Don’t Believe the Chart, the US Dollar is Dropping Like a Stone

Phoenix Capital Research's picture

I want to
take a moment to address the US Dollar’s collapse.


The US
Dollar which most investors follow is the US Dollar index. This represents the
US Dollar’s value against a basket of major currencies: the Euro, Japanese Yen,


Think about
that for a moment: the way we measure the US Dollar’s value is against a
collection of other un-backed paper currencies all issued by over-indebted,
bankrupt nations.


In other
words, its nonsense.


Case in
point, the Euro comprises over 50% of the US Dollar index. What’s the Euro? A
currency backed by a loose group of bankrupt nations with maybe two solvent
members in the bunch. Greece has already asked for an extension on its bailout
repayments (like they’re ever going to repay anything), Spain is bankrupt,
ditto for Ireland, Italy, Portugal, and others.


As for the
more solvent European members (Germany and maybe
France) their political leaders are getting crushed in the elections because
NOBODY who actually works for a living (or has a working brain) wants in on the


So in Europe
we’ve got one perhaps two solvent countries that are supposed to bailout 5+
insolvent ones (like that’s even possible). And the solvent countries are
comprised of people who want no part of the Euro.


Man, now
that’s what I call a real currency.


In simple
terms, to claim the Euro is a viable currency is pure insanity. And yet, this “currency”
comprises 50% of the US Dollar index (not as though the Yen or US Dollar are worthwhile


My point in
all of this is that measuring the greenback using the Euro is insane. 100%
totally insane. Which is why claiming the US Dollar is not collapsing is BS. If
you actually go outside the US (which
99% of commentators don’t) you’ll find that the US Dollar is worth much less
than the Dollar index is telling you.


I was
recently on a trip to South America looking at real estate. While there I was
told repeatedly by developers that they didn’t want to sign a contract in US
Dollars. Instead they wanted to do it in the local currency.  This has NEVER happened before during my
trips abroad (even as recently as 2009).


When I pushed
for having contracts based in Dollars, the price went up EVERY week.


The reason? The US Dollar is falling in relation to the
local currency on a daily basis.


So here are
local businessmen, (not economists or analysts), people who actually work for a living, refusing to accept US
Dollars during business transactions.


That alone
should tell you just where the US Dollar stands on the international stage.


In plain
terms, the US Dollar crisis is already underway. If you ignore the stupid
headlines and pay attention to the real world you can already see it. Prices of
goods are EXPLODING higher. It’s being hidden because retailers are downsizing
the size of their packages OR packing less goods in the same space (look inside
any cereal box or other dry good and you’ll find that at best it’s 75% full).


So if you
think things are fine because the US Dollar chart shows we still have a few
lines of support, you’re being mislead. The US Dollar is worth far, far less
than the chart shows you. So if you want to prepare yourself for a currency
crisis you need to move now.


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omi's picture

This article is full of it,btw

omi's picture

Haha. Nobody accepts US dollars here, aside from banks and FX exchanges. People are simply not facilitated to accept multiple currencie as in other weaker countries where dealing in EUR or USD is a matter of survival. In Canada, we simply don't have that problem.

Diamond Jim's picture

I stopped taking dollars to Tucson when buying gemstone rough years ago. Every year my $$$ were worth less by near 10%, I asked if dealers would prefer Euros instead. About half said OK. This has helped cushion the destruction of our currency.........

vas deferens's picture

dog shit vs dog shit

What pile smells the best??  good luck with that trade...

And you can still convert dog shit into real assets, buy something buy anything!!

flrzero's picture

I am also familiar with Argentina where real estate is listed in USD. But you have to remember some history here. Until the crash in 2001 the Peso was pegged to the USD and we have seen a nearly 4:1 devaluation of the peso and in Euro terms over this peso we are talking 6:1. So it's natural to keep real estate priced in the same effective unit currency after the blowout.

Also regarding the Real (I think the author is really talking about Brazil) you have to remember the history that the Real was introduced at parity in 1994. And now it's "strong" at 1.66. Sure, relative to close to 4:1 when the market was freaking out about the prospects of the Lula regime in 2002, but on a long term basis then the currency is still weak. The USD was also quite weak relative to European currencies in 1994.

