Step Back and Take a Big Picture Look at the U.S. Dollar 13 comments
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The case for a severe weakening, and perhaps even total collapse, of the US dollar is something I've been making for some time here on SeekingAlpha and on my blog. As the dollar has begun experiencing some deeper bouts of weakness and has given back all of its gains since October 2008, I wanted to step back and take a big picture look at where we are on the path to dollar collapse -- and re-evaluate whether or not we will stay on this path.
The first big picture event we should look at is the price of gold. A new bull market in gold began in 2001. This is a long-term trend, I believe the next leg of this trend will start shortly.
The second big picture event worth noting is the collapse of the US stock market in 2008, particularly the second half of the year. Remember there are two sides to a currency crisis: (1) an overproduction of supply of the currency and (2) a loss of confidence and demand for the currency. The Federal Reserve's monetary policy is, in my opinion, the primary contributor to the oversupply of currency, and the corresponding price inflation/currency weakness we've seen over the past decade. The stock market collapse reflects a weaker demand for US financial assets, and thus a weaker demand for the US dollar -- particularly when one considers that the finance industry is a major component of the US economy.
At this point, we should ask ourselves if these trends have reversed: has monetary policy sought to tighten money supply? And has the US economy repaired its banking sector? In my opinion, the answer to those questions is no. Bernanke is firmly committed to inflation as a monetary policy, and the Obama-led stimulus packages has already resulted in an increase in broad measures money supply like MZM. So fundamentally, I think we're still on the track to dollar devaluation.
Recent Milestones in Treasury Bonds and the Dollar
There are two milestones which recently occurred which suggest the US dollar devaluation trend may be set to accelerate. Those trends are:
- Treasury yields have spiked sharply. This suggests bond buyers are now demanding a greater rate of return on the money they lend. The reason for this, in my opinion, is concerns regarding a weaker dollar in the near future.
- UUP, the ETF which tracks the US dollar index, is on the verge of breaking a major support level. See the chart below.
Trading This Environment
My trading outlook remains the same, in that dollar devaluation is the primary trend, and that it is here. I favor buying precious metals, commodities, and commodity currencies. I favor shorting the US dollar and US Treasury bonds. At this point, I view it as a relatively safe bet that long gold/short long-term Treasury bonds will likely end up as the trade of the year.
Disclosure: Long gold, silver, and Canadian dollars. Short US dollar.
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This article has 13 comments:
You bashed my comment in another article for suggesting investors be cautious about investing in Gold miner stocks because the stock matrket is manipulated and now your bashing the author for recommending precious metals investments due to dollar debasement?
What do you recommend people invest their money in?
In most instances, foreign dollar holders are saving their dollars and not spending or investing it. These dollar holders are content to hold their dollars in non-interest bearing accounts or interest bearing accounts that offer below inflation rate of return.
As your charts point out this era is coming to an end and people want a real rate of return on their dollar holdings; otherwise they will dispose of their dollar holdings and invest in activities that will give them a profit on their investments.
In most cases they will invest in opportunities in their own country.
My predication: expect American savers to receive above inflation rate interest on their savings, American investors to be countered by those who need capital and expect our government to finally understand that its activities must be funded on a “pay as you go” basis.
Once these forces are in place, expect America to take a preeminent role in global commerce.
The world has discovered that they are not as bad off as they first thought they were. At least, not as bad off as the States are. The flight out of US dollar backed assets has been steady and is picking up velocity. Decoupling from the US dollar is and has been occuring for some time now, under our very noses. As Peter Shiff put it "We are not the engine we are the caboose and we are being cut loose." So put your money in holding physical gold/silver, commodity backed currencies and precious metals mining. Or, stay the course and go down with the ship like a good captain of industry!
On May 26 04:30 AM Freya wrote:
> I guess you don't follow accounting changes too closely. US Major
> Banks will experience a windfall asset improvement shortly...in the
> multi-Billions.
>
> It doesn't matter whether its "Real" or not, what matters is what
> is put on the "Books".
