http://www.fxstreet.com/fundamental/market-view/merk-insights/http://www.fxstreet.com/fundamental/http://mediaserver.fxstreet.com/images/fxstreet-provider-logo1-en.gif7http://www.fxstreet.com/fundamental/market-view/merk-insights/2009-11-05.v02.htmlThe contrast between the Federal Reserve's (Fed) statement on Wednesday and the European Central Bank's (ECB) press conference today shows how the Fed imposes its credibility on the markets, whereas the ECB is earning it. The Fed will look for "low rates of resource utilization, subdued inflation trends and stable inflation expectations" to keep interest rates low. Resource utilization is likely to remain low, so that's not a factor. Secondly, inflation trends will quite likely inch upwards asThu, 05 Nov 2009 16:18:02 GMThttp://www.fxstreet.com/fundamental/market-view/insights@merkinvestments.com (Merk Hard Currency Fund)http://www.fxstreet.com/fundamental/market-view/merk-insights/2009-11-05.v02.htmlhttp://www.fxstreet.com/fundamental/market-view/merk-insights/2009-11-05.htmlWho cares about the dollar? It turns out quite a few do, except for those who could put it on a course to long-term recovery. First of all, you should care, as the purchasing power of your dollar savings is at risk when the dollar plunges versus other currencies. Let’s examine a couple of groups, what they have at stake and how influential they may be. Those who care Savers. That may well be you and me. Though we hear praise about the “recovery” in the equity markets, the dollar index is downThu, 05 Nov 2009 15:47:49 GMThttp://www.fxstreet.com/fundamental/market-view/insights@merkinvestments.com (Merk Hard Currency Fund)http://www.fxstreet.com/fundamental/market-view/merk-insights/2009-11-05.htmlhttp://www.fxstreet.com/fundamental/market-view/merk-insights/2009-10-26.htmlOur willingness to engage in risks drives our prosperity. We urgently need a public debate on risk, one driven by reason, not emotion. Without risk, individuals are bound to lose the purchasing power of their savings; corporations that don’t take risk will fade into oblivion; and governments that regulate away risks destroy the growth engine of their nation. The U.S. is the most prosperous nation because it has embraced risk taking. Silicon Valley has created some of the greatest innovationMon, 26 Oct 2009 13:55:24 GMThttp://www.fxstreet.com/fundamental/market-view/insights@merkinvestments.com (Merk Hard Currency Fund)http://www.fxstreet.com/fundamental/market-view/merk-insights/2009-10-26.htmlhttp://www.fxstreet.com/fundamental/market-view/merk-insights/2009-10-20.htmlThe government has splattered lots of money onto the economy, working hard to reflate the bubble that got us into trouble in the first place. The Dow is back at 10,000. What are you to do? If you are a wealth sustainer, you should not be drawn into the market simply because it has gone up. Instead, take a step back, look at the market dynamics and see what risks you can afford to take. I am not preaching to hide in a hole awaiting armageddon – there are always opportunities, but they may beTue, 20 Oct 2009 17:03:43 GMThttp://www.fxstreet.com/fundamental/market-view/insights@merkinvestments.com (Merk Hard Currency Fund)http://www.fxstreet.com/fundamental/market-view/merk-insights/2009-10-20.htmlhttp://www.fxstreet.com/fundamental/market-view/merk-insights/2009-10-02.htmlThe U.S. dollar has been getting a beating from all sides, but its woes may be far from over – recent developments in Japan, China, Germany and the United Kingdom, not to speak of domestic developments in the U.S., are pointing to a rocky road ahead. Today’s focus is on Japan and, more specifically, how a country on a downward economic spiral can have a strong currency. Exchange rates are subject to the forces of supply and demand – the flow of funds - of the underlying currencies. WhileFri, 02 Oct 2009 10:36:58 GMThttp://www.fxstreet.com/fundamental/market-view/insights@merkinvestments.com (Merk Hard Currency Fund)http://www.fxstreet.com/fundamental/market-view/merk-insights/2009-10-02.htmlhttp://www.fxstreet.com/fundamental/market-view/merk-insights/2009-08-27.htmlFirst, the good news about Bernanke’s nomination for a second term as head of the Federal Reserve (Fed): we know what we are getting and may be able to