I remember looking at a really nice apartment in Sao Paulo (Morumbi) in 2001 about 400-500 sqm occupying the entire floor of a tower building. The market seemed really depressed and the building seemed to be mostly unoccupied after 3 years. The price at that time was about USD 300k (and prices were indeed cited in Real despite the fact that the currency had lost nearly 2/3 of its value over 7 years since its introduction at that point in time) plus about 100k Real to finish the kitchen, appliances and few other things left to the buyer. I think the Real was close to 3:1 at that time.

tiger7905's picture

Latest highlights from Robin Griffiths interview. He see's China becoming the reserve currency but not anytime soon. Also see's gold being able to get up to $8000/oz

Vendetta's picture

I was in Canada a few weeks ago and there were places that did not accept US dollars.

tiger7905's picture

Living in Toronto, I find that odd, I'd still take it, might only give you $.95 Cdn for it. But I'd still take it. For now at least. :-)

GoinFawr's picture

Stop it, you'll make Mark Carney cry.

MarkS's picture

It's almost time to go LONG the $US...

Japan needs to weaken the YEN, they are targeting 100 short term and 115 longer term - they have a country to rebuild and without exports that ain't gonna happen.  And, Mar 31st is the end of the corporate year so repatriation is over.  Forget the numbnuts (Rogoff and his wife) that say Japan will sell UST - that would just further strengthen the YEN and why would you sell your 4% interest incoming when you can issue at 1.25% and weaken your currency like you need to do.

The Euro debt issue is going to be fast and furious over the next few months.  People are beginning to dump Italy and France along with Spain now.  The Irish are going to stuff the deal and Portugal is going to take a least $100B Euros - forget the $70B estimate.  Do you really want to hold the Euro in that case? 

Just how much debt can the Chinese buy to protect their export interests - not so much if they are going to start taking haircuts on it.  AND, when Irelandtarts it are Greece and Portugal (and you can add Spain to that list) not going to follow - do you really think anyone wants to take a 20-30% haircut?  More importantly, that hairut will cripple a number of banks - specifically French and German banks who bought up Irish debt after they announced sovereign backing -oops!  The Q1 German elections will look rosy for Merkel compared to the bloodbath that will take place if/when German banks fail...

While Trichet may hike rates next week, to do so more than once may put the breaks on what little growth there is and at the same time he'll raise at least the short term financing costs for all memeber nations but, it will hurt the weakest the most.  I would expect a one and done raise if they do actually follow through - they didn't last month.

So, I'm getting ready to take the other side of that bet and go long $US - I don't think that $US is pretty, I just think that it isn't as ugly as the others.  QE2 will end in June, QE3 may well be coming, but it won't come immediately.  And, that means that there will at least be a window where the FED isn't actively devaluing.

Mercury's picture

If the USD is really falling daily against local S. American currencies (which ones?) but gold is more or less treading water vs. the USD then there should be an exploitable arb opportunity here.  So, what's the deal?

Twindrives's picture

Won't be long before you're throwing $1.00 dollar bills in the penny jar.  Both are equally worthless.  Just like Bernanke and his sponsor Obama.  

TradingJoe's picture

Since I'm out I couldn't care less, but if i'd get back in then, short term, long the USD, I do believe a (dead cat) bounce/rally is truly possible, short term, short Paper PMs and everything else, except OIL!

Mr G needs to sell a news letter and is most likely short the USD :()))!

alien-IQ's picture

I think the USD is going to touch if not fully breech the all time lows of 70.69 before we see any significant bounce. But in the long term view..the USD is toast.

barnaby33's picture

I'm in Buenos Aires right now and the author is full of it. For any big ticket item you pay in dollars. Not just pegged to dollar pesos, flat out cold hard cash. I've been to many countries where the real price of something was pegged to the dollar, but here in Argentina, they flat out insist you pay in dollars.

Whichever country he's in and I'm guessing its Brazil the story might be different. In BSAS, its same as it ever was. Oh and the dollar isn't dropping against the peso, they are just having massive across the board inflation in basic commodities like food, same as the US.

pazmaker's picture

Let's see...there are 12 countries in South America....too many general terms here, at least specify which country because thay all have different economies.  Ecuador currency is the USD,  Venezuela currency has been dropping against the dollar... so please be more specific.

orca's picture

From a European standpoint
EUR/USD 1,4230 and SP 1330 YTD

USD/EUR 0,7463 > 0,7027 = -5,8%
SP 1257,64 > 1330 = +5,8%

So exactly 0,0% return. Zero sum with a literal twist. Dividend (what dividend?) pays for cost and opportunity loss. Global weighting MSCI World is 52% USA, altough trade is 32%.

cobra1650's picture

Argentina is a weak currency relative to the other big players in South America, which is why they still like the US dollar.

lindacrabapple's picture

I for one am glad to hear it. I wonder if they still list Argentine real estate in US dollars in the papers. There's no reason foreigners should have such an unfair advantage buying down prices all but the elite out of the market, or it takes people until their old age to own a very modest home. I remember so well the mid-2000s when it seemed real estate could only go up...and people were buying there if they could, in fear that if prices kept climbing in dollars they'd have to rent their whole lives.