>
> Seems like your are also a bit late on Gold, Silver, the USD and
> commodities in general.
>
> The Canadian/Aussie Dollars are both up significantly. The currencies
> of Natural Resource Countries have a tendency to go up as Commodities
> rise in general.
>
> It would have been nice if you had published this 3 months ago, before
> the Fact, not after.
>
>
Well too bad because the man is telling the real truth.
You don't need to sugar coat it.
He's bullseye on the target.
Accept This As The Truth The Whole Truth & Nothing But The Truth
You people still don't get it.
The Central banks along with the Federal Reserve, Fractional reserve banking procedures, and absence of the Gold standard are the spring boards of happiness for these cartel counterfeiters to rake the entire world over the coals and out of existence.
Federal Reserve Notes are near extinction. Rightfully so, because they(FRN) are worthless paper not soft enough for biological purposes and have no value without Gold standard backing it.
The rest of the world is starting to realize the USD (Federal Reserve Note) is the ROOT CAUSE OF PRESENT GLOBAL CHAOS.
Use the Gold Standard and get rid of Federal Reserve Notes and start having the U.S Government Treasury print United States Notes backed by gold reserves only producing allotments as needed to balance goods and services.
Abolish the Federal Reserve Act of 1913,Fractional Reserve Banking, the IRS, Ben Bernanke and the entire Federal Reserve System.
Then you will be able to understand and open your mind and eyes and move on to a better economic level of survival.
In other words remove 96 years of bendover vaseline jobs from the Federal Reserve System.
Just a thought ............. Have a good day,week,month,year and next decade.
Stepbear7
And unless you have gold in your basement vault, you will be SOL since the file or folder you have on a computer or printout will only be worth the paper or hard drive it's written on.
Be in gold, as in the gold in your basement vault if you think USD is collapsing anytime soon.
I say calm down and realize that the US government will not allow that to happen. So any decline in USD will be mild and, if not, will be violently fixed by the US government.
The article seems pretty straight forward, regardless whether one agrees, or not. The comments seem to reflect a "history".
On May 26 09:09 PM CLH wrote:
> I cant decide whether the article or the comments are worse. Both
> make no sense.
On May 26 07:47 AM Dave Wrixon wrote:
> Yes, but he is still spot on and no amount of fiddling the books
> is going to save the US economy. The World is on to your little scams.
> From here on in everything will be assumed to be one huge lie unless
> proven otherwise. How long do you think it will be before Madoff
> is able to perpetrate another scam? Well for Fed, it is going to
> be even longer!
To me, it looks like the world is moving toward sane investing. This may well punch a hole in Obama's nonsensical dream of low interest rates, expanded welfare for all (oops, huh transfer of wealth) and government bureaucracy growth like the world has never seen while maintaining growth.
Government is not known for growth of product or meaningful service in direct competition with the private sector. With Obama and the changes taking place in the world economies, the U.S. is headed down down down until the reversal of democracy and hatred of capitalism are finally seen for the bad joke that they are. Until then, I would invest outside the U.S.
On May 26 11:49 AM Darrell wrote:
> Definitely, I think our interest rates on savings will finally be
> higher than the inflation rate. This will come about because over
> 50% of the dollar supply is help by foreign investors, foreign institutions,
> central banks, etc.
>
> In most instances, foreign dollar holders are saving their dollars
> and not spending or investing it. These dollar holders are content
> to hold their dollars in non-interest bearing accounts or interest
> bearing accounts that offer below inflation rate of return.
>
> As your charts point out this era is coming to an end and people
> want a real rate of return on their dollar holdings; otherwise they
> will dispose of their dollar holdings and invest in activities that
> will give them a profit on their investments.
>
> In most cases they will invest in opportunities in their own country.
>
>
> My predication: expect American savers to receive above inflation
> rate interest on their savings, American investors to be countered
> by those who need capital and expect our government to finally understand
> that its activities must be funded on a “pay as you go” basis. <br/>
>
> Once these forces are in place, expect America to take a preeminent
> role in global commerce.