prepare for the risks his continued leadership may pose to inflation and the dollar. The bad news: more of the same. Let’s examine the good news first. You see, until recently banking had been a relatively simple business, as exemplified by the 3-6-3 rule: pay your depositors 3%; lend to them at 6%; and be off to the golf course by 3pm. ThisThu, 27 Aug 2009 12:42:30 GMThttp://www.fxstreet.com/fundamental/market-view/insights@merkinvestments.com (Merk Hard Currency Fund)http://www.fxstreet.com/fundamental/market-view/merk-insights/2009-08-27.htmlhttp://www.fxstreet.com/fundamental/market-view/merk-insights/2009-07-21.htmlGreen Shoots Everywhere! The credit crisis is over; an economic recovery is just around the corner! Hold your horses – there may not be enough water to nourish them at the next pit stop. Hold on – isn’t a bad decision supposed to turn into good policy when you back it by trillions of freshly printed U.S. dollars? Conventional wisdom suggests that when you lower interest rates, splatter lots of money onto the economy through spending programs and credit facilities, the economy will recover.Tue, 21 Jul 2009 13:41:11 GMThttp://www.fxstreet.com/fundamental/market-view/insights@merkinvestments.com (Merk Hard Currency Fund)http://www.fxstreet.com/fundamental/market-view/merk-insights/2009-07-21.htmlhttp://www.fxstreet.com/fundamental/market-view/merk-insights/2009-06-25.htmlInflation is dead – long live inflation! We hear about the threat of hyperinflation in the media – is this for real, can it happen in the U.S.? Are we hyping up the word inflation, is it an inflationary play of words to grab attention to discuss the threat of hyperinflation? Let’s deflate the hype and put inflation where it belongs… at the forefront of your concerns. Stop right here. In the words of European Central Bank (ECB) President Jean-Claude Trichet, what we suggest is “extraordinarilyThu, 25 Jun 2009 08:22:10 GMThttp://www.fxstreet.com/fundamental/market-view/insights@merkinvestments.com (Merk Hard Currency Fund)http://www.fxstreet.com/fundamental/market-view/merk-insights/2009-06-25.htmlhttp://www.fxstreet.com/fundamental/market-view/merk-insights/2009-06-17.htmlRussian President Medvedev suggests the dollar is on its way out; Russian Finance minister Kudrin says there is no substitute for the dollar. The Chinese see a need to diversify out of the dollar; the Japanese say their trust in the dollar is unshakable. Let’s look at this puzzle and make some sense of it. It’s usually more productive to look at what policy makers do rather than what they say. Having said that, this time around, the talk also speaks volumes. Notably, world leaders haveWed, 17 Jun 2009 11:06:57 GMThttp://www.fxstreet.com/fundamental/market-view/insights@merkinvestments.com (Merk Hard Currency Fund)http://www.fxstreet.com/fundamental/market-view/merk-insights/2009-06-17.htmlhttp://www.fxstreet.com/fundamental/market-view/merk-insights/2009-06-11.v02.htmlIn our estimate, the U.S. Treasury will have to raise over $2 trillion dollars this year to finance new obligations. In addition, over $2 trillion in government debt held by the public is coming due and has to be re-financed this year. My pocket calculator tells me that this requires over $15 billion of government debt to be issued every business day. Note that summer months tend to be bad months to issue debt, as many buyers, including foreign buyers, tend to take vacation. Conversely, itThu, 11 Jun 2009 08:43:13 GMThttp://www.fxstreet.com/fundamental/market-view/insights@merkinvestments.com (Merk Hard Currency Fund)http://www.fxstreet.com/fundamental/market-view/merk-insights/2009-06-11.v02.htmlhttp://www.fxstreet.com/fundamental/market-view/merk-insights/2009-06-11.htmlThe Federal Reserve was served a subpoena from a Congressional committee Tuesday, as lawmakers demanded documents related to Bank of America’s acquisition of Merrill Lynch. In our view, this is a precursor of more trouble to come for the Fed. We have argued for some time that Fed Chairman Bernanke completely underestimates the political dimensions of the policies he pursues. The various "credit easing" programs have little to do with monetary policy, the domain of the Fed. Monetary policyThu, 11 Jun 2009 08:41:31 