TWO STEPS FORWARD, ONE STEP BACK
11 September 2009 by Cullen Roche
4 Comments
While the S&P 500 continues to surge, the U.S. government continues to rape and pillage the U.S. dollar in order to ease pressures on the mounting debt problems at the Treasury. The S&P has surged4% in the last 5 days. Meanwhile, the US $ has fallen 2.5%. Two steps forward, one step back….
TPC:
I have been thinking about this for a long time and still I am not certain. While is true that inflation is good for the debtor (because the value of dollar denominated debts goes down), the counter argument is that most of these debts will go unpaid. Each time a large pool of debt becomes uncollectible, dollars get out of circulation and therefore the value of the remaining dollars goes up.
This also TPC relates to your other post re:deflation or inflation. I guess at the moment we are witnessing some pretty predictable lesson of physics, namely that for each action there is an opposite reaction (not necessarily manifested at the same time). The response to increasing liquidity by the Fed has been met by rising markets and concerns about possible inflation. Yet for inflation to occur the global economy must turn around decisively. Absent that we are staring at some pretty serious deflationary environment.
Now, Faber thinks that there will be a second stimulus and a third if necessary which might lead to some serious inflation. His detractors say the Fed is basically engaged into a losing game and that for every dollar they inject into the economy an equal and greater amount is withdrawn by the consumer and the financial system.
I guess we will eventually find out; my concern is that is NOT going to be pretty.
How low does the dollar really need to get before countries stop backing our debt. It seems that every 6 months there is tough talk about how the U.S. needs to have a stronger dollar or they will find somewhere else to park their money. It feels like were playing a game of chicken in the treasury market every week and the government always wins. Honestly what will it take for the tough talk to be backed up with action by China, etc? I know on a percentage basis China is buying less of our debt but its still 100s of billions.
Position guide:
Oil Trade:
Should resolve to downside as “Fundamentals” come back into focus as well as supply–the draw down in inventory was temporary.
Dollar Trade:
While there is a lot of talk about “Dollar” fundamentals and you have the
(This/That) reasoning.
What is important “NOW” is the Direction of the Dollar Trade
The Dollar has broken support on the charts–never a good sign for those long.
The Charts ,The Mo, The Direction all point to a weak Dollar ahead.
What does this mean in terms of currency flow around the world?
You can’t make this question any easier.
On the other hand: Next week “idiocracy” speaks–I expect nonsense and platitudes along with congrats for saving the world–Whiskey for my men–Beer for my horses “kumbaya” moment. This will be a market moving event.
Consequently:
Check the body count on Tuesday and look for direction in the Dollar
It will be the key to whether TPC’s long hoped for correction begins
Or we will continue to see the “Stockmarket” levitate.
This post is 09/12/2009 Saturday Morning–have a great weekend
Check this out:
http://www.shadowstats.com/article/depression-special-report