Jack Sheet's picture

I remember Jim Sinclair reporting that during one of his recent trips to Tanzania they would not accept USD any more - with the possible exception of new 100$ bills- and if you were on a serious itinerary there you would need a fistful of Krugerrands to pay your way. (I just checked but couldn't find it in the archive)

falak pema's picture

My feelings are that in the current Beggar thy Neighbor currency war, cum central bank scheming to keep it all from falling apart, nobody knows where we are heading, as Benocide, chief orchestrator of this madness, has his head up his ass trying to reconcile the irreconcilable. So we will have to see which fiat domino falls first. If it's the Euro they may split money into two zones to save the political union. If it's the USD it'll be the price to pay to kick the can further to avoid avowed Deflation, rather to prolong the current one through stagflationary world doldrums, hoping a soft landing somewhere on the Moon in twenty years (what a pipe-dream); thinking you can run away from paying your debts through 'controlled' runaway inflation (ha-ha).

Dream on...but one day it's China that will call the tune...unless Ole glory tries war...

Anyways I'm not a trader like the most of you fire away...with your green backs!

ivana's picture

Check USD/MEXPESO & USD/CAD correlation. 101%

Amero is already fixed as escape strategy for powerz

obelisks's picture

I live in Northen Thailand near the Myanmar border.

I had to go over the border for a few hours and they allow this

if you pay for a short stay visa. They used to love to get 10 US dollars

but now insist on 500 Thai Baht ( if they can get away with it ).

But 500 baht is now $16.39 !! Last week i said can i pay in US dollars

which they reluctanly accepted because its in their rule book ! ha ha

GFORCE's picture

At the end of the day, this guy is using fear to peddle his wares.

Now that the DXY has bounced and everyone's scoffing at this call for dollar doom, he's changing tack and trying to say that a Guatemalan real estate agent is our lead indicator.

This reminds me; wasn't Jay-Z using Euros in a video and some supermodel refusing to be paid in dollars. supposed to mean the dollar was over?

Once the Euro is at 1, the Yen implodes following the repatriation myth and radiation and Britian slips back into recession (all expected)- the rush to dollars will blow this guy out the water.

bjennings's picture

Well, not that I don't agree with what this guy is saying but I do agree with your point that he is fearmongering somewhat.  I lived and worked in South America for two years and in most instances it was against the law to construct a contract that was stated in terms of anything other than the local currency.  Other than that I believe his claim that the dollar is beinig trashed.  I just don't believe in this picture painted where you go into other countries and there is a section of the contract where you get to decide which currency do you want this transaction denominated in as if there are a dozen check boxes and you get to pick one.

Quaderratic Probing's picture

In Canada the USD is falling against the CAD and we buy houses in Canadian dollars....But we always did........

tony bonn's picture

how dare you tell the world that the emporer has no clothes!

Jack Sheet's picture

This post is OK. Just a correction ( and I have wrtitten this a few times now on this site)- for some inexplicable reason the fallacy is being disseminated all over the English speaking media that Merkel in Germany is losing regional elections because of the Euro and the PIIGS bailouts. Anyone who reads the German press (language skills required) will ascertain that this assertion is bullcrap. For one thing, the regional elections were fought on local issues up to last week and then on Fukushima in Baden Wuerttemberg. For another, not a single political party in Germany has any declared policy on the EUR bailouts, let alone a hard line. So Merkel or no, the bailouts will continue because monetary policy in the EUR region is dictated by the unelected elites in Brussels.  Best regards.

alexwest's picture

#hat they didn’t want to sign a contract in US Dollars. Instead they wanted to do it in the local currency.

i wonder about idiot who wrote that kind of nonsense ..
does he live in real world? $$$ is jsut matter of exchange
if you dont like $$, you can exchange $$ for any currency you wish..



Matto's picture

The USD reserve status has provided a global sink hole for the inflationary theft of wealth from the people. If the sink hole is about break (ie repudiation of the USD as global reserve currency) then the world will very quickly become awash with excess $$$$. Hyper, hyper hyper. Not saying it is there just yet but the trend is heading that way and most likely gathering momentum. When it cracks, all bets will be off.

Jack Sheet's picture

...also, if you are a South American business and are paid in USD, then these dollars will reside in the account of a US bank and will be located in the US. You  might not want that either.

