Death of the Dollar??? Not so fast......

[Zander]

Is the US DOLLAR doomed?? This chart shows the dollar over the last 18 months or so. Every headline I read these days is about "the demise of the greenback". Bearish sentiment is EXTREME at only 4% bulls. This reminds me of the situation we had in Spring of 2008. The U.S. dollar stood at an all-time record low against the euro after plunging more than 40% in value. And, according to the usual experts, the greenback was "dead"-set to meet its maker. Of course, the dollar then started a huge rally!! In my experience, the herd is ALWAYS wrong. Therefore I am betting on the greenback.

 

[Neubarth]

At the least, the dollar should go up about five percent from this point.

 

[Paulie]

I agree with the sentiment of going against the mainstream opinion, ESPECIALLY anything that's been harped upon on TV repeatedly.

But that chart you posted shows a BEARISH tecnhical signal, no?

The peaks and bottoms progressively got higher leading to the highest point, and now the peaks and bottoms are progressively going lower, but haven't yet tested the lowest point. I don't know the volumes and moving averages so I can't get too technical, plus I'm not that good at technicals anyway.

But couple this with the Fed saying rates aren't going ANYWHERE for at least 6 more months, and you have a bearish signal until AT LEAST november, when investors know that a lot of the Fed's facilities expire December 31.

 

[Paulie]

We haven't even BEGUN to test the '08 lows from THAT inflation, yet.

And we still have Fed programs in effect for another couple months, with some that have just been expanded until the end of March.

We test the lows before we go higher, if we even DO go higher.

But I don't doubt Neubarth on a quick 5% gain flip based on that chart. I wouldn't HOLD that position though.

 

[Zander]

I agree with the sentiment of going against the mainstream opinion, ESPECIALLY anything that's been harped upon on TV repeatedly.

But that chart you posted shows a BEARISH tecnhical signal, no?

The peaks and bottoms progressively got higher leading to the highest point, and now the peaks and bottoms are progressively going lower, but haven't yet tested the lowest point. I don't know the volumes and moving averages so I can't get too technical, plus I'm not that good at technicals anyway.

But couple this with the Fed saying rates aren't going ANYWHERE for at least 6 more months, and you have a bearish signal until AT LEAST november, when investors know that a lot of the Fed's facilities expire December 31.

Not really. The chart is extremely bullish and shows that the Dollar has completed a perfect 5 waves down.

Fundamentally we have every reason to expect a dollar boom. Credit liquidity is very important to the financial markets. When credit loosens stocks and commodites rally. This is exactly what has happened since March. When credit contracts again, demand for dollars will go up and financial markets will head south as people and institutions sell their assets to get dollars. It will be a replay of 2008, only stronger.

Another extremely bullish sign for the dollar is the demand for treasuries. Treasury markets are attracting record demand! The data clearly shows that foreign central banks have not abandoned the US Treasury - foreign net purchases of Treasuries hit an all-time high at $100.53 B in June 2009, with China and Japan leading the way.

Factor in the collapse of the consumer credit market and you have all the makings of a dollar rally.

 

[The Rabbi]

Usually something that "everyone knows for a fact" turns out to be dead wrong, leaving a lot of very disappointed investors.
The proof will be when Businessweek puts "Death of the Dollar" on its front cover. That's the signal of a bottom in any market.

The Chinese and Arabs hold trillions of dollars of assets. They will not shit their nest just to make a point.

 

[Paulie]

I agree with the sentiment of going against the mainstream opinion, ESPECIALLY anything that's been harped upon on TV repeatedly.

But that chart you posted shows a BEARISH tecnhical signal, no?

The peaks and bottoms progressively got higher leading to the highest point, and now the peaks and bottoms are progressively going lower, but haven't yet tested the lowest point. I don't know the volumes and moving averages so I can't get too technical, plus I'm not that good at technicals anyway.

But couple this with the Fed saying rates aren't going ANYWHERE for at least 6 more months, and you have a bearish signal until AT LEAST november, when investors know that a lot of the Fed's facilities expire December 31.

Not really. The chart is extremely bullish and shows that the Dollar has completed a perfect 5 waves down.

Fundamentally we have every reason to expect a dollar boom. Credit liquidity is very important to the financial markets. When credit loosens stocks and commodites rally. This is exactly what has happened since March. When credit contracts again, demand for dollars will go up and financial markets will head south as people and institutions sell their assets to get dollars. It will be a replay of 2008, only stronger.

Another extremely bullish sign for the dollar is the demand for treasuries. Treasury markets are attracting record demand! The data clearly shows that foreign central banks have not abandoned the US Treasury - foreign net purchases of Treasuries hit an all-time high at $100.53 B in June 2009, with China and Japan leading the way.

