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Jeff Diercks, is an investapreneur and recovering CPA. He actively trades his own money and manages the assets of a select group of clients at InTrust Advisors, a Tampa, Florida based wealth management firm focused on trend following and price momentum strategies utilizing ETF securities. Mr.... More
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  • Dollar Chart Shows Something Has To Happen Soon! 0 comments
    Oct 21, 2013 11:02 AM | about stocks: UUP, UDN

    If you were to visit this planet for the first time, you would probably think that the U.S. population was some kind of zombie society. Why? Because our elected leaders have tried to reeducate us that debt is good and even more debt is better and we are bought it hook, line and sinker. This idea however would leave any smart alien scratching their head (or space helmet).

    Just last week as an example, President Obama spoke about the terrible consequences ahead if we don't raise our debt ceiling. What consequences? You mean the ones that require we learn to live within our means and quit spending other people's money. Those consequences?

    Yet, you can see it in the general populace, they have already fallen prey to the debt is good and more debt is even better lie. Every day I see people living a lifestyle they cannot afford by further indebting themselves and their families. This is no different than our politicians and certainly it is exactly what they have suggested we do.

    As we all know, debt is a tool. However, too much can overwhelm cash flows and put your whole financial well being in jeopardy. In the case of our country, too much can overwhelm our ability to pay without further taxes. Higher taxes then drain our economy of growth and make it even harder to repay the interest, let alone the principal. This then begins a vicious cycle of borrowing more, taxing more and realizing even slower growth that is guaranteed to end badly.

    So when politicians speak about the evils of not raising our ability to borrow more, it is really political speak for "we may have to cut back our spending." "This would cause a change in behavior and some sacrifice on everyone's part and most importantly, I may not get reelected." This is what they really mean.

    However, the damage by this kind of short-term thinking is just untold to our nation and economy.

    As an example, if we look at the monthly chart of the U.S. dollar, we can begin to see some the damage our high debt levels have already done.

    (click to enlarge)

    Notice the U.S. dollar has been in serious decline since the 2000 internet bubble. This just also happens to be the period we have added the most new borrowings to our national debt. According to our national debt stood at just $5.6 trillion in 2000 and now it stands just shy of $17 trillion (per, more than three fold in just 13 years.

    However, since the 2007-2008 financial crisis we also see the U.S. dollar has been in a consolidation pattern. Why? My guess is that this is when other developed nations started borrowing massively as well and it stabilized the dollar vs. a basket of other currencies. However, all consolidation patterns eventually end and most continue in the direction they were traveling before the consolidation pattern began… this case down.

    From a technical perspective, the price activity of the U.S. dollar is well below the 200 period moving average. This speaks of a bearish trend.

    The top indicator window shows the RSI index. This index has been unable to get above 60 in recent years. This is bearish and also speaks of a bearish trend.

    The blue MACD histogram, the indicator right below the middle price chart, has now dipped below the zero line. This indicates the trend is now down and we can expect a test of the consolidation pattern lows or even a breakdown below the lows.

    The bottom indicator window shows a mostly positive correlation with equities. This line has started to rollover, which could mean equities will also have to follow suit.

    So the bottom line is it appears to me the U.S. dollar is ready to begin another leg down over the next 6-12 months. This will likely mean trouble for our economy and our standing in the world. It also likely means that investors believe the U.S. will continue to borrow rather than fix its financial house. With that in my mind, being short the U.S. dollar could be one of the greatest trades of the next decade!

    Disclosure: I am long UDN.

    Stocks: UUP, UDN
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