Mish thinks the dollar is going up

21 posts / 0 new
Last post
switters's picture
switters
Status: Platinum Member (Offline)
Joined: Jul 19 2008
Posts: 744
Mish thinks the dollar is going up

Ewave Count on the US Dollar Suggests Move Up is Coming

That is quite consistent with my long-term belief the US dollar is in a wide trading range and is not about to collapse (because it already has and every county is embarking on beggar-thy-neighbor competitive currency debasement policies).

Farmer Brown's picture
Farmer Brown
Status: Martenson Brigade Member (Offline)
Joined: Nov 23 2008
Posts: 1503
Re: Mish thinks the dollar is going up

 He's not the only one.  I saw a stat recently that showed pessimism re:$  is maxed out - an indicator that suggests it's bottomed.  In fact it's even higher than it was just before the 2008 huge leg up.

Denny Johnson's picture
Denny Johnson
Status: Gold Member (Offline)
Joined: Aug 13 2008
Posts: 348
Re: Mish thinks the dollar is going up

When I look at the 3 year chart included in Mish's article..........sure looks like a lot more than 5 waves in the down move from fall '06 to spring '08.

that1guy's picture
that1guy
Status: Gold Member (Offline)
Joined: Jan 11 2009
Posts: 333
Re: Mish thinks the dollar is going up

ok, so can someone explain how the dollar could have possibly bottomed when there have been trillions more created in the last year? The fundamentals of the dollar (more specifically the USA) are SOOO much worse now then last summer when it hit 71, how in the world can it be due for any sort of real up move (baring manipulation of course)? Even with manipulation though, how could it hold? All other countries are trying to get out of the dollar (dollar standard is going down the tubes...just a matter of time---not years and years), trillions more in debt, and tens of trillions in liabilities and as we all know this is barely even the tip of the ice berg.

How can it be due for a move up? I can't see it, especially if only technicals are used....

 

(P.S. I'm not angry I swear, I just don't understand how the dollar can be going anywhere but down so I thought I would ask)

JAG's picture
JAG
Status: Diamond Member (Offline)
Joined: Oct 26 2008
Posts: 2492
The Market Is Up AND The USD Is Up?

Ok, the dollar is up and the markets are up?

Looks like the dollar may have put in a bottom, good call Mish.

Suddenly, the market dynamics of the last 3 years have been transmuted into something new.

I wonder what this portends? Dare I ask?

Mike Pilat's picture
Mike Pilat
Status: Platinum Member (Offline)
Joined: Sep 8 2008
Posts: 929
Re: Mish thinks the dollar is going up

I'm scratching my head as well on today's price action. Both the dollar and the markets are up strongly. But I'd point out that the dollar has recently made some sharp moves down and a daily chart of the dollar shows that (so far) the downtrend line has not yet been broken. Without further evidence, I'm inclined to think today's action in the USDX is a counter trend rally, or just anomalous. This is after all, a 1 day thing - so far at least.

strabes's picture
strabes
Status: Diamond Member (Offline)
Joined: Feb 7 2009
Posts: 1032
Re: Mish thinks the dollar is going up

 

that1guy wrote:

 so can someone explain how the dollar could have possibly bottomed when there have been trillions more created in the last year?

Because many trillions more have been and will continue to disappear as the global credit bubble (all denominated in $) continues to deflate so people will be scrounging for the highest quality, lowest risk dollars in the system.  This is an intermediate-term phenomenon (couple years maybe?).  After that, all bets are off.  But until then it's imperative to come out the other side of the cycle of credit deflation with your share of the dollars that are left standing.

As far as technicals go, look at sentiment.  There are no $ bulls remaining for currency traders to short against.  There are no additional bears to come into the market...everyone is convinced of $ crash, which is exactly the time for it to go back up.

JAG's picture
JAG
Status: Diamond Member (Offline)
Joined: Oct 26 2008
Posts: 2492
Re: Mish thinks the dollar is going up

Looking at some charts from last year, I found some other periods when the markets (S&P 500) and the dollar (USD Index) rose and fell together:

  • From March 18th to May 19th they starting rising together. ( +7% for S&P 500 and + 2.3% for USD)
  • From May 20th to July 15th they fell together. (-12.7% for S&P 500 and -1.7% for USD)
  • From July 16th to August 11th they rose together. (+4.8% for S&P 500 and +5.9% for USD)

Less than a month later, all hell broke loose in the markets and their temporary convergence was ended.