GMThttp://www.fxstreet.com/fundamental/market-view/insights@merkinvestments.com (Merk Hard Currency Fund)http://www.fxstreet.com/fundamental/market-view/merk-insights/2009-06-11.htmlhttp://www.fxstreet.com/fundamental/market-view/merk-insights/2009-06-04.v02.htmlGerman Chancellor Angela Merkel caused a stir when warning the European Central Bank not to engage in asset purchases. She has received a lot of attention as it is an unwritten rule not to infringe upon the independence of central bankers. While we would typically agree that the independence of central bankers is of paramount importance, we believe it is not only appropriate, but also her duty to speak out. Let us elaborate. As a backdrop, it is the primary role of central banks to ensureThu, 04 Jun 2009 08:14:16 GMThttp://www.fxstreet.com/fundamental/market-view/insights@merkinvestments.com (Merk Hard Currency Fund)http://www.fxstreet.com/fundamental/market-view/merk-insights/2009-06-04.v02.htmlhttp://www.fxstreet.com/fundamental/market-view/merk-insights/2009-06-04.htmlThe current account deficit is down as we are less reliant on foreigners to finance our deficits; the government's deficit is increasingly covered by the domestic private sector as private sector borrowing is down. -- These were the approximate words of Fed Chairman Bernanke in testimony to the House Budget Committe. This statement is so troublesome, let's examine it a step at the time. The current account deficit reflects the amount foreigners need to buy in U.S. dollar denominated assets toThu, 04 Jun 2009 08:13:10 GMThttp://www.fxstreet.com/fundamental/market-view/insights@merkinvestments.com (Merk Hard Currency Fund)http://www.fxstreet.com/fundamental/market-view/merk-insights/2009-06-04.htmlhttp://www.fxstreet.com/fundamental/market-view/merk-insights/2009-06-02.htmlTreasury Secretary Tim Geithner’s trip to Asia has been heralded as a sales trip aimed at convincing the Chinese to keep buying U.S. Treasuries and thereby finance U.S. deficits. Such headlines are, in my humble opinion, an insult to the Chinese. Over and over again, we fall victim of the temptation to believe that Chinese leaders act in a vacuum, dictating policies out of a closet. Chinese leaders know very well the state of the Chinese, the U.S., and the world economy; they don’t need aTue, 02 Jun 2009 13:32:31 GMThttp://www.fxstreet.com/fundamental/market-view/insights@merkinvestments.com (Merk Hard Currency Fund)http://www.fxstreet.com/fundamental/market-view/merk-insights/2009-06-02.htmlhttp://www.fxstreet.com/fundamental/market-view/merk-insights/2009-05-12.htmlRecently, stock markets appear to have experienced an almost euphoric phase, seemingly shrugging off most negative news flow day after day. Whether or not you believe in the so-called “green shoots” of economic recovery, a significant economic rebound, or a continued decline in economic activity, one thing seems abundantly clear: investors have been becoming less risk averse. The most commonly followed “fear indicator”, the VIX index, has retracted (likewise, other commonly followed indicatorsTue, 12 May 2009 14:48:43 GMThttp://www.fxstreet.com/fundamental/market-view/insights@merkinvestments.com (Merk Hard Currency Fund)http://www.fxstreet.com/fundamental/market-view/merk-insights/2009-05-12.htmlhttp://www.fxstreet.com/fundamental/market-view/merk-insights/2009-05-06.htmlThe stress test may be causing more harm than good. Why? Regulators should always have a good assessment of the health of financial institutions. If there are deficiencies in the process applied to regulate banks, then the process for the system as a whole should be reviewed. Instead, what we have is an ad-hoc test put together to gauge the health of banks. A regulator came up with the idea that counterparty risk is bad, hence, banks that deal with a lot of counterparties ought to have aWed, 06 May 2009 13:18:08 GMThttp://www.fxstreet.com/fundamental/market-view/insights@merkinvestments.com (Merk Hard Currency Fund)http://www.fxstreet.com/fundamental/market-view/merk-insights/2009-05-06.htmlhttp://www.fxstreet.com/fundamental/market-view/merk-insights/2009-04-30.htmlThe swine flu could not have come at a worse time. Just when there were signs of a nascent recovery, confidence takes another hit. As a result, “reflation trades” may be put on