Watch that Dollar!

I posted this note about a US Dollar upside break last week, and can now say that this appears to be the real deal.  It probably means that allocations should be adjusted accordingly.  I would be surprised to see equities or commodities (including gold) rise if/as this US Dollar rally picks up steam.

It has now broken above the 50 and 200 day moving averages.  And being as today’s a Friday, barring a late-day sell-off, this strength will be passed onto the more meaningful weekly chart.

Watch out because it is exactly what happened in 2008 (a delayed, but very meaningful Dollar rally).  I will try to get my research together over the weekend and post something on Seeking Alpha by next week…

  1. September 12, 2011 at 11:26 am

    When I see a chart like this I obviously think commodities and stock market plunge, but I also see widening room (and need) for further fiscal easing by US. Whether they *will* is another matter entirely.

    • September 13, 2011 at 9:48 am

      I think I agree. Taking the MMT view of fiscal and monetary policy changes the way one sees issues, for sure. I agree that direct government spending on infrastructure projects is a far better use of capital than giving it to banks in hopes they’ll lend it into the system at this point.

  2. September 13, 2011 at 11:54 am

    It does, doesn’t it? I mean so much of what we see makes more sense when you grasp *just*how*much* aggregate private borrowing has been done. Investment banks, hedge funds, forex traders, equity margin… it’s astronomical. When one (or several) significant players of a TBTF scale (Lehman and AIG come to mind) implode, measureable financial asset deflation has to be one of the outcomes. If the government currency issuer does not step in, then ultimately the real goods market prices must deflate (in response to scarity of currency) as well lest economic activity grinds to a halt. Trying to keep prices up without injecting physical raw currency into the hands of economically struggling individuals and by extention small businesses will result in full scale depression.

    • September 13, 2011 at 11:59 am

      I would add this real good price deflation is EXACTLY what we’re seeing in the housing market, *despite* historically low borrowing rates. Increased private borrowing *will*not*happen* with falling wages, high unemployment, and a government austerity program waiting in the wings. And yet for the economy to continue to function… BORROWING MUST CONTINUE. Who will borrow?

      In my estimation there are only three willing potential borrowers of substance left: Japan, China, and the US. Virtually everyone else is irrelevant (or insolvent in the case of Europe).

  3. September 14, 2011 at 1:46 pm

    I absolutely agree “*despite* historically low borrowing rates. Increased private borrowing *will*not*happen* with falling wages, high unemployment. That’s where I have less faith in the system than some others, not just in terms of debt expansion, but in terms of energy expansion – I think most people assume there will be *someone/something* to fill the void. Honestly, I don’t. I think the system can utterly and completely fall apart. And it could happen incredibly fast, imho.

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