07-18-2014 07:36 AM
"We can expect a blistering dollar rally, perhaps akin to the early 1980s or the mid-1990s. It is fortuitous that the BRICS quintet of Brazil, Russia, India, China and South Africa have just launched their $100bn monetary fund to defend each other's currencies. Some of them may need it."
Seems plausible to me but would be another severe reality shock for those who have drunk deeply from the Death of the Dollar well.
The USD will lose reserve status someday, but not necessarily until after it has ripped the face off of folks who are short it- both directly short and more significantly in a synthetic matter (carry trades, foreign borrowing in $ terms).
The foundations of the commodity boom were built on the US relentlessly driving the $ lower 2001-7. This would present a mirror image.
07-18-2014 07:52 AM
Seven fat years, seven lean ones.
I was trying to link a long term USDX chart but have some problems figuring out my new computer's windows.
But fwiw, in 2001-7 Bush/Greenspan preside over a 50% devaluation in the USDX.
'80s Reagan/Volker saw a doubling of the USDX.
'90s Clinton/greenspan put about 50% on it.
I don't think anybody can be certain of anything but once again I'm struck by the fact that buying into all the noise about imminent infaltion, dollar collapse etc. is just fine for proving your bones at the coffee shop but for the purpose of business it is best to look at the jabber with a gimlet eye. That seems to be have well proven via the discourse here over the last 6 months.
My guess is that a dollar rally is quite possible but that it would probably have more of a short squeeze personality (and thus be even more disruptive)- sharp and fierce, not a long trending move.
For now that only constitutes an idea. I'm going to think about what would constitute technical confirmation.
07-18-2014 08:03 AM
we are all living in a "dollar collasped" world. I don't think anyone knows how close we came to losing the dollar as the world reserve. The dollar will go on a bullish run here, not for sure when, but it will, the high is close to 1.50 So it could double in value.
It might take it a few years or even a decade to get there, but it will.
07-18-2014 08:05 AM
In a liquidity squeeze the senior currency has always tended to rally.
Neither of those have anything near the float to qualify. The EU's dream was to create a currency that would compete but they are getting crucified from its relative overvaluation.
The swiss aren't even swiss any more, they printed a vast amount of money to stem the rise against the euro. Aussie interest rate differential highly likely to continue to erode as the commodity boom peters out and their housing bubble leaks.
BTW, in a true contrarian view, there is one asset that is most highly despised (as a matter of official policy) and that is USD cash cash cash.
07-18-2014 08:19 AM
Yeah, there's currently no alternative to the dollar and the likelihood that the nations of the world decide to go Rodney King and just all get along for long enough to devise an alternative is nil.
Reserve currencies always go away and the dollar will not be an exception. But not just yet.
Also I'd add that the assertion that the dollar's relative value is a referendum on our political processes is overblown.
If you're measuring metrics like deficits, the dollar should have dropped under Reagan. It soared because Volker was squeezing inflation with ultra high interest rates and money flooded into dollars to chase yields.
It strengthened under Clinton as the financial boom served the same purpose.
07-18-2014 08:35 AM
Unless you`re Scrooge McDuck sitting on alot of cash and looking to vacation on the French Riviera and buy a new Lamborghini, I don`t know who would bennefit from a ridiculously high dollar. We have a Keynesian debt based economy and the best way that works, well the only way that works is if you can "borrow and pay back with cheaper dollars". China understands currency manipulation to it`s own advantage.
07-18-2014 08:39 AM
Again I apologize for my inabilty to figure out the link to 40 year DX chart with new OS. Technical incompetence is a sure sign of advancing age; son will be home this weekend for assistance.
But as to a technical trigger, short term a move over the 81.50 area would be strong confirmation of an intermediate uptrend.
On the very long term basis, it could go either way. Even if we go lower in the not real distant future there is room to run into the 90 range without deciding anything.
Even that would created a considerable amount of knock on turbulence.
07-18-2014 08:52 AM
All of you have some very valid insights, maybe what I am trying to get at is the policy to devalue the dollar at 3% a year, (before external crisis), over 20 years of more it makes holding dollar denominated assets look pretty ill-advised. Anything can indeed happen for 18 months. And, it is important to remember the Dx is just that an index against a very limited pool of currencies. So, it kind of operates in its own money flow world which has little to nothing to do with its real value in exchange for things like antique tractors, etc.
Appreciated your insights.
07-20-2014 10:54 AM
I don't see how dollar gains significantly in value in short term with state of our government. We are continuing to deficit spend at record levels and no will or sign of change. The only way US continues this path is monetize this debt out over next couple of decades to repay with cheaper dollars. I doubt the dollar regains its value until we have change in government and this will only happen when we reach crisis situation. we are caught in political civil war and until this is resolved we are headed on path of financial collapse that this new generation will have to solve. This young generation is going to learn the hard way and things that they were taught in school i believe they are going to find were not true and if they want to regain there prosperity they will need to look at doing some old school things with new school things and new technology. The generation in the US that is being born now and will be born now will probability be the ones that will make the changes we need to solve our finacial problems.