ice if investors revert to “panic mode” again. While it is difficult to assess the full economic impact of the swine flu, we believe some of the dynamics are foreshadowed. This flu may reinforce long-term trends and provide an opportunity for investors to position themselves accordingly. Trade and travel has alreadyThu, 30 Apr 2009 15:07:54 GMThttp://www.fxstreet.com/fundamental/market-view/insights@merkinvestments.com (Merk Hard Currency Fund)http://www.fxstreet.com/fundamental/market-view/merk-insights/2009-04-30.htmlhttp://www.fxstreet.com/fundamental/market-view/merk-insights/2008-06-18.htmlJust because we have been favoring the euro over the U.S. dollar in recent years doesn’t mean we believe everything is perfect in Europe. The rejection of Irish voters of the latest attempt by the European Union (E.U.) to streamline its decision processes highlights a fundamental weakness: the inability of European politicians to communicate with its citizens. In 2005, Dutch and French voters declared the new European Constitution dead by rejecting referenda. In the days leading up to the voteWed, 18 Jun 2008 09:13:22 GMThttp://www.fxstreet.com/fundamental/market-view/insights@merkinvestments.com (Merk Hard Currency Fund)http://www.fxstreet.com/fundamental/market-view/merk-insights/2008-06-18.htmlhttp://www.fxstreet.com/fundamental/market-view/merk-insights/2008-03-26.htmlWith the U.S. dollar reaching new lows versus hard currencies, many are waiting for Asian currencies to catch up. Why hasn’t this happened, and will it happen? The short answer is: it might, but be patient and don’t bet your farm on it. To understand Asian dynamics, let’s first look at Europe. Remember how many ridiculed European growth earlier this decade? A key factor was the European Central Bank’s (ECB’s) refusal to jump on the growth bandwagon. As a result, consumer savings went up inWed, 26 Mar 2008 08:06:19 GMThttp://www.fxstreet.com/fundamental/market-view/insights@merkinvestments.com (Merk Hard Currency Fund)http://www.fxstreet.com/fundamental/market-view/merk-insights/2008-03-26.htmlhttp://www.fxstreet.com/fundamental/market-view/merk-insights/2008-02-29.htmlA consortium of banks is considering injecting $3 billion dollars into Ambac, the mono-line insurer that relies on its AAA rating to insure, amongst others, municipal bonds and CDOs (collateralized debt obligations). What appears as a rescue plan and may appease the markets short-term, may plant the seeds for disaster. Mono-line insurers used to be in the business of insuring municipal bonds. For a small fee to the insurers, municipalities were able to attach a AAA rating to their bondFri, 29 Feb 2008 13:21:25 GMThttp://www.fxstreet.com/fundamental/market-view/insights@merkinvestments.com (Merk Hard Currency Fund)http://www.fxstreet.com/fundamental/market-view/merk-insights/2008-02-29.htmlhttp://www.fxstreet.com/fundamental/market-view/merk-insights/2008-01-30.htmlInflation targeting is yet to be formally adopted by the Federal Reserve (Fed), but recent market and Fed actions already prove that it is a failure. At the whim of trouble in the markets, Fed Chairman Bernanke has made it clear that he is inclined to flood the markets with liquidity at any cost; he said: “We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks.” Contrast that with John-Claude Trichet’s comments:Wed, 30 Jan 2008 09:41:16 GMThttp://www.fxstreet.com/fundamental/market-view/insights@merkinvestments.com (Merk Hard Currency Fund)http://www.fxstreet.com/fundamental/market-view/merk-insights/2008-01-30.htmlhttp://www.fxstreet.com/fundamental/market-view/merk-insights/2007-09-06.htmlThe administration’s plan to bail out homeowners with adjustable rate mortgages (ARMs) may make them slaves of their homes. We propose an alternative that we believe better serves both homeowners and the marketplace. The group targeted for the bailout has been able to meet their payments during the “teaser periods” when interest rates are kept artificially low. As these rates reset to market rates, many borrowers default on their payments. The bailout urges banks to help refinance such loansThu, 06 Sep 2007 06:40:52 GMThttp://www.fxstreet.com/fundamental/market-view/insights@merkinvestments.com (Merk Hard Currency