Dollar Rebound In Sight?

With most observers either negative or very negative on the U.S. dollar, we wonder whether a counter-trend rally in the greenback might be in the offing. The long-term trend remains down, but a descending wedge formation (a technical configuration which usually resolves to the up side) is forcing us to consider what could happen next for the buck.

The WSJ notes this morning that one source of pressure on the dollar is U.S. investors' penchant for overseas bourses: "As U.S. investors chase profits overseas, there may be an unintended consequence closer to home: pressure on the American dollar."

After the Bank of Japan left rates unchanged last week, the yen fell versus the dollar (Japan's 0.50% rates are the lowest in the world). Some traders have suggested the euro has topped out for now, due to technicals and position-trimming.

Carl Swenlin's chart below shows a short term buy signal. Note that the price index has broken above its short-term declining trend line.

Swenlin notes:

Bottom Line: Let there be no doubt, the trend is down in both the medium- and long-term (our trend model is still bearish on the dollar), and it is too early to assume that a change in trend is taking place; however, there are plenty of reasons to begin nursing some positive expectations.

Sources:
DOLLAR TRYING TO TURN UP
Carl Swenlin
DecisionPoint, May 20, 2007
http://www.decisionpoint.com/

U.S. Investors' Overseas Bets Dent Greenback
Quest for Stronger Gains Leads to Weaker Dollar; A Self-Fulfilling Cycle
JOANNA SLATER
WSJ, May 21, 2007
http://online.wsj.com/article/SB117969793758608877.html

Dollar Looks Set to Move Up
DAN MOLINSKI
WSJ, May 21, 2007
http://online.wsj.com/article/SB117970632855709045.html

Comments

[JohnnyBitchdog]

The B.S. just keeps getting better:

Ritholtz, the self-professed stinky forecaster and prolific market muser, is now a technical analyst pulling a descending wedge from his butt. That's gotta smart, but I am not sure it will be any good in forecasting the dollar !

And here's another gem from the fabulous world of phony forecasters wanting to have it both ways, because they no without a doubt it's going down, but it may go up, and it's too early to tell, but I really know what I am talking about because I am really really smart:

Bottom Line: Let there be no doubt, the trend is down in both the medium- and long-term (our trend model is still bearish on the dollar), and it is too early to assume that a change in trend is taking place; however, there are plenty of reasons to begin nursing some positive expectations.

Whenever folks like Barry or others tell there is no doubt about something, you might want to be a bit wary, and when they are babbling about things going up or down depending but possibly flat.....you really know you are dealing with a genius.

Comedy.

John.

[JohnnyBitchdog]

I know two things for sure about this world:

1. If the dollar goes down, Barry Ritholtz is a genius.

2. If the dollar rebounds, Barry Ritholtz is a genius.

3. If the dollar zig zags up and down around its current value, Albert Einstein will have company, cause he gets smarter every time it goes up.........or down.

There is really no need to predict the markets when these guys have all the bases covered.

However, I am taking bets on when Barry will win the Nobel Prize for Economic Chit-Chat.

Regards,

John

[brynaw]

Uh-oh, look out, Barry --you may have a stalker. I'd beef up personal security and have the rent-a-cops in your building on the lookout for anyone matching johnrightwing's description: obvious inflated sense of self importance, strong emotional need to inflate his own ego by dominating/humiliating those perceived as 'enemies', and furiously dissecting anything you say, while waiting for the "a-ha!" moment to come.

Oh, and for the record, John, that "no doubt" comment came from Carl Swenlin, not Barry.

[JohnnyBitchdog]

the flaws are so obvious they don't require dissection.

whether it's cut-and-paste garbage or uniquely generated does not change it's form: garbage.

i notice that neither you nor your chatty idol are interested in defending the slop that is being passed off as analysis.

john.

[brynaw]

johnrightwing,

Since when does a casual and inconclusive post (mostly with data from other sources, as you say) qualify as a forecast? I don't think this was meant to be taken as in-depth analysis or a forecast, just musings about the possible direction of the $USD and whether or not a bottom could be in sight.

I don't think Barry has the power of prescience over global currency markets, or the weather, or the ability to raise the dead. And neither do you.

