The definitive U.S. Dollar Rally Thread

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  • Sat, Dec 19, 2009 - 10:59am

    #1

    Erik T.

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    The definitive U.S. Dollar Rally Thread

We seem to have a half-dozen or so threads on the site focusing on the price of gold, but relatively little discussion about the U.S. dollar rally presently underway, which IMHO is the primary catalyst for the ongoing gold correction. So this thread is for discussion of the current rally in the USD, posting links to articles about it, opinions and insights on how long it might last, etc.

To get the conversation rolling, I’ll pose a few questions that have been on my mind:

  1. Several notables (most prominently Jim Rogers and Nouriel Roubini) started warning of an impending USD rally just before it began. So hooray for their market-reading prowess. But what I don’t understand is how they called this one. Jim Rogers’ explanation was the basic contrarian view that when any trade gets too crowded, it brings on a correction. Ok, fair enough, Jim. But the long gold/short DX rally has been overcrowded for months and months. Then one day out of the blue, Jim Rogers says “hey this feels crowded” and suddenly a rally ensues. What gave Jim the clue that now was the time to go long the DX? By his own admissions, he feels he is a terrible market timer, but he decided to ignore his usual policy of not trying to time markets, and went long the DX just before the rally began. What told him the obvious contrarian argument was suddenly timely? Same issue for Roubini. His comments began a little earlier than Rogers, but all he said is when something goes down in a straight line it’s bound to correct. Why did he just recently start emphasizing this so much? In short, how did they know this rally was just around the corner?
  2. While there has been lots of discussion about why the USD should rally now, I haven’t heard a peep in terms of speculation about how long the correction/rally should be expected to last, in terms of either price or time duration. Jim Puplava suggested 6 weeks or so but his comments were very vague. Anyone seen any good insight on a retracement target or calendar timetable for this rally?
  3. The last time the USD rallied, we later learned from CM that the underlying cause was almost certainly clandestine currency swaps with foreign central banks orchestrated by the Fed. I agree that the “overcrowded trade argument” makes sense, but I also wonder what other monkey business might be contributing to the sudden strength in the USD that began just before Bernanke’s reappointment process got underway. I’d love to see links to any articles or insights on what Fed activity might be propping up the greenback, and how long it’s likely to last.

Ok, CM.com’ers, what are you hearing/reading about the DX rally?

Erik

 

  • Sat, Dec 19, 2009 - 11:04am

    #2
    Peak Prosperity Admin

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    Re: The definitive U.S. Dollar Rally Thread

p.s. I really can spell contrarian, folks. I have no idea why the spelling got changed or why the edit button is missing, preventing me from fixing it…

  • Sat, Dec 19, 2009 - 12:43pm

    #3
    Peak Prosperity Admin

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    Re: The definitive U.S. Dollar Rally Thread

“About the Dollar, it is still working higher on good volume so one could argue from a technical perspective that it has a ways to run to the upside yet but because this time of the year is so tricky on account of book squaring and year-end positioning, I am hesitant to be too dogmatic about its prospects. Money gets slung around in the pits this time of year in large quantities with seemingly no meaning at times. That can generate some pretty good volume but the number has to be taken with some skepticism merely because it is related to closing out of positions on both sides.

Fundamentally, there is no reason to buy the Dollar unless you really believe that the Fed is going to raise interest rates (something which I personally do not) because you are faced with the hard reality of an ever increasing supply of the same versus reduced demand ( I noticed yesterday that the New York Fed custodial accounts is worrisomely closing in on the $THREE TRILLION mark). That bodes for lower prices for the greenback as economic law tends to be axiomatic about that sort of thing. Technically it looks much better on the weekly chart with both the 10 week and 20 week moving averages turning upwards and price above both. I will have to see a weekly close above the downtrending 40 week moving average near the 79.50 level before I would become friendly towards it for the short term. Long term it is going lower, much lower.”

The words of Dan Norcini on Jim Sinclair’s website called “MineSet” on 12/18/2009

 

  • Sat, Dec 19, 2009 - 01:44pm

    #4
    Peak Prosperity Admin

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    Re: The definitive U.S. Dollar Rally Thread

Well let me preface this comment with what everyone who has been on this site already knows, and that is: I really can’t spell contrarian, folks.