Fund)http://www.fxstreet.com/fundamental/market-view/merk-insights/2007-09-06.htmlhttp://www.fxstreet.com/fundamental/market-view/merk-insights/2007-06-25.htmlThe U.S. trade deficit with the rest of the world leapfrogged in recent days: aside from goods and services, we are now importing “consensus based crisis management” from Japan. Out of fear that a cleanup of bad loans would trigger widespread defaults, Japanese banks got themselves deeper and deeper into trouble by hushing up the problems. We are talking about the crisis at Bear Sterns’ subprime hedge fund. The crisis shows that major adjustments on how the market prices risks are overdue;Mon, 25 Jun 2007 14:46:38 GMThttp://www.fxstreet.com/fundamental/market-view/insights@merkinvestments.com (Merk Hard Currency Fund)http://www.fxstreet.com/fundamental/market-view/merk-insights/2007-06-25.htmlhttp://www.fxstreet.com/fundamental/market-view/merk-insights/2007-05-18.htmlIt seems that in order to qualify for the job, U.S. Treasury Secretaries must be able to recite ‘A strong dollar is in the interest of the United States’ anytime and anywhere. Robert Rubin, Treasury Secretary during the second half of the 1990s, was highly credible when he said it. However, when Secretary John Snow uttered the same words, the ritual had been diluted to providing the appropriate sound bite to the media. Hank Paulson, successor to Snow and current Treasury Secretary, is aFri, 18 May 2007 07:24:34 GMThttp://www.fxstreet.com/fundamental/market-view/insights@merkinvestments.com (Merk Hard Currency Fund)http://www.fxstreet.com/fundamental/market-view/merk-insights/2007-05-18.htmlhttp://www.fxstreet.com/fundamental/market-view/merk-insights/2007-04-30.htmlWe published an analysis on “Dollar Myths” in which we criticized spending habits in Washington: "Interestingly, nobody seemed to focus on the fact that there is an unconventional solution to foreigners holding too much of our debt: live within your means and do not issue debt. Such an old fashioned concept would indeed strengthen the dollar. Unfortunately, none of the presidential candidates at either side of the aisle seem to have heard of this notion." We missed that there is indeed aMon, 30 Apr 2007 14:08:27 GMThttp://www.fxstreet.com/fundamental/market-view/insights@merkinvestments.com (Merk Hard Currency Fund)http://www.fxstreet.com/fundamental/market-view/merk-insights/2007-04-30.htmlhttp://www.fxstreet.com/fundamental/market-view/merk-insights/2007-04-26.htmlWithout shying away from controversy, we do away with a number of myths of why the dollar ought to move up or down. Myth I: The dollar is safe because the U.S. has ample assets Some say the current account deficit that requires foreigners to arrange for over $3 billion of capital inflows every business day just to keep the dollar from falling does not matter. These pundits say a deficit of 6.5% of Gross Domestic Product (GDP) is sustainable because the deficit is only about 1% of all privateThu, 26 Apr 2007 15:18:18 GMThttp://www.fxstreet.com/fundamental/market-view/insights@merkinvestments.com (Merk Hard Currency Fund)http://www.fxstreet.com/fundamental/market-view/merk-insights/2007-04-26.htmlhttp://www.fxstreet.com/fundamental/market-view/merk-insights/2007-03-29.htmlThe U.S. dollar collapsed to two-year lows against the euro as the Federal Reserve (Fed) takes its focus away from fighting inflation. The Fed has a dual mandate: price stability as well as full employment. With unemployment hovering near historic lows, why does the Fed neglect its mandate to fight inflation, thereby jeopardizing the dollar? Inflation has been creeping up throughout the economy, now showing up even in the “core inflation” statistics the Fed pays particular attention to. At theThu, 29 Mar 2007 06:25:09 GMThttp://www.fxstreet.com/fundamental/market-view/insights@merkinvestments.com (Merk Hard Currency Fund)http://www.fxstreet.com/fundamental/market-view/merk-insights/2007-03-29.htmlhttp://www.fxstreet.com/fundamental/market-view/merk-insights/2007-02-22.htmlIn his recent testimony to Congress, Federal Reserve (Fed) Chairman Ben Bernanke painted a rosy picture of the U.S. economy. If the Fed were satisfied with the economy, it could afford to be blunt about challenges ahead; instead, the Fed is working very hard to appease the markets. What is Bernanke