 

EndGamePlayer's picture
EndGamePlayer
Status: Platinum Member (Offline)
Joined: Sep 2 2008
Posts: 546
Good place to learn about trading?

Does anyone know of a good place to learn about how currancy is traded?

When I see the dollar trading up to the Hong Kong market but the Swiss down to the USD but up to the HK$ - why would some one not trade the USD to Swiss then HK$ and back to USD? or does that not work?

Thanks for all insights!

plantguy90's picture
plantguy90
Status: Gold Member (Offline)
Joined: Jan 26 2009
Posts: 271
Re: Mish thinks the dollar is going up

Mish is really posting up a storm selling his deflation theory.  It smacks of someone who really wishes to prove himself right.  Go check your bag of groceries.  Food getting cheaper?  Have you noticed substitution is everywhere as people and companies struggle to make a buck and offer "value?" Gas cheaper?  How about electricity?  As for the market theory that everyone thinks its going down, so thats when it goes up, are you willing to bet your savings on contrarian sentiment?   Who exactly would be out there purchasing dollars funding America's profligate policies?  Central Banks?  Get real.  Mish says freshly printed money sitting in banks and not being lent out does will not cause inflation.  But it does continue the distortion.  What is the end result of the endless charades?  Do we think the world needs dollars that badly and can't go on without the American consumer?  The dollar is a turd.  Commodities are real.  And productive people will continue to trade with other productive people. 

Tycer's picture
Tycer
Status: Platinum Member (Offline)
Joined: Apr 26 2009
Posts: 617
Re: Mish thinks the dollar is going up

 

plantguy90 wrote:

Mish is really posting up a storm selling his deflation theory.  It smacks of someone who really wishes to prove himself right.  Go check your bag of groceries.  Food getting cheaper?  Have you noticed substitution is everywhere as people and companies struggle to make a buck and offer "value?" Gas cheaper?  How about electricity?  As for the market theory that everyone thinks its going down, so thats when it goes up, are you willing to bet your savings on contrarian sentiment?   Who exactly would be out there purchasing dollars funding America's profligate policies?  Central Banks?  Get real.  Mish says freshly printed money sitting in banks and not being lent out does will not cause inflation.  But it does continue the distortion.  What is the end result of the endless charades?  Do we think the world needs dollars that badly and can't go on without the American consumer?  The dollar is a turd.  Commodities are real.  And productive people will continue to trade with other productive people. 

Like CM said on Two Beers, we're experiencing both deflation and inflation right now. The endless charades will end in inflation being the driving force.

Ignignokt's picture
Ignignokt
Status: Member (Offline)
Joined: Aug 11 2009
Posts: 16
Re: Mish thinks the dollar is going up

 

From Wikipedia

"Classical term

The term deflation was used with an alternative meaning by the classical economists, to refer to a decrease in the money supply and credit; some economists, including many Austrian school economists, still use the word in this sense.[5] The two meanings are similar, since a decrease in the money supply is likely to cause a decrease in the price level."

So what Mish is saying is that by classical definition we are experiencing deflation.  Here's the logic behind that.  As consumers are concerned, purchasing power is decreasing.  How is it decreasing?  Wages are decreasing (your money supply), the value of your assets are decreasing (leverage against credit, i.e. house values), the availability of credit from banking institutions is shrinking (credit cards, home equity loans..if you have any equity).  All of this combines to create less purchasing power available as consumers and consequently "real" prices have to come down or businesses cannot sell their products because nobody will buy them or enough of them.

Now currently the printing presses are going and there is an increase in amount of $'s in the system.  But that pales in comparison to the amount of credit destruction that has been going on.  Consequently there is a net decrease of the money supply going on right now.

Policies moving forward will make inflation innevitable.  But as long as housing values decrease, job loss continues to increase and real wages decrease it is the trifecta of consumer based monetary destruction.  Until that levels out OR when the Fed puts more $'s into the system than credit is destroyed....only then will we see true inflation.  The fear's now are what will those true figures be, with what we've committed to already and the proposed lunacy ahead?  

The only reason that the $ has not tanked against other currencies is that every other country is experiencing the same problems as we are, some are worse than others, but they all began to follow the same policies as the U.S. did (stimulus programs in one form or another).  So comparatively to tother currencies we did nothing different so our current stimulus spending is not a gain or loss vs. other currencies.  What we have committed to is another story.  If those current programs max out their spending limits then we're spending way more than other countries and the $ will tank, interest rates will rise to entice investors, etc...

