Which Crisis Is Next?

 |  Includes: ERO, EU, FXE, TBT, TLT, UDN, UUP
by: Graham Summers

The first item to note is that the Euro bounced off of support to end 2010. It’s difficult to tell if this was a REAL development or just a kind of end of the year “window dressing.” I say this because the blizzard in New York made holiday trading even lower than usual, allowing for even more gaming.

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This week will determine the deal. As the below chart shows, the Euro is now coming up against resistance at 134.2. If we break above here, then the Euro is starting another leg up which could take it to 136. This move would be accompanied by additional gains in stocks and Gold and Silver.

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The US Dollar is giving us a hint that this may in fact prove to be the case. Indeed, while the Euro has yet to break out above resistance, the US Dollar has taken out support establishing a series of lower lows as it builds a clear downward trading channel.

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Of course, we could see a bounce here which would correlate with the Euro dropping. However, if this is going to happen it needs to start in the next few days.

Elsewhere in the financial markets, Treasuries are staging a bounce. It’s truly staggering to think that Bernanke and pals can claim with a straight face that Quantitative Easing will lower interest rates when long-term Treasuries have dropped 10% in just four months since the Fed’s QE lite and QE 2 programs were announced.

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Indeed, the technical picture for Treasuries going forward is decidedly ugly as we’re getting darn close to breaking the 28-year old bull market in bonds.

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The above chart is a MAJOR warning of what’s to come to the US when this latest bounce in Treasuries ends. Once we take out this trendline we’re going to see interest rates spike in a BIG way. This in turn will push the US economy into an even deeper Depression and renew the debt deleveraging the financial system began in 2008 (which the Fed has done everything in its power to try and stop).

In plain terms, the markets are officially on “borrowed time.” The three key charts for determining when things get ugly again are the Euro, US Dollar, and long-term US Treasuries. At some point, one of these is going to break down in MAJOR way. When it does, it’s going to drag us back into Crisis mode.

Thus, the question is, what Crisis will it be?

1) A Euro banking system Crisis?

2) A US Dollar collapse Crisis?

3) A US debt collapse Crisis?

4) Some combination of the above?

Personally, I believe we’ll be entering an inflationary death spiral for the US Dollar at some point in the next year or so. When this happens inflation hedges across the board will explode higher.

Some, like the most popular picks (Gold an Silver bullion) will records strong gains. However, others, (the ones that 99.9% of the investment world are currently clueless about), will go absolutely parabolic.