Eirc, Super read, provokes thought. I’m not even going to try to guess this one. To me the economy reminds me of my boat motor when I was a 13 year old kid who was so excited about fishing that I forgot to add oil to the gas. I knew as it was seizing that it was running on it’s last stroke.

If I had to guess I’d guess that gold is a contributing factor, but my gut nags me that something else is at play. I don’t know if that is CB’s or something in Greece, Dubai, and Ireland. If my hunch is correct this will be the last dead cat bounce before we shovel dirt on Uncle Buck’s grave.

My 2 cents.

Take care

  • Sat, Dec 19, 2009 - 02:38pm

    #5
    Peak Prosperity Admin

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    Re: The definitive U.S. Dollar Rally Thread

Hey Erik,

I’ve been bullish on the dollar for several months now from strictly a sentiment perspective. It does seem like the reversal took a long time to unfold, so long in fact that it seems like many people, too many people in fact, were calling for a reversal.

I have a lot of respect for Jim Rogers, but I don’t buy his “I’m a terrible market timer” proclamation on CNBC, etc. In fact I believe that he thinks he is a great market timer, otherwise he would have no need to preface his opinions with this disclaimer. Nobody becomes a world class trader without great  market timing skills.

If the dollar breaks resistance at 80 and 81, then we would have technical confirmation that the dollar rally that began last year is still in play. Which means it will most likely reach the 90s on this move. I was figuring that the dollar would put in a double bottom at 71 and just when everybody was in full panic mode about a currency crisis it, the market makers would profit from a rocket rally in the dollar. I still think this is likely, despite the recent relative strength in the USD.

I have to say that I disagree with Dr. M’s currency swap hypothesis for last year’s dollar rally. There are too many credible accounts showing that the currency swaps were functioning to counteract the massive rally in the dollar, not create it. But I must admit that Dr. M knows a great deal more about Central Bank “going-ons” than I will ever know, and I can really appreciate his efforts to keep his mind open to all possibilities and to take no assumption for granted.

It is interesting to note that last year, the dollar rallied for over a month before the markets started their significant declines. Perhaps we will see that post-Christmas/New Years Crash after all.

If your interested in reading some bullish dollar viewpoints, check out the The Definitive Inflation vs Deflation Debate and What to do About It Thread . Farmer Brown and myself posted several articles relating to this in the last few months of this thread’s “lifetime”.

So my current bottomline is that I remain unconvinced by this recent rally in the dollar and I still think we have the potential for a “double bottom panic” before the real rally in the dollar occurs.

(PS: I would have started this thread a long time ago, but I figured it would either wither away or be consigned to the “CT” bin….LOL.)

Thanks for starting it.

 

  • Sat, Dec 19, 2009 - 04:09pm

    #6
    Peak Prosperity Admin

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    Re: The definitive U.S. Dollar Rally Thread

Jimmy Rogers has been talking about a dollar rally for most of this year.  When you make the same call for several months,  you look good when it finally happens.  He admits that he is an awful short term trader.  He is still long term bearish on the dollar and bullish on China and commodities.   Roubini was warning of a dollar crash in September but has now switched to the “carry trade unwind”  side.   Roubini has a track record that is pretty bad..   http://wallstcheatsheet.com/breaking-news/economy/a-chart-of-roubinis-horrible-trackrecord-in-2009/?p=3513/

Bob Prechter is another dollar bull.  But he has a 25 year track record that stinks.  He told people to sell gold and stocks back in August when the dollar was 78 and gold and the SPX were both around 960.   The dollar is back to 78 but stocks and commodities are much higher.  Perhaps that’s another thread topic.

The dollar has been boosted for a couple of weeks by short covering aided  by weakening euros, yen and pounds.  There has been an end of year run to liquidity.  It has been a good year for stocks and profit taking has increased demand for cash.  Some of the big bond players are selling treasuries and going to cash.  Bill Gross at PIMCO is one example of this.  http://www.zerohedge.com/article/pimco-sells-265-billion-treasuries-and-mbs-october-goes-cash

I think it’s amusing that two weeks of bounce following months of falling has generated so much press.  There is no panic like the one last year when deleveraging created monster swings in every asset class.  Let’s see what happens in the new year. 

The dollar bears need to consider what will happen in 2010 if/when the bond bubble deflates,  because that creates demand for dollars.   Of course the next question is what will people do with that cash?  I’m betting they buy things that have intrinsic value like oil,  sugar, coffee, gold etc.  But if they hold the cash, we could get a liquidity squeeze.

So in 2010, will we get a big liquidity squeeze that sends the dollar higher for months?   Will the fed continue to work with treasury to keep bond auctions covered?  As more  problems appear,  like this one  http://tinyurl.com/ykawezj   will the fed be forced to monetize despite their claims to the contrary?  And what will China do? 

 

 

  • Sat, Dec 19, 2009 - 04:57pm

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    Peak Prosperity Admin

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    Re: The definitive U.S. Dollar Rally Thread

http://www.youtube.com/watch?v=C5j30zDR7h8

  • Sat, Dec 19, 2009 - 05:18pm

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    Re: The definitive U.S. Dollar Rally Thread

[quote=idoctor]

http://www.youtube.com/watch?v=C5j30zDR7h8

[/quote]Thank you iDoctor! I think Schiff has it nailed. Soverign default is going to be a living breathing hell. I’m off to shovel my 200 (what the bleep was I thinking when I built) foot driveway and listen to FSN. Listening to how the idoits sc*w things up always gets my blood pressure up, which will keep me warm in this 22 degree 26″ blizzard. 

Take care

  • Sun, Dec 20, 2009 - 01:31am

    #9
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    Re: Thread Editing and Spellchecking

[quote=ErikTownsend]

p.s. I really can spell contrarian, folks. I have no idea why the spelling got changed or why the edit button is missing, preventing me from fixing it…

[/quote]

Fixed it for you.  The first post of a thread doesn’t have edit capabilities to ensure we avoid losing context of a post.  All comments (responses to thread posts) are editable for one hour after they have been posted.  I certainly recommend to use the “preview” button when possible to review a new thread before saving it.

As an enrolled member, you also have the ability to change your “input format” (see below the comment) to “Filtered HTML – Enrolled Member”.  This allows you to use the spellchecker.  I used this to quickly find where you had typed “contrarion”, plus also fix two other spelling mistakes.   Wink

Ron

  • Mon, Dec 21, 2009 - 09:30am

    #10
    Peak Prosperity Admin

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    The Dollar Is Like Rocky

[quote=ErikTownsend]

While there has been lots of discussion about why the USD should rally now, I haven’t heard a peep in terms of speculation about how long the correction/rally should be expected to last, in terms of either price or time duration. Jim Puplava suggested 6 weeks or so but his comments were very vague. Anyone seen any good insight on a retracement target or calendar timetable for this rally?

Ok, CM.com’ers, what are you hearing/reading about the DX rally?

Erik

[/quote]

Eric, thanks for posting this thread.

Max Keiser mentioned this on his 12/16/09 radio broadcast (start listening at 24:06). He seems to think the rally has legs and will last for up to six months, but I don’t know how much stock I’d put on this. I’d be surprised if he had any money riding on this rally and you know what they say: talk is cheap.

Two things he mentions are . . .

1. Faith in the dollar is still very strong in the minds of millions and millions of ordinary people around the world.

2. Trends in currency markets tend to last longer than in other markets.

I don’t have enough experience or knowledge to comment on number 2, but I’d like to really draw some attention to number 1. Apart from a small number of very financially savvy people, most of the world has a lot of faith in the USA and the dollar. I live in Poland and you can’t believe the kind of fantasies some of these people have about the US. Back when Poland was under communist control the US was like Zion to the Poles. Getting a relative in to the US to get a job, any job, so he could start sending dollars back to Poland made a huge difference to the average Polish family. Dollars being sent back home in the mail were like mana from heaven. Under communism there were special stores that sold products you couldn’t buy anywhere else in Poland and these stores only accepted dollars (my private students have told me stories about this).

I think everyone on this site knows that the situation in the US has changed since then, but the average foreigner still looks toward the US as the promised land. I’d call this emotional equity, and the US still has a lot in the minds of the average Pole, Russian, Ukrainian, Dutchman etc. I don’t know what the Asians are thinking, but my experience in Europe is that the Europeans believe in the US more than they believe in themselves (with the possible exception of some of the British and some of the French). 

You guys need to get outside the states from time to time to get some perspective. It’s not like the US is rotting out at the bottom and the rest of the world is thriving and taking off like a rocket. These other countries have tons of problems of their own, and in a world where currencies are backed by nothing but sentiment, positive sentiment and nostalgia towards a currency must have some value.

The world’s not ready for the dollar to drop like a brick.

 

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