-12 – Karim Rahemtulla

Inflation and Sovereign Debt – Why The Best Is Yet To Come
2012-04-11 – Nick Hubble

How to Make the Most Out of Small Cap Investing
2012-04-10 – Kris Sayce

Why You MUST Speculate
2012-04-09 – Kris Sayce

The New Cycle Forming in the Oil Market

By MoneyMorning.com.au

Imagine a possible future where Ron Paul wins the Republican nomination and goes on to beat Barack Obama come November.

Of course, all the establishment pundits tell us that’s implausible, if not downright impossible. And if Paul does win, do you think they’ll eat their words? No way: the papers, airwaves, and cyberspace will brim with grumbles, moans, and howls about the terrible fate that has befallen America and the West.

As usual, the pundits will be wrong.

Of course, Ron Paul has made a variety of promises to make dramatic changes including: abolish the Fed, bring all American troops home, end the war on drugs, get rid of the income tax, pardon all prisoners jailed for non-violent crimes, get the Feds out of the marriage law business, repeal Roe vs. Wade, and cut $1 trillion from the budget.

No wonder the establishment Republicans, Democrats, and foreign policy wonks have declared war on Ron Paul: it’s always hazardous to one’s health to threaten to take away somebody’s rice bowl.

As a candidate, a major attraction decidedly in Paul’s favour is that he appears to be a man who will keep his word. One only has to think of Barack “Dubya” Obama, Mitt “where does he stand today?” Romney or Newt “WTF did he just say?” Gingrich to realise how rare a quality that is in a politician. (Only Gary Johnson, the likely Libertarian Party nominee, has a similar quality.)

Since Paul has been saying pretty much the same thing since before he first ran for Congress in 1976, let’s assume he won’t change his spots if he’s inaugurated next January.

So in this possible (or impossible – take your pick) future, by the end of 2012 America and the world will be a totally different place.

…unfortunately for Paul supporters, probably not.

For example, come budget time President Paul will send his proposed budget, including spending cuts of $1 trillion, to…ah…Congress.

Congress in 2012 will be a slightly different place than it is today. Lacking Congressman Ron Paul in the House of Reps, there’ll only be one vote (instead of two) he can count on: his son’s, Rand Paul in the Senate.

Not enough.

Paul’s budget will go through the normal Congressional meatgrinders and come out the other end looking more like spaghetti that the document that went in.

President Paul will have to veto it.

So it will go back to Congress which, with enough votes to override Paul’s veto, will pass it unchanged just to spite him.

Many of his other promises will face a similar fate. Repealing the income tax requires a constitutional amendment – which has to be proposed by two-thirds of both houses of Congress (or two-thirds of the state legislatures)! Then, three-quarters of the state legislatures must sign on. It’s hard to imagine all those “representatives” giving up their pork barrels. Altruism is something politicians recommend unto others, not something they practice themselves.

Alternatively, President Paul could include, as part of his budget, cutting the income tax rate to zero. Like his proposals to end the war on drugs, abolish the Fed, get the Feds out of the marriage law business, and repeal Roe vs. Wade, they all require an act of Congress.

That said, there’s still a hell of a lot President Paul can do. After all, American presidents since Lincoln (if not before) have firmly established the precedent that presidents can rule by decree (ah…”executive orders” in politically correct speech) whether Congress or the Supreme Court likes it or not.

And: just because Congress authorises a budget of $X trillion in expenditure, it doesn’t follow that a president has to spend it; just because Congress passes a law, it doesn’t follow that a president has to enforce it.

So President Paul could repeal all the decrees he doesn’t like, bring all American troops home (along with the “drug warriors” around the world) – by decree. Congressmen can scream all they want: after all, most of those troops were stationed abroad without Congress’ direct approval, so how can they disapprove if Paul brings them back?

But Congress isn’t the only opposition President Paul would face. As president he could direct the bureaucracy to stop enforcing Roe vs. Wade, the drug laws – and he could even order the IRS to stop auditing tax returns. (Imagine that!)

In theory, that would mean if Californians all want to get stoned and cheat on their taxes, President Paul’s Feds won’t stop them.

But would all those bureaucrats follow orders?

They should. But in practice, every government bureaucracy has finely-honed skills directed to achieving its own ends despite the desires of its political masters.

One is the “go slow.” Everyone complains how slow government agencies are getting things done. Imagine how slow they could if they put their minds to it!

And one thing a president cannot do is order a court to do anything. While a law’s still on the books, a court can make a judgment which goes again a president’s expressed desires.

But a president has the power to pardon anyone convicted of a federal crime. How long do you think the police would bother prosecuting, or the courts trying, someone they knew would be pardoned immediately after they were convicted?

And then, while President Paul is doing his best to ensure that all those laws are not enforced, what will Congress do? Pass a law telling the president he must enforce the law? Go to the Supreme Court and seek a writ of mandamus (Latin for “we command”) ordering the president to enforce the law? (Would the Supreme Court rule that unconstitutional? These, days, who know?)

Whatever Congress, the bureaucracy, the Supreme Court, and the military-industrial complex do, it will be fascinating to watch.

One thing Paul will achieve if he wins: the nature of the policy debate in America will change dramatically and probably forever. For example, if the world doesn’t fall apart after four years without America as the world’s policeman and Californians (and God knows who else) all with their minds blown, the pundits’ prognostications of doom and gloom will look pretty stupid and won’t get much support.

And think of the alternatives. Without Ron Paul in the race, American voters face a hardly-inspiring choice of a Republican administration (Mitt Romney or whoever) or a Republican administration with health care (Barack “Dubya” Obama).

President Ron Paul would be a helluva lot more fun!

Mark Tier
Contributing Writer, Money Morning

Publisher’s Note: Mark Tier, an Australian based in Hong Kong, is the author of The Winning Investment Habits of Warren Buffett & George Soros. His latest book is Trust Your Enemies, a political thriller.

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If Ron Paul Were US President…

Source: ForexYard

During the Asian trading session, the 17-nation currency weakened against its major currency rivals prior to tomorrows expected auctioning of Spanish Bonds.

Just before 10am Tokyo time, the Euro slipped 0.5 percent to $1,3017 versus the U.S dollar after falling to a month-low of $1,3013, a market rate last seen Mid-March.

The single currency also lost ground with the Japanese Yen and the British Pound.The Euro dropped 0.4 percent versus the Yen to hit the 105.38, after previously falling to 105.29, the lowest rate since February 21. Versus the Sterling, the Euro also dropped 0.4 percent to 82.21, its lowest since September 2010.

Following the Spanish Bond Auction tomorrow, European Central Bank President Mario Draghi will make a speech.Draghi’s speech could possibly create a short term trend for the Euro.

Forex Market Analysis provided by ForexYard.

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