Same Headline, Different Dollar Tune

Includes: DIA, QQQ, SPY, UDN, UUP
by: The LFB

"The overseas wars being fought have accelerated inflation; the United States is running not just a balance of payments deficit but also a trade deficit. Overseas holders of the dollar and U.S. debt have lost faith in the U.S. ability to cut its budget and trade deficits.

More and more dollars are being printed and then sent overseas, to pay for the nation's military expenditures and private investments. Huge amounts of assets have fled the United States.

Because of the excessive printing of paper dollars, and the negative balance of U.S. trade, other nations are increasingly demanding fulfillment of America's "promise to pay". That is, they are demanding assurances from the U.S. in exchange for their paper dollars."

Sound familiar? It should, 1971 was the time, and they are ringing true again now it seems.

The Nixon Shock came soon after and the gold standard was dropped, currencies were revalued and life moved on. The U.S. mortgaged the future GDP numbers, drew the cash, paid the debt down, and started the monthly payments. Most mortgages run from between 15 and 30 years, this one is thirty seven years old, and unfortunately no capital has been reduced, the principle sum is still owed (negative current account and budget deficits) and the monthly repayments are impeding the ability of planning for a rainy day. The U.S. is living pay-check to pay-check and its global credit rating is dropping. In real terms the U.S. would be hard pushed to qualify for a car loan, let alone a re-mortgage.

Be that as it may, the Fed is auctioning more debt today, writing out some more Taxpayer Mortgages for 10 and 30 years (Treasury Notes) in an effort to raise some capital, and make the next month’s mortgage payment.  Please do not think about where the money comes from to pay it all back, that will be somebody else’s issue to deal with. Without Money Supply numbers, and with Fractional Banking in place, who knows how many notes are actually out there, when they will be asked to “Pay the Bearer”, and how much is actually held in reserve to cover the liability.

The dollar gets stronger in the short term as holders of the existing debt support the new loans to the U.S., all in an effort to feed the monster that has been created. The dollar is worth 74.90% of its value from the Nixon Shock (that is what the dollar index reflects), and is holding at that level. Will it, should it, and could it drop lower is an open debate, and one that is answered by the fact that if the overseas investors bail now they devalue what they already own. A tough call, but at the moment the down-beaten dollar is showing that there is interest in owning it, and for whatever reason you chose to believe, the market sentiment has bounced.

The real test of that strength comes at 75.00 on the index; it is at that level that sellers of the greenback stepped in previously. If it gets through this test maybe the herd will buy into the little dollar Bull, if it fails we will watch once more as the little bull morphs into baby Bambi. The market fundamentals reflect that the buying may hold, but in a bear market, dollar and equity, these things are hard to confirm. Stick to the four hour support and resistance charts, they will reflect very well where the market is willing to take things.

Disclosure: No stock position