Jack Sheet's picture

True, but if you want to exchange the USD for something else, the banks will rip you off on the currency transaction.

no2foreclosures's picture

Hey Graham, name the South American country(ies) that are not accepting USD.  I just spoke with the guy who does the biggest residential real estate deals in terms of total sales in Argentina and he says that the Argentineans still ONLY accept USD for all real estate transactions.  In his 7 year run, he told me that there were maybe 2 transactions that the seller wanted the deal done in a currency other than the USD, i.e., in euros. And he has done tens of millions of USD transactions.

BTW, I agree with your general premise that the USD is dead, but its true worth or worthlessness is really priced against gold and silver.

Jack Sheet's picture


"Argentina’s data stand out among nations, Cavallo said. “Only two countries have such high inflation,” he said, referring to Latin America. “Venezuela and Argentina. Venezuela is transparent about it. We measure prices in Venezuela and they are very similar to the official Venezuelan statistics.”

It looks like Argentina hasn't got religion yet about controlling peso inflation. Official inflation rate 11%, unofficial 30%.

Urban Redneck's picture

Twenty-five years ago, if you tried to do a land deal in Brazil in the local currency you would be laughed out of town.  So the tables have turned, but it is really just a new twist on an old story.  USDX is a (G7 era) relative measure of strength among fiat currencies.  If you want to measure inflation against fiat- check the CRB.  An actual CRISIS in the dollar would be if countries were to de-peg their currencies from the dollar, or significant commodities start trading in non-dollar denominated contracts.  Both of these would signal a reduction in the significant dollar demand as the reserve currency.  The current situation is more one of high inflation and currency weakness, it may well turn into a currency crisis, but it is not yet there.

luigi's picture

Oddly enough, every time this has started to be (i.e. countries trying to de-peg from the dollar, or trying to sell significant commodities in other currencies) the "West" always put the gun on the table and every more often used it (Iraq, Afghanistan, Iraq again, saber rattling against Iran, Libya...). The current situation is more one of an higly desperate gangster-west imposing his rules more and more through offers you cannot refuse or plain and simple through use of open brutal force. How long can it possibly last?

Azannoth's picture

The gun on the table is only the last resort, 1st come bribes, blackmail, strongarming, even assasinations only when all above fails it's 'Send in the Marines', war it's only the tip of the iceberg

No1 will write in the history books, 'We invaded Afganistan because the Taliban cracked down on poppy growing and would not play ball with an Oil Pipeline'

they will write 'We invaded A. because evil men schemed against us in their caves'

GoinFawr's picture

Actually, far more effective than 'a gun on the table' has been the 'GS alumni in the central bank' method.

Even a fleeting glance at the list of who runs the central banks that print the fiat that make up the dollar index can be quite disillusioning...

luigi's picture

Exactly this continuous ressourcing to the last resort makes my wonder as of how long "we" will be able to still dictate events. Maybe the next storybook won't be written by those who write that we invaded A. because evil men schemed aginst us in their caves, but rather by those who will write "they invaded Afghanistan...". We live interesting times indeed.

Creepy Lurker's picture

"How long can it possibly last?"


Until we end up tangling with China, at which point the oligarchs will either back down or launch WWIII. (my opinion, anyway)

dumpster's picture

$250 please  wanna bet graham still takes those imploding greenbacks

GoinFawr's picture

... because a gun is being held to his head forcing him to.

There, fixed it for ya.

Seems a bit of salesman, sure, but his anecdote about how the USD is perceived outside stateside is spot on, IMO.

IQ 145's picture

 Excellent article; watch the mexican peso appreciating vis a vis the dollar; mind boggling. Things that the citizen doesn't notice; (lot of noise on the news links).

TruthInSunshine's picture

I am tiring of Graham, to be perfectly honest.

He was calling for a massive dollar rally not long ago.

It's one thing to put forth some good and solid analysis, but this is sort of hit and run, sensationalistic teasing to sell a newsletter.

RoRoTrader's picture

On another point, you keep calling/implying for 'the sky is falling' price, so what is your price to get short the DOW, S&P or whatever?

What price are you short at?

RockyRacoon's picture

Get short?  How about get out?!  You're asking the old question about how long you can pick up those pennies in front of an oncoming train with no dead-man switch.   If he gave you a concrete answer you'd be skeptical -- as would I.  Russian roulette is played by fools and won by none.  But, of course, it might be different this time...

RoRoTrader's picture

The FED's ad nauseam dictates re inflation and recent managed perception campaign on ending QE has to show something real and tangible/credible/believeable very soon or its credibility - what is left of it - is over. Period.

Best guess is a USD rally and a commodity selloff coming.

The US m/c may be stupid but never under estimate stupidity.