Factor in the collapse of the consumer credit market and you have all the makings of a dollar rally.

You may have a point with the treasury demand. But Rabbi here already previously stated his position on bonds in another thread, so I wouldn't be so quick to thank his threads. If businessweek puts "The dollar is dead", then it's already too late to be debating these issues in the first place.

But treasury attraction is also something that could be atributed to almost a literal gun to head of foreign governments to buy up our debt, which is nothing more than artificial inflation of treasury prices.

The fact is, no one knows anything for sure. But I'd put my money on the Fed's moves over the past year, particularly bank reserves amounts, and the fact that they've NEVER gotten the exit strategy right in history.

A quick rising dollar short term trade, followed by a short term pullback trade, followed THEN by a longer term bullish dollar position as the Fed's facilities expire in december, and the rest in March.

Play a bullish dollar for a longer term sometime in November, but watch for incresed demand first. Let the big boys dictate where you put your money. They know things that we peons are always the last to know...

But ALWAYS follow the Fed's moves. They tell a story better than your favorite author.

 

[The Rabbi]

This message is hidden because Paulie is on your ignore list.

Music, sweet music.....

 

[Paulie]

If only Rabbi knew how extremely stupid he's looked lately.

What a fucking pussy

 

[Rothbardian]

Well, just wait till the trillions the Fed is printing start weaving its way through the system. With no end in sight, it is become more inevitable every day.

 

[The Rabbi]

Well, just wait till the trillions the Fed is printing start weaving its way through the system. With no end in sight, it is become more inevitable every day.

Except those trillions have been there for like 6 months. And inflation is still in the 0-2% range.
We would need a big uptick in demand that increases the velocity of money to see any inflation. Whether the Fed responds in time or not is the big question.

 

[Zander]

Well, just wait till the trillions the Fed is printing start weaving its way through the system. With no end in sight, it is become more inevitable every day.

Eventually we will have to deal with inflation, but it will not happen until we get deflation out of the way.

 

[Paulie]

Well, just wait till the trillions the Fed is printing start weaving its way through the system. With no end in sight, it is become more inevitable every day.

Except those trillions have been there for like 6 months. And inflation is still in the 0-2% range.
We would need a big uptick in demand that increases the velocity of money to see any inflation. Whether the Fed responds in time or not is the big question.

This is how dumb you are.

The Fed hasn't even PRINTED "trillions".

They've expanded the monetary base by about 1 trillion since the recession began.

Bank reserves increases account for something like 800 billion, but I'd need to confirm that.

There's no "trillions". There never was, and there never will be.

People are confusing the the fact that there are still TRILLIONS in derivatives floating around in the market, and the Fed happens to be buying some up.

MOST of them are still privately held by various institutional holders.

 

[The Rabbi]

Looks like Zander was right again:
Gold Futures Record Longest Slump Since March as Dollar Climbs - Bloomberg.com
Partly based on your posts I bought puts on GLD. Seems to be working nicely. Thanks.

 

[Toro]

No. The dollar is not doomed.

But the government is sure trying their darndest!

 

[The Rabbi]

No. The dollar is not doomed.

But the government is sure trying their darndest!

The potential is certainly out there. But it is only potential. An awful lot is telling against it and those factors have been overly discounted.

 

[Polk]

Usually something that "everyone knows for a fact" turns out to be dead wrong, leaving a lot of very disappointed investors.
The proof will be when Businessweek puts "Death of the Dollar" on its front cover. That's the signal of a bottom in any market.

The Chinese and Arabs hold trillions of dollars of assets. They will not shit their nest just to make a point.

Exactly. While there is a longer-run trend away from the dollar (due to changing nature of the global economy), people thinking the dollar is going to become TP overnight are going to get highly disappointed.

 

[jreeves]

No. The dollar is not doomed.

But the government is sure trying their darndest!

The potential is certainly out there. But it is only potential. An awful lot is telling against it and those factors have been overly discounted.

I would say...
Dollar loses reserve status to yen & euro
Ben Bernanke's dollar crisis went into a wider mode yesterday as the greenback was shockingly upstaged by the euro and yen, both of which can lay claim to the world title as the currency favored by central banks as their reserve currency.

Over the last three months, banks put 63 percent of their new cash into euros and yen -- not the greenbacks -- a nearly complete reversal of the dollar's onetime dominance for reserves, according to Barclays Capital. The dollar's share of new cash in the central banks was down to 37 percent -- compared with two-thirds a decade ago.

Bernanke could go down in economic history as the man who killed the greenback on the operating table.