worried about? Why is he so dovish? Our economy is hooked on access to easy money. Until about a year ago, consumers were able to print their own money by extracting equity out of their homes. SinceThu, 22 Feb 2007 08:10:52 GMThttp://www.fxstreet.com/fundamental/market-view/insights@merkinvestments.com (Merk Hard Currency Fund)http://www.fxstreet.com/fundamental/market-view/merk-insights/2007-02-22.htmlhttp://www.fxstreet.com/fundamental/market-view/merk-insights/2007-02-07.htmlThe world is awash in money. This money has flown into all asset classes, from stocks to bonds, from real estate to commodities. In a world priced for perfection, should we enjoy the boom or prepare for a bust? Let us listen to Wall Street’s adage and “follow the money.” After the tech bubble burst in 2000, policy makers in the U.S. and Asia set a train in motion they have now lost control over. In an effort to preserve U.S. consumer spending, the Federal Reserve (Fed) lowered interest rates;Wed, 07 Feb 2007 08:04:42 GMThttp://www.fxstreet.com/fundamental/market-view/insights@merkinvestments.com (Merk Hard Currency Fund)http://www.fxstreet.com/fundamental/market-view/merk-insights/2007-02-07.htmlhttp://www.fxstreet.com/fundamental/market-view/merk-insights/2006-11-15.htmlAmerica’s massive trade deficit exerts pressure on the US dollar as currency is shoveled abroad in return for goods and services. As the economy is slowing down and possibly sliding into recession, the rate at which the trade deficit grows may be slowing down; in September, this deficit was “only” $64.3 billion – still near record territory, but not as bad as economists had predicted. Does this mean the worst for the dollar is over? After all, it now costs over 50% more to pay for a €100 euroWed, 15 Nov 2006 09:27:18 GMThttp://www.fxstreet.com/fundamental/market-view/insights@merkinvestments.com (Merk Hard Currency Fund)http://www.fxstreet.com/fundamental/market-view/merk-insights/2006-11-15.htmlhttp://www.fxstreet.com/fundamental/market-view/merk-insights/2006-11-07.htmlMaking short-term predictions about the dollar is notoriously difficult. So why do we say the dollar may fall after the election? Once we know what the future composition of Congress will be, the markets can shift focus from the excitement of the moment to what may lie ahead. We believe we have just seen the beginning of a more pronounced slowdown that will likely push us into recession. The reason why we are more negative than many economists is that high levels of consumer debt make theTue, 07 Nov 2006 11:17:06 GMThttp://www.fxstreet.com/fundamental/market-view/insights@merkinvestments.com (Merk Hard Currency Fund)http://www.fxstreet.com/fundamental/market-view/merk-insights/2006-11-07.htmlhttp://www.fxstreet.com/fundamental/market-view/merk-insights/2006-10-09.htmlIn a speech at the Economics Club in Washington, Federal Reserve (Fed) Chairman Ben Bernanke warned America to save more and spend less to preserve our standard of living for the long-term. The core of his message that we must improve fiscal discipline and the quality of our education is not new; his advice will also be applicable as long as we have politicians and schools. The speech is more striking for what was not mentioned – namely the Fed’s role in this process. We know that theMon, 09 Oct 2006 15:05:05 GMThttp://www.fxstreet.com/fundamental/market-view/insights@merkinvestments.com (Merk Hard Currency Fund)http://www.fxstreet.com/fundamental/market-view/merk-insights/2006-10-09.htmlhttp://www.fxstreet.com/fundamental/market-view/merk-insights/2006-09-22.htmlEvery day, another economist claims that the impact of the slowdown in housing on the economy is overrated; a few months ago, many still disputed there even was a housing bubble. There has been a housing bubble, the bubble has only started to deflate, and it may have very negative long-term implications for the US economy as well as the US dollar. Almost every day, a high profile company directly or indirectly targeting the US consumer warns that its outlook is bleak. Let it be Yahoo warningFri, 22 Sep 2006 09:47:15 GMThttp://www.fxstreet.com/fundamental/market-view/insights@merkinvestments.com (Merk Hard Currency Fund)http://www.fxstreet.com/fundamental/market-view/merk-insights/2006-09-22.html