[Sonia Mirza]

"Let there be no doubt, the trend is down in both the medium- and long-term (our trend model is still bearish on the dollar), and it is too early to assume that a change in trend is taking place; however, there are plenty of reasons to begin nursing some positive expectations"...-... (+1)+(-1) = 0

This downswing in the USD was long-expected. Since 2001, if I may add my 2 pence. One need only look at the large trade deficit (among other factors) to conclude that the USD might one day feel it. We can never say when the relative weakness will manifest, or when it will reverse. Especially given the performance of other economies and their currencies...capital flight et al. Can't say there isn't a hidden agenda to let the USD be and make exports more appealing.

Re:
"obvious inflated sense of self importance, strong emotional need to inflate his own ego by dominating/humiliating those perceived as 'enemies', and furiously dissecting anything"

Brynaw - what's wrong with dissecting? it might help the less savvy and prone-to-trust novice that might be perusing and mistake this for THE WORD. And you forget the "lazy putz" comeback of yesterweek - at least recognize the inflated sense of self isn't exclusive.

Again:
(+1)+(-1) = 0
And ZERO adds no value...

[brynaw]

Sonia TM,

Nothing's wrong with dissecting with a purpose --to try to learn something, ask insightful questions, stimulate productive debate, etc. However, just basically repeating the same rant over and over ("Barry's an idiot, blah-blah-blah..."... because you don't personally like the author, in the most snide, a$$holish tone possible --johnrightwing's hallmark-- adds no value to the topic at hand.

[Sonia Mirza]

Fair enough Bryn - however, you do forget that the topic at hand had no value to contribute to begin with. 0 + 0 = 0

nothing gained or lost either way, except for my attention that might have been better directed towards (dare I say it) cramer...

I feel like the guy that says "I jost want to buy a melon"... except I just want to get some information (not BS)

www.youtube.com/watch?...;mode=related&...

Cheers!

[JohnnyBitchdog]

Dude -

Let's get a couple of things straight:

1. Ritholtz claims to want a vibrant discussion here, but clearly hides from direct challenges to his claims, which are frequently emotional, spurious, and sometimes downright ridiculous.

2. When I have directly challenged him in the past, instead of dealing directly with the challenge, he claims that he Googled himself and received 4000 applicable posts which he directed me towards for wisdom. That spoke volumes about the guy, and I am now observing his posts to see if there is any discernible quality improvement over time - so far, same crap.

John.

P.S. Ritholtz is probably not the worst financial markets analyst in the world (though he acknowledges he is a stinky forecaster), but he appears to be rather prolific, sloppy, and disingenous.

One man's opinion.

[brynaw]

Ok, John, those are some valid sounding complaints. If Barry responded that way to you, I can respect that and sort of see your P.O.V.

However, I'd also keep in mind that a challenge (even a valid one, based on good data and solid reasoning) is not likely to get you a serious response when the tone is combative or insulting. I've had a few online disagreements with journalists & market "experts" before, and a little respect up front usually goes a long way. Not always, but usually.

[Sonia Mirza]

And I do think he was trying to instigate discussion, in his own way. He's been at it a while. I think it broke his heart that Barry only responded with name-calling and google search. I know it did mine. Not much of a discussion that. and the arse-holish tone was reciprocated, mind you.

This is an example of a value-add: "The 15+ year monthly Euro/US Dollar chart below shows the current exchange rate to be roughly the same as other prior peaks in 1995 and 2005. That may suggest there is more downside potential for the Euro than upside at this point. [dates prior to the rollout of the Euro are synthetic rates based on the currencies that converted to the Euro]". Richard Shaw, a contributor on SA, is actually providing a direction that isn't both up and down, and some evidence to support his claim.

[brynaw]

Sonia,

Point taken --see my response to John above. I must have missed the earlier exchange between him & Barry.

[JohnnyBitchdog]

How stupid is the analysis, let me count the ways:

Clearly Ritholtz favorite game follows this pattern:

1. Create a false description of the world while trying to sound smart

2. Attack the bogus world construction while trying to sound smart

It's brilliant because the casual reader falls for it every time, and the discerning reader just laughs out loud but provides no challenge.

Let's get back to this piece of work above:

"With most observers either negative or very negative on the U.S. dollar, we wonder whether a counter-trend rally in the greenback might be in the offing."