After printing up trillions of new dollars and new bonds to stimulate the US economy, the Federal Reserve chief is now boxed into a corner battling two separate monsters that could devour the economy -- ravenous inflation on one hand, and a perilous recession on the other.

"He's in a crisis worse than the meltdown ever was," said Peter Schiff, president of Euro Pacific Capital. "I fear that he could be the Fed chairman who brought down the whole thing."

Investors and central banks are snubbing dollars because the greenback is kept too weak by zero interest rates and a flood of greenbacks in the global economy.

They grumble that they've loaned the US record amounts to cover its mounting debt, but are getting paid back by a currency that's worth 10 percent less in the past three months alone. In a decade, it's down nearly one-third.

Yesterday, the dollar had a mixed performance, falling slightly against the British pound to $1.5801 from $1.5846 Friday, but rising against the euro to $1.4779 from $1.4709 and against the yen to 89.85 yen from 89.78.

I guess bouncing checks, only go so far....

 

[BaronVonBigmeat]

Well, just wait till the trillions the Fed is printing start weaving its way through the system. With no end in sight, it is become more inevitable every day.

Eventually we will have to deal with inflation, but it will not happen until we get deflation out of the way.

I think this may be correct, granted I am just an armchair observer. The government has created quite a bit of money, around a trillion, most of it for the banks, who have it parked at the Fed apparently. It hasn't circulated yet, so there is no inflation to speak of. It has spooked foreign central banks though, who are more determined than ever to get away from the dollar.

Government "printing" is only a part of the total money creation process, the other is the banks lending. When they don't lend, money creation stalls. I guess that's why MZM has hit a plateau.

 

[Toro]

ONE of the few calamities that has not befallen the world economy during the past two years is a dollar crash. During the bubble era that preceded it, many (including The Economist) fretted that foreigners, tiring of America’s gaping external deficits, would send the greenback slumping and interest rates soaring. In fact, the opposite occurred. The crisis began within America, and the deeper it became, the more the dollar strengthened as fearful investors sought safety in Treasury bills. Between September 2008 (when Lehman Brothers failed) and March 2009 (when America’s stockmarkets hit bottom), the dollar rose by almost 13% on a trade-weighted basis.

Currencies: The diminishing dollar | The Economist

Central banks have been increasing their holdings of Treasuries, not decreasing them.

And the falling dollar, which hit 14-month lows against a trade-weighted basket of six currencies last week, has done little to deter foreign central banks: Their holdings of Treasurys with the New York Fed have risen to a record $2.124 trillion as of Wednesday.

Treasury Sales Loom, but Demand Is There - WSJ.com

Of course, foreign central banks do not have an infinite demand for Treasuries, but they have not stopped buying our bonds thus far.

And the dollar remains king as the world's black market "reserve" currency.

The U.S. dollar, once universally accepted as the world's strongest currency, has been trounced in recent months by everything from the euro to the Brazilian real to the South Korean won. But in the back-alley markets where business is done in many of the world's developing economies, the dollar still reigns.

In jewelry stores in Vietnam, taxicabs in Venezuela and outdoor markets in Nigeria, black-market money-changers say the dollar is still the currency of choice, even though its value has fallen in some cases. ...

"Typically, dollars are king in the black markets of the world," says Kenneth Rogoff, professor of economics at Harvard University and former chief economist at the International Monetary Fund.

Prof. Rogoff estimates that as much as 75% of U.S. notes in circulation, or more than $600 billion, are held outside the U.S. Most of that is likely in what he calls the underground economy, where transactions are made beyond the oversight of government -- much of which is juiced by the black market.

"This money is not in cash registers, it's not in bank vaults," Prof. Rogoff says. ...

For Venezuelans, where the black market plays a crucial role in the financial system, the dollar has retained its status. Residents seeking protection against inflation or a devaluation of the bolivar turn to currency traders. Large companies that need dollars for operations abroad also visit the unregulated market.

"Having dollars is like a barricade," says Arnaldo Morales, a cabby who moonlights as a currency trader, buying dollars from travelers as they enter the country, then selling them to Venezuelans. ...

In Nigeria, sub-Sahara Africa's second-largest economy, currency traders still deal predominantly in American currency. The black-market traders even have their own trade group, the Association of Bureaux de Change Operators of Nigeria.

"The dollar still has dominance in Nigeria," said Alhaji Farouk Suleman, the president of the group. "The exchange rate might not be good, but you know what you're dealing with and that you can use the dollar anywhere you go. I don't see any real shift towards the pound or euro."

Globally, the Greenback Remains King - WSJ.com