The Dollar: Nothing Else Matters

Oh captain, my captain... will you show us any life?

The relationship between the U.S. dollar and every asset on Earth has now reached the point of absurdity. As we've been describing for a few months, it is the end all and be all. I was doing some reading this morning the dollar, and after its traditional daily beating, it showed a little life after 10 AM and of course everything started selling off. It's really just annoying at this point how no analysis needs to be done, and nothing matters other than the dollar.

As we step back and compare the S&P 500 chart to the dollar we see (of course) the complete inverse. The dollar (above) is sitting at a potential double bottom. The S&P 500 (below) is sitting at a potential double top.

You know the script from here. [The Inverse Relationship Between the Dollar and Stocks in 1 Chart] Stock fundamentals mean nothing. The entire market will move based on what the dollar does next. If she has any life in her, the market will sell off for a bit. If she gives up the ghost and falls below this "double bottom" area, all assets on planet Earth will renew their run to the moon. Obviously the powers that be in the central bank and federal government are doing everything possible to continue the breakdown so any bounce would have little to do with fundamental reasons and be technical in nature....

It's really that (pathetically) simple. And I'm afraid (due to fears of turning stir crazy) this is all that is going to matter for months on end.

Comments

[ebworthen:]

Agreed, good charts.

They are desperate to reflate the asset bubble.

The bump up in Toll brothers is based on homes costing $500k. Upper class families aren't feeling it, therefore the high end retail is predicted to do well this holiday season too.

The stock market, with trillions of a generations retierment and savings in it, has become the barometer for the economy.

Politicians want to bring it back for votes, the banks want it up to make them solvent, and traders and hedge funds want the gyrations to pump and dump (up on low volume, large volume sell offs). The average person is trapped on the roller coaster.

In this environment, I do not see the FED raising rates or tightening liquidity, they will keep printing money and handing it out at 0% until, when and IF, here is a real recovery in residential and commercial real estate.

Don't hold your breath.

Nov 11 07:07 PM

[StockMaster...:]

The dollar tells you what to do with your money. You can't risk losing 20% in the bank if it keeps declining so you put it to work. Careful with the double tops, at DOW 8500 everyone was talking about head and shoulders breaking to the downside. My take is strength seems to be building in the rest of the world and too many dollars have been printed so the dollar is going lower. Look at Australia, creating jobs, raising interest rates, we are in no mans land until 2011 on interest rates because all our jobs in the USA have gone overseas in the past 10 years and aren't coming back easily.

Nov 11 10:08 PM

[ryanclarke:]

But in reflating they are also inducing inflation in gasoline. The U.S. consumer couldn't handle $4 gallon gasoline in the summer of 2008, which is why they skipped a mortgage payment ... or two ... or three. When gasoline costs $5 gallon in July of 20101 ... and yet daily U.S. "demand" for gasoline is down to 8 million barrels per day from the 9 million barrels per day currently ... are people going to run down to the local GM dealer and buy a new Chevy volt electric vehicle?

You mention "upper middle class" families aren't feeling it ... most "upper middle class" families run a small business ... from the local heart surgeon to the concrete factory owner ... who will feel the depression when the lower class no longer pays their bills ... they haven't done for over a year now.

The Fed is playing the shell game by "buying" mortaged backed paper from the banks ... but my understanding of the matter is the Fed ... invoking "1930s measures" CAN ONLY MAKE LOANS TO BANKS IN EXCHANGE FOR SOMETHING OF VALUE ... in this case the junk home loans to poor people I just mentioned. The Fed might be able to keep such junk paper on their books ... for many years according to CNBC ... but a loan is a loan ... and someday the banks which shoveled their crap onto the Fed's doorstep ... have to buy back the junk paper from the Fed.

If the Fed lets this go on for another six months ... in my humble opinion ... the inflation genie they let out of the bottle ... will be just as nasty as the deflation witch they burned at the stake this year.

On Nov 11 07:07 PM ebworthen wrote:

> Agreed, good charts.
>
> They are desperate to reflate the asset bubble.
>
> The bump up in Toll brothers is based on homes costing $500k. Upper
> class families aren't feeling it, therefore the high end retail is
> predicted to do well this holiday season too.
>
> The stock market, with trillions of a generations retierment and
> savings in it, has become the barometer for the economy.
>
> Politicians want to bring it back for votes, the banks want it up
> to make them solvent, and traders and hedge funds want the gyrations
> to pump and dump (up on low volume, large volume sell offs). The
> average person is trapped on the roller coaster.
>
> In this environment, I do not see the FED raising rates or tightening
> liquidity, they will keep printing money and handing it out at 0%
> until, when and IF, here is a real recovery in residential and commercial
> real estate.
>
> Don't hold your breath.