It's such nonsense from so many angles that it annoys me to dissect it, but for the good of the people I shall be a martyr:

1. Firstly, "observers" don't make a market, "participants&quo... make a market. Any argument about whether this is nonsense or not should end here but I will go on. I guess Barry is so used to being an observer and a talker that he's forgotten what it's like to live in the real world.

2. Ok, so let's give Barry the benefit of the doubt and assume he meant "participant"... - you know, the human beings actually buying and selling dollars, making investments in the U.S., liquidating investments in the U.S., currency traders, etc.

These people are actually doing things with a purpose (quite different from Barry, though presumably when he's not observing and chit-chatting he's playing with other people's money). Now, a small percentage of them may be currency speculators, and some may even have the negative emotion that Barry describes. However, it is quite unlikely that all of them are negative on the dollar, but even if they were, their actions are swamped by human beings doing things with money other than playing.

3. Ok now let's take the second part - you know, the baloney about "we wonder whether a counter-trend might be in the offing".

Well, you might note that there appears to already have been a couple of weeks of "counter-trend&qu...

Now if you are following along, you might note the definition of "in the offing": Imminent - likely to happen soon.

So, now we see Mr. Ritholtz predicting something that has already occurred. Now this is a brilliant strategy, because it reduces your forecasting risk substantially !

And the beauty is not only that he can take credit for predicting what's already occurred for several weeks, if things don't continue to rally he can completely forget about this vague forecast and swing right back to his "long term dollar down" forecast.

4. Just to add more comedy, Mr. Ritholtz professes at his website to be a stinky forecaster and also that he doesn't bother forecasting.

To me this is the most brilliant value proposition I've ever seen:

Pay me to not do something I stink at.

Brilliant.

John

[Brian Croner]

One thing I'll say is you can't always publish your hunches. Barry could have made known things officially dealt with by publication. But he watches more of the world than he references when he makes an official statement. I would suggest he could be alluding to some knowledge he has formed his own opinions of, but is not yet comfortable publishing because of the nature of journalistic acceptance.

It's my suspicion that a lot of people's financial stability is dependent on their performance in an industry as they are still under the influence of the American dollar. For instance, I'm personally bringing a mobile website startup to the market. If I don't monetize the value of my software under the US Dollar currency system, my financial future is not stable. I would prefer to monetize under a socialist regime, but it's not exactly a choice, nor is it a completely bad thing with the currency job market here. I would expect that I'm not building the only low-profile startup of this type, and Barry would at least be easily be privy to me, if not others, which he would be advised to currently consider "hunches" in their effect on the future value of the dollar.

[JohnnyBitchdog]

Dude, you belong in the same Nonsense Rehab Program with Barry ?

"official statement"

For chrissake, Ritholtz is sitting on his fat-ass surfing the net while taking a percent or two from his clients. Occasionally he'll take a break from net surfing to check out Maria's rack.

There are no official statements here.

He's just a guy with a mouse and a whole lot of loosely formed opinions.

John.

[brynaw]

Who's "Maria"? Maria Bartiromo? If so, I'm with Barry on that ;-)

[wixeywaxy]

Barry (I'll assume the familiar tone of the earlier post) I think the critics of your article are clearly the crackpots. There was nothing much in your article that could be taken as an effort to give an analysis. It was rather a few comments with some charts showing the trends. I think John is suffering from a big ego. Your summary was what most observers would find, that the trend is down even if there may be some hope of a better future. To your observation that the trade deficit isn't going away, I would add that the profligate government spending isn't either. I used to think that the generous social programs of the EU would wreck their currency but we have unfunded promises that are the equivalent so their generous benefits are not going to bail out the dollar/Euro exchange in our favor.

[JohnnyBitchdog]

another idiot speaks up.

nothing suggestive of analysis ?

"....but a descending wedge formation (a technical configuration which usually resolves to the up side) is forcing...."

Did you read before you decided to have an opinion ?

John.

[JohnnyBitchdog]

The beauty of this published nonsense is that nearly every sentence provides fodder for challenge (and entertainment).

Let's take this apparent "analysis":

"but a descending wedge formation (a technical configuration which usually resolves to the up side)..."

