Seeking Alpha
Contrarian, newsletter provider, long/short equity, commodities
Profile| Send Message|
( followers)

I gotta admit - the markets almost had me!

It looked like the dollar was never going to turn around. And then QE2 was announced, which obviously could ONLY be bearish for the dollar, and ONLY bullish for stock prices. Not to mention the metals, which were sure to do moonshots in short order.

A funny thing happened after the Fed announced QE2, though - the dollar spiked to a bottom, and then started to rally: (Click to enlarge)

us dollar daily price chart november 2010

The dollar has been climbing straight UP ever since QE2 was announced. (Source: StockCharts.com)

The metals started to teeter a bit on Wednesday - with gold taking a trim, and silver getting hit big. But Friday was a sight to behold - it's like a scene out of 2008, as EVERYTHING is getting creamed!

Click to enlarge:

futures prices heat map november 12 2010

Where you gonna run and hide from this bloodbath? (Source: Barchart.com)

You know I love the Grains, and I don't like to pick on them for fun - but c'mon, with soybeans and corn going limit down, you can't tell me there wasn't some leverage and froth baked into those markets.

So it appears that the story remains the same, until further notice. Since 2004, ALL asset prices have been very highly correlated, and they've been driven by global liquidity flows. The linchpin remains the U.S. dollar.

When debt is deflating faster than the Fed can debase the dollar, the buck rises, and everything else falls. When the Fed debases faster, the buck falls, and everything else rises in tandem.

The market may now be laughing at the Fed after that initial post-QE2 headfake.

If asset prices do collapse, the next move will be the Fed's. Gurus like Marc Faber believe that the Fed will announce QE3, QE4, and so on, to prop up asset prices. If this decline turns into a more prolonged event, it'll be interesting theater to see how the main characters react.

Disclosure: Short the S&P 500 via futures and SDS
Source: Deflation Returns and Laughs in QE2's Face