Nov 11 10:08 PM

[Philly Jim:]

They should call Bernanke the "Surgeon". Forcing China to play its hand with deflation and protecting American consumer assets with inflation, using surgical precision and careful balancing; it's really insane to keep up with. Should be interesting to see the punishment phase unwind on dollar shorts when the need for them returns next year.

Nov 11 11:52 PM

[Michael Clark:]

Yeah, the 'surgeon'. American taxpayer money is funding global stock rallies and the dollar demise is making Americans poorer. Great. We are making Europeans and Japanese and Chinese and Latvians and Estonians and Africans and Arabs richer. Great surgery. We are funding the restoration of the global economy by sending ourselves to the poorhouse. Great idea. Make your adversaries and/or competitors stronger. Great idea.

Also, send American taxpayer money to banks in Europe to keep them from collapsing. I'm sure the Europeans appreciate the fact that the American taxpayer is refunding European banks.

The surgeon is either drunk or blind or loyal to another country or idea...maybe he's loyal to the concept of 'globalism' and he is willing to sacrifice America to the new idol he worships. Maybe he's loyal to the class of international bankers -- afterall, he seems intent on saving the banking class in every country in the world.

Also, he is helping to further separate America into two classes: SUPERRICH and poor. That's what a great surgeon does. The more he inflates, the more America becomes divided by class and the more a civil war in America becomes more likely.

Tell the surgeon to keep slicing and inflating, keep cutting, dicing and refunding. He'll get a Nobel Price too, if he keeps cutting and loaning out dollars to anyone who comes along the street.

Tell the Surgeon to keep his helicopter fueled and ready for take-off. Because, at some point, America is going to have enough of this folly and drive Helicopter Ben to a new home in the sky -- perhaps Wall Street, perhaps an office at Goldman Sachs. If so, at least we'll know where to find him.

Nov 12 02:08 AM

[Michael Clark:]

Long Term Trading System:
CHFJPY=X Short Swiss Franc/Japanese Yen
EURAUD=X Short Euro/Australian Dollar
EURGBP=X Short Euro/British Pound
EURJPY=X Short Euro/Japanese Yen
GBPJPY=X Short British Pound/Japanese Yen
JPYCNY=X Short Japanese Yen/Chinese Yuan
USDCAD=X Short US Dollar/Canadian Dollar
USDCHF=X Short US Dollar/Swiss Franc
USDEUR=X Short US Dollar/Euro
USDGBP=X Short US Dollar/British Pound
AUDCAD=X Long Australian Dollar/Canadian Dollar
AUDCNY=X Long Australian Dollar/Chinese Yuan
AUDJPY=X Long Australian Dollar/Japanese Yen
AUDNZD=X Long Australian Dollar/New Zealand Dollar
AUDUSD=X Long Australian Dollar/US Dollar
CADJPY=X Long Canadian Dollar/Japanese Yen
EURCAD=X Long Euro/Canadian Dollar
EURCHF=X Long Euro/Swiss Franc
EURCNY=X Long Euro/Chinese Yuan
GBPCHF=X Long British Pound/Swiss Franc
NZDJPY=X Long New Zealand Dollar/Japanese Yen
NZDUSD=X Long New Zealand Dollar/US Dollar
USDJPY=X Long USDollar/Japanese Yen

Nov 12 02:20 AM

[Curious Bys...:]

We've basically been volunteered by that idiot Bernanke to go under the Treaty of Versailles and "rebuild" the entire world with our dollar. These fools should be charged with treason, not running our government. This is looking more and more like the Weimar crash each and every day.

Nov 12 02:32 AM

[Mr. G:]

These arguements overlook the magnitude of the lending debacle of the last decade. the exponential toxic assets created nearly bankrupt the entire country.

AS OUR REAL ESTATE VALUE BECAME WORTHLESS, the lending industry shamefully lent money on the thesis that real estate would keep rising in value. Even worse,the rating agencies backed the play. WHY DO YOU THINK OVER 140 BANKS were liquidated.

The current reliquidation pattern by the govt is trying to prevent collapse of the entire financial system. The remarks above lack appreciation of the magnitude of the loss. Actually the current rescue patterns by the FED reveal that the govt became hostage to capitalism gone wild. The deregulation of risk allowed the lending industry to create exotic financial instruments which finally went bust.
These events underscore how necessary the banking system is to a credit based economic system. Bringing the system back to equilibrium requires printing more money to prevent collapse,stimulating the economy rather than letting life as we know it collapse.

IF the world keeps buying our debt instuments even though the dollar is depreciating, foreign countries are actually funding our recovery, because at redemption the foreign counties receive less value. GI

Nov 12 09:15 AM