It's tough to know whether Barry is a so-called technical analyst or just cutting and pasting this stuff, but just for fun, go do some research on the "descending wedge" formation and note the following:

1. What is it ?

2. Does it "usually resolve itself to the upside" ? What does "usually" mean ? What does "resolve itself" mean ?

If it doesn't make sense, there is a good chance its nonsense.

John.

[farwil]

John,
I am neither Pro nor con to Barry's view/analysis/rambling... but what I have to wonder is this! If you find his commentary so unappealing, why do you read his column in the first place?

[JohnnyBitchdog]

farwil -

You have made a false assumption. I find Mr. Ritholtz commentary to be appealing. Mostly it appeals to one's sense that monkey's are managing the world's money.......and that can't be good for humanity.

I do want you to know that I began reading his frequent missives simply based on topical interest, which led me to his website where he describes a very confused investment philosophy which seems to be a unique mix of forecasting while not believing in forecasts........while believing in good luck.

Being thoroughly confused by his philosophical publishings, I began to look more closely at his daily musings. The closer I examined the "substance" of these musings, the more I began to wonder about the dynamics which have elevated him to be a well known media figure (CNBC, Internet Blogosphere, etc.).

Performance as a Money Manager ?

Social Connections ?

Competence in Economics / Finance ?

Salesmanship ?

Personality ?

Random Serendipity ?

Now, I don't know the answers to these questions, but from the limited set of publishings I have read, I am somewhat shocked at the low level of quality (my perception, obviously). And when I challenged him on some of his claims, I received an obnoxious response pointing me to a Google search which would lead me to 4000 hits of Barry Ritholtz wisdom - at this stage I knew I was dealing with an arrogant dude, and this caused me examine his publishings even more closely for evidence of stupidity as well as the rather obvious arrogance.

What began to form as I was examining the publishings was a sense that this guy did not have alot of respect for the subject matter. Most of the claims seemed to be no better or worse than your average Joe chit-chatting about a hot stock in the locker room, though it was wrapped in rather impressive sounding language like "the declining wedge is a technical formation which usually resolves itself to the upside". In the locker room, we might hear it in more colorful terms like "this baby's gonna bounce bigtime !". I wouldn't trust either claim on its face, but the guy in the locker room would get a pass.

Anyway, the closer I looked, the more it looked like nonsense and I began sharing this perspective in this forum.

So, there you have it. That's the story of why I began to read his column.

Since you are inquisitive, you may wish to engage Mr. Ritholtz into worthwhile discussion as well. He has indicated that he wants to be a part of a vibrant exchange of views. You may want to limit the discussion to how spot-on his forecasts (non-forecasts) are, how terrific he looks, etc. If that doesn't work, ask him about Maria's rack in real-life - I would actually trust his opinion about that !

John.

[farwil]

John,
Thanks for bringing me up to date as to past goings on. It was my first time reading Mr. Ritholtz post (and quite possibly the last) as I could garner absolutely no earthly useful information while reading "Dollar rebound in sight?" As to engaging Mr. Ritholtz in discussion, I think I will pass, as I believe there are many other places/people I can go to get "entertainment&qu... from, never mind financial insight. Unfortunately for all of us you have hit the proverbial nail on the head concerning your comment re: "monkeys managing the worlds' money" or a portion thereof anyway. Thus the ever ballooning twin deficits, past lending practices that were akin to "Monopoly money" for mortgages,etc. and the consequencial fall of the dollar.

Cheers,

farwil

[Pauley Wine]

Johnny,

Since you sound like the voice of reason here. Rookie question: Just got back from Spain and spent some time with a former economist who spent years in big business but now owns a winery.

He said Europe is in the beginning stages of a recession and credit meltdown we've experienced in the US. He described a lot of what happend in the US also happend in Spain. As in home prices went crazy, a bunch of morons jumped in and now they're feeling the hurt.

He went on to say unemployment was rising and several other factors that will put Europe into a recession. I don't remeber the exacts of the conversation, but those were the jists over a long, long dinner with lots of wine.

Any idea if that is true and if so would that cause a serious decline in the Euro and thus an increase in the dollar? Or are there other factors way beyond that in the causing the dollar to suck so bad right now?

Thanks!