So the reason the $ is going to continue increasing is based on all current projections in housing prices, job losses and wage decreases (either by pay cuts or less hours worked per week) vs. the lack of policies to change these trends, it would appear that credit destruction will continue for a while.  And a decrease in credit is a decrease in the money supply which will only strengthen the $, but that trend will not continue and Mish has pointed this out in some of his other posts. He just can't tell you when the trend will stop, nobody can right now.

 

 

plantguy90's picture
plantguy90
Status: Gold Member (Offline)
Joined: Jan 26 2009
Posts: 271
Re: Mish thinks the dollar is going up

I am concerned however, that all that freshly created electronic money is in the markets right now; and they have the power to pull it out, selling out the last of the 401ks and the public's money managers, and possibly drive bonds to renewed highs again.  But its like when you were a kid playing Monopoly and the guy who is the banker is cheating.  Eventually the rest of the kids will go play something and somewhere else.  Then the banker will be left sitting with his stack of paper money.

plantguy90's picture
plantguy90
Status: Gold Member (Offline)
Joined: Jan 26 2009
Posts: 271
Re: Mish thinks the dollar is going up

You cannot have it both ways.  You cannot predict deflation now, and admit the policies put in place will cause inflation later.  If the road was that obvious and clear I wouldn't have to work anymore and be hanging out in the Bahamas sipping frozen drinks with the crooks' girlfriends and wives.  Credit money destruction, income loss, falling asset prices, to me, not an economist, is more defined as disinflation, or a reversal of the 5$ Starbucks latte.  I am in horticulture, everything I need to stay in business is going steadily up, things that other food farmers use too, and those prices will be passed on to the end-user.  Your 75 cent cup of cofee is not getting cheaper, and may go to a buck.

JAG's picture
JAG
Status: Diamond Member (Offline)
Joined: Oct 26 2008
Posts: 2492
Re: Mish thinks the dollar is going up
plantguy90 wrote:

As for the market theory that everyone thinks its going down, so thats when it goes up, are you willing to bet your savings on contrarian sentiment? ... The dollar is a turd.  Commodities are real. 

 Plant Guy,

If you want to invest with the herd, be my guest. With 97% of all traders bearish on the dollar, your boat is sitting awfully low in the water. Since every other major currency is a derivative of the USD, what exactly can the dollar lose value against? Gold and Commodities? Did you learn nothing from last year? How many trillions of dollars have been printed this year, and gold is still flat for the year.

Personally, my investment of choice is the USD. The market doesn't reward herd behavior, it punishes it. 

Farmer Brown's picture
Farmer Brown
Status: Martenson Brigade Member (Offline)
Joined: Nov 23 2008
Posts: 1503
Re: Mish thinks the dollar is going up

 

Quote:

You cannot have it both ways.  You cannot predict deflation now, and admit the policies put in place will cause inflation later

I think you should carefully examine that statement.  Why can't we be experiencing deflation while also setting ourselves up for inflation?  There is a dollar shortage worldwide.  Countries that have debt in dollars or need to conduct international trade in dollars are having a hard time getting their hands on enough dollars to accomplish both.  Hence, they devalue their own currencies so as to to able to buy dollars and stimulate their exports.  Forget about bonds.  Foreigners aren't buying those - they're just trying to find a way to trade and pay debt.  You can only buy bonds when you have a surplus dollar account.  

Domestically, dollar creation plus credit destruction < 0.  Total money + credit has shrunk by huge margins.  As for incoming inflation, I'm not even sure when or how it could happen anytime soon.  In 1-3 years, most of the increase in our debt will be "rolling over" since most bonds being sold are on the short end of the curve.  If foreigners don't pony up to refinance it, plus all the new debt the superheroes in congress will saddle us with by then, then the only options will be money printing and huge tax increases.  Japan did this for years, but still no inflation happened.  That's because, I think, all that money creation still went mostly to pay debt.  Money chasing debt doesn't drive up prices.  The debt has to be destroyed or cancelled first, so that all those dollars have nothing to chase except goods and services.   

sjdavis's picture
sjdavis
Status: Bronze Member (Offline)
Joined: Sep 21 2008
Posts: 78
Re: Mish thinks the dollar is going up

 Interesting explanation.  Seems a reasonable intermediary step to the quote in your signature line.

plantguy90's picture
plantguy90
Status: Gold Member (Offline)
Joined: Jan 26 2009
Posts: 271
Re: Mish thinks the dollar is going up

Define "herd" for me...  Trader is a broad term.  Is the herd the two generations of hammer-swinging types with lots of toys and no savings?  Last year there was a poll of money managers asked if they thought we were in for inflation or deflation, the result was a huge vote for deflation.  I think the closer you are to having a FIRE economy orientation, the more likely you will say deflation. 

