Watch out for the dollar


UUP (dollar bull ETF) and SPY:


Bonds were also up today, of course. Given the extreme degree of consensus we saw during the latest highs in stocks and lows in the dollar, today’s rally could be nothing more than a standard correction (at 40-odd percent, that is all the retracement is so far). It was to be expected (I went long SP futures and QLD Friday to hedge dollar longs and my equity and silver options). The test is whether we break to new highs on new reflation impulses. Precious metals, copper, oil, bonds and currencies say, “don’t press your luck.”

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15 thoughts on “Watch out for the dollar

  1. Heh, the concluding sentence of this post calls to mind the image of a bunch of bulls sitting at a trading terminal buying stocks and muttering “Come on come on, no whammy no whammy no whammy …. ”

    Looks like dollar strength is persisting in the Asian session and the Nikkei is trading only marginally above yesterday’s close. All the bears trying to get cute and hold out for “one last surge” may be disappointed.

  2. Love the picture Mike!
    Re the USD, you are right. I think we are now headed for a normal bounce after such extreme moves and sentiment. I closed my short USD long EUR position with a hefty gain of 12% yesterday. Don’t have the guts to go long USD short EUR yet :’(

  3. Is anyone a “socialist” here. I am posting this not to proselytize, but merely to elicit a response from the Austrians.

    My question is what do you think caused the crisis? Indeed, the Austrian view is not totally incompatible with the “socialist” view, but what do you think of this.

    “This history suggests that if today’s globalization crashes it will also be because of economic factors, but those factors will differ from the past because the system is different. The New Deal era created a system that remedied earlier financial fragility by restricting private ownership of bullion, and creating deposit insurance and lenders of last resort. It also created a new social democratic mass consumption economy in which income was more broadly shared owing to unionization, minimum wages, and social security provisions. However, a social democratic mass consumption economy is expensive for individual capitalists, giving them an incentive to evade its costs. That has been a driving force behind globalization since 1980, and that is the contradiction in today’s system.

    Business has a private incentive to escape the system to countries with lower costs. Yet, it still needs mass consumption. The system needs a solid middle class, but is also driven to hollow out that middle class. This contradiction has been papered over by consumer borrowing provided by deregulated financial markets and a 25-year asset price boom. The problem is that such borrowing risks prove unsustainable if incomes are hollowed out, and that could stop the economic merry-go-round. If that stoppage produces an economic crash, globalization may crash, too. Globalization will lack political support, after being a primary cause of a hollowed-out middle class. ”

  4. Come on man, why don’t you quote us some Krugman while you’re at it? Do you want us to have a heart attack?

    Globalization is not new, it exists since the origins of times.
    Protectionism, borders, visa and passport checks are new, stupid, 20th century inventions.

  5. The entire 20th century stands as a monument to the folly (and the evil) of statism. Those who have not learned from these horrors are condemned to relive them — must the rest of us suffer, too?

    This economic crisis was caused, in large part, because government failed in some of its basic responsibilities: (1) defend property rights; (2) protect against fraud and abuse; (3) enforce contracts; and (4) preserve the value of our currency and (5) let the market determine prices. Instead, government (under both major parties) institutionalized fraud, picked winners and losers in the marketplace, went on an unfathomable spending binge, distorted with the pricing of labor and capital, extended its control over vast portions of the economy. And that is just the tip of the iceberg.

    We as a society deserve blame, not just for choosing these political leaders, but for participating in the two-decade debt-fueled orgy of consumption. Now comes the bill. Do we pay it now, or steal it from our children? The political class is apparently choosing the latter.

  6. Still waiting for the “disappointing” fall in Gold Mike. And how’s that long dollar trade workin out for ya. I thought we just solved the Social Security problem with “deflation”. Well, I guess maybe not. Oops! Did I just hurt your emotions? Sorry, but this is what you get for surrounding yourself with yes-men like Graphite.

  7. Matt Damon: Emotions are banned when trading, and I am pretty sure Mike is not hurt as he mainly trades options. But hey, when convinction is there, one does not see pain in these but opportunities to add to their positions.

    That said, I would like see your track record in the past 3 years :-)

  8. It seems odd to me that every now and then a frustrated loser shows up in this blog’s forum…

    I have often disagreed with Mike so I’m not a yes-sayer as you call them. But still I’m impressed that he generates that kind of reactions among these losers who cannot even come up with their track record or link to their own blogs even when requested.

  9. “Sorry, but this is what you get for surrounding yourself with yes-men like Graphite.”

    Funny, I just sent Mike an email tonight saying I was short-term bearish the dollar based on some DSI indications and the weak looking chart on the DX. My long euro futures position is up nicely from where I entered it this evening.

    Gold may still have a *little* room to run here as there has been some lingering doubt of this rally and the goldbugs have yet to all pile in and reach Matt Damon levels of bullish triumphalism. Another $20 or $30 an ounce might do it though. Meanwhile gold is still languishing in terms of every other currency besides the US dollar, and in terms of inflation-adjusted dollars as well.

  10. Mike:
    Even if you think my comments are “rude”, it increases the participation level on your blog. Dissenters – even those who do not adhere to the niceties you expect of them – have value. They enrich the discussion by bringing different points of view to the table. Let me make up for this last intrusion on your peaceful little world by offering an advice 100% guaranteed to make you money – buy gold now. And if this advice (or any advice for that matter) makes you cringe to your very core – pay special attention to it. Our own mind is the best contrarian indicator we can use.

  11. I do not know what to think… I think the dollar has about 1-2% more to fall though.

    I heard East Asian central banks are buying dollars to slow the rise in their currencies. Well, Japan tried to do this in 2003, and they had more firepower though. Should Central Bank buying be seen as an indicator the dollar has further to fall?

  12. Not sure what the catalyst will be- my work is telling me that we make a top over the next day or two and begin to roll over into mid to late November. Looking for a 15-18% correction

  13. While Mike is on long holiday probably enjoying sunshine in the Seychelles or somewhere…

    I just a follow up on the comment I made two weeks ago: I have now open a small short EUR long USD position.

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