I think we need to take a look at the big picture here regarding the dollar, and the big picture is greed. Looking over history, the Yen Carry Trade lasted about 4-5 years before it came undone. The US Dollar has unarguably taken 'market share' away from the Yen Carry Trade and continues to get hammered into the ground by traders, investors, countries and sovereign wealth funds. If history is any guide, this is the start of something big. Japan had their chance for 20 years and they blew it. It's the US's turn for the alchemists to melt down the currency and create a new bull market in the economy. Will the US succeed? I have no idea, but I do know that Bernanke and Co are experts when it comes to past historical failures in financial policy. This is surely history in the making, though I'm not so sure I'm excited that this moment in history is happening while I'm around.
I was dollar bullish about 2 months ago, but did not take any action investment wise. In retrospect, it would have been nothing more than placing money on a roulette table because I had a hunch. For one to say they are dollar bullish because everyone is so dollar bearish is just insanity. That's like me saying I think New Mexico State is going to beat Boise State today because Boise is favored by 47.5 points. With no underlying fundamental or technical reason, being dollar bullish is, for now, a path to ruin. The trend in hard assets is up and that's all we need to look at to see where the dollar is going.
That's not to say there will be periodic moments of strength in the dollar resulting in commodity pullbacks, but those moments are when strong hands will make their stand by stepping up and purchasing assets that the weak hands get stopped out of. The ones selling gold right now for example, are most likely the ones who bought after India announced it's purchase. Those people were trend followers caught up in a manic, herdish mentality at the time (also a sure path to ruin) and bought because of emotion. These are also the kind of 'traders' who wake up in the morning and say, "I think I'm going to buy a stock today, I'm in a good mood." The investors who bought hard assets in October-November 2008 when the economic press brainwashed people into thinking we'll never have demand for hard assets again were buying because they knew dollar weakness was on the horizon. They knew that Bernanke and Co couldn't afford then, now or in the future, an LA style riot on a national scale if home defaults were to double. Give the people more funny money, if their 401K's go up, it should bring a perception of wealth that makes everyone feel good inside. Greed, it's the reason why the nightly news always tells us how the Dow finished within the first 5-10 minutes of broadcasting.
Will Bernanke and Co. overcome the meltdown with inflation? I think they are going to do everything they can to try, but inflation will probably skyrocket in a few years from now when the crisis is already over, making easing inflation the next unnecessary problem we'll have to deal with.
At the end of the day, as long as the dollar depreciates and employees can get their 3% inflation or COLA raise, Americans can feel wealthier and can buy more things they don't need. Proof that Americans buy too much crap they don't need can always be found in the customer service and return lines at retailers starting on December 26th, which are rarely not circling the perimeter of the store interior.
I was dollar bullish about 2 months ago, but did not take any action investment wise. In retrospect, it would have been nothing more than placing money on a roulette table because I had a hunch. For one to say they are dollar bullish because everyone is so dollar bearish is just insanity. That's like me saying I think New Mexico State is going to beat Boise State today because Boise is favored by 47.5 points. With no underlying fundamental or technical reason, being dollar bullish is, for now, a path to ruin. The trend in hard assets is up and that's all we need to look at to see where the dollar is going.
That's not to say there will be periodic moments of strength in the dollar resulting in commodity pullbacks, but those moments are when strong hands will make their stand by stepping up and purchasing assets that the weak hands get stopped out of. The ones selling gold right now for example, are most likely the ones who bought after India announced it's purchase. Those people were trend followers caught up in a manic, herdish mentality at the time (also a sure path to ruin) and bought because of emotion. These are also the kind of 'traders' who wake up in the morning and say, "I think I'm going to buy a stock today, I'm in a good mood." The investors who bought hard assets in October-November 2008 when the economic press brainwashed people into thinking we'll never have demand for hard assets again were buying because they knew dollar weakness was on the horizon. They knew that Bernanke and Co couldn't afford then, now or in the future, an LA style riot on a national scale if home defaults were to double. Give the people more funny money, if their 401K's go up, it should bring a perception of wealth that makes everyone feel good inside. Greed, it's the reason why the nightly news always tells us how the Dow finished within the first 5-10 minutes of broadcasting.
Will Bernanke and Co. overcome the meltdown with inflation? I think they are going to do everything they can to try, but inflation will probably skyrocket in a few years from now when the crisis is already over, making easing inflation the next unnecessary problem we'll have to deal with.
At the end of the day, as long as the dollar depreciates and employees can get their 3% inflation or COLA raise, Americans can feel wealthier and can buy more things they don't need. Proof that Americans buy too much crap they don't need can always be found in the customer service and return lines at retailers starting on December 26th, which are rarely not circling the perimeter of the store interior.