As for my investing, I am not a hedge fund.  I dont have leveraged positions, and if you look at last year, those that got "killed" were leveraged and forced to drive that market even lower.  Lets not even mention that the Strategic Petroleum Reserve was dumped on the market, and then the Govt-banking cartel selectively forced margin calls on certain investors.  No I am comfortable with commodity prices where they are, and sooner or later they will rise.  Maybe you are still waiting for a shot at 700/oz. gold;  I hope you get it and it wont bother me one bit.  Let me ask you this: if you get gold at 700, would you sell it at the next run to 950?

This assumption that we have the world by the balls and they have to keep using dollars to buy things is a weakening foundation.  Put yourselves in the shoes of a commdity-rich business.  How quickly would you act to get out of that dollar noose?  No, noone wants to scream fire until they are one foot out the door.  It will arrive faster than you think.

 

 

 

Farmer Brown's picture
Farmer Brown
Status: Martenson Brigade Member (Offline)
Joined: Nov 23 2008
Posts: 1503
Re: Mish thinks the dollar is going up

 

Plantguy wrote:

This assumption that we have the world by the balls and they have to keep using dollars to buy things is a weakening foundation.

Plantguy,

I couldn't agree with you more.  However, unshackling oneself, not to mention the whole world, from the +/- 80-year reign of the dollar is going to take some doing.  What does one "re-shackle" oneself to in exchange?  None of the other currencies are any better - as JAG said, they're all "derivatives" of the dollar, a term I think is perfect.  And, what does one do about one's dollar-denominated debt?  That doesn't go away without continued use of the currency.  Anyway, I agree it's a "weakening foundation", but it's weakening at the pace the ocean waves erode the shoreline - very very slowly, even while China and Putin hem and haw about a new currency.

Quote:

Put yourselves in the shoes of a commdity-rich business.  How quickly would you act to get out of that dollar noose?  No, noone wants to scream fire until they are one foot out the door.  It will arrive faster than you think.

My guess is as good as yours.  I do not see a precipitating event on the horizon but then who does when it comes to these things?  I think the need for dollars outside the US has to end first, meaning that international dollar denominated debt must be extinguished first.  Once that happens, the world can sit by while the last remaining dollar-debtor, the US, incinerates itself in a hyperinflationary inferno.

JAG's picture
JAG
Status: Diamond Member (Offline)
Joined: Oct 26 2008
Posts: 2492
Re: Mish thinks the dollar is going up

Plant guy,

My apologies if my previous post came across a little pig headed. For the most part, I can't argue with what you have stated. Personal, I track all my regular expenditures using an iPhone. And I have done so for nearly a year. The only thing that has changed for me at all is the price of gasoline. The rest of what I buy, mainly groceries and services, hasn't gone up in price for over a year. Its kinda like my own CPI. For me, anyways, there has been no personal inflation or deflation in my regular purchases outside of gasoline. I'm sure it could be and probably is completely different for you and I don't doubt it.

There is tremendous worry and anxiety over the dollar right now. I typically try not to worry about the things that are in the public mindset, and my use of the term public here, refers to the informed public and uniformed public equally. My previous use of the term traders refers specifically to those traders polled by the Dollar Sentiment Index. My previous use of the word herd was referring to those traders who are currently speculating in the stock, currency, and commodities markets.

To answer your question about would I be selling gold at $950 if I bought at $700? Outside of my core (or emergency) PM holding (which I'm still building) the answer is a qualified yes. If I thought gold was going to drop in dollar value, I would sell it and take my profit. But I would not touch the emergency PM allocation because it serves a different purpose. But everything else is an investment, and I will not mindlessly buy and hold any investment allocation.

Again, sorry for the pig headedness on my part, we really are on the same page here, except that I agree with Mish.

plantguy90's picture
plantguy90
Status: Gold Member (Offline)
Joined: Jan 26 2009
Posts: 271
Re: Mish thinks the dollar is going up

JAG and FB, I have been accused many times of being too blunt and harsh so I too apologize if my posts come off being argumentative; its not, although I do enjoy a good thoughtful conversation, like we are having here.  Any ranting is directed towards open air, and not directly back yo you gentlemen or others.  I do have to travel this week to try and earn more turd, er I mean dollars, so excuse me for not replying until I can.  I love this conbversation, it helps me learn more.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments