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Is the US Dollar Predicting Another Deflationary Collapse?
Today at
12:30, we’ll know where things are headed.
Today at
12:30PM the Fed will release is FOMC minutes. With QE 2 ended in another week,
the Fed June FOMC meeting was the last hope for bulls who believe the Fed is
about to unveil another round of QE or some other additional liquidity measure.
As I’ve said
repeatedly over the last few weeks, if the Fed doesn’t unveil something new, the markets will tank in a big way as
the next Fed FOMC meeting is in August. With the US economy deteriorating at a
rapid pace again and stocks’ primary support (QE 2) ending, the markets could
see some very nasty drops to the downside.
Indeed,
worldwide, interbank liquidity is beginning to dry up rapidly (just like in
2007). Europe has seen interbank lending collapse. And now China has found
itself in such an interbank liquidity freeze that the central bank is halting
the sale of various bills because there simply isn’t enough cash floating
around to meet supply.
Combine this
with the ongoing political struggles in the Middle East, roaring inflation in
China, Europe’s ongoing banking collapse, and the US’s own debt problems (we’re
raiding pension funds to meet new debt issuance) and you’ve got a recipe for
disaster.
Put another
way… are we about to experience another major round of deflation?
The US
Dollar is definitely hinting that something is afoot. Since bottoming in May
2011, we already established a series of higher lows and higher highs:
We’ve also
broken above both the 20-DMA, the 50-DMA and we’ve staged a bullish cross-over
(when the first breaks above the second).
Big picture,
we could definitely see a sharp US Dollar rally hit as we have a clear bullish
falling wedge pattern forming in the US Dollar. The US Dollar has just poked its head out of this pattern,
but we’ve yet to get a confirmed breakout.
If we do get a confirmed breakout to the
upside, the above pattern predicts a run to at least 80 if not 85. The only
thing that could push the US Dollar to these levels would be a full-scale
Crisis (the only times the US Dollar has rallied since 2007 was during Crises).
I want to be
clear here. The US Dollar is ultimately a doomed currency. But it remains the
“flight to safety” trade amongst global currencies (along with the Yen and most
of all, Gold). Europe is far worse off than the US. And China’s now seeing a
liquidity crisis of its own.
With that in
mind, we need to consider that the US Dollar may in fact be predicting another
deflationary collapse. So if you’ve not taken steps to prepare for the coming
Crisis, you can download my FREE report devoted to showing in painstaking
detail how to protect yourself and your portfolio from the coming ROUND TWO of
the Financial Crisis (round one wiped out $11 TRILLION in wealth).
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Again, this
is all 100% FREE. To pick up your copy today, go to http://www.gainspainscapital.com
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Good
Investing!
Graham
Summers
PS. We also
offer a FREE Special Report on the inflation situation in the US. This other
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Disaster explains not only why inflation is here now, why the Fed is
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steps to prepare AND profit from what’s to come. And it’s all 100% FREE.
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Yep, people will exit the stock market into holding USD but they will then be holding a devaluating piece of paper.
This time round I think they will begin exiting USD for AU/AG, the REAL currencies.
"Europe is far worse off than the US."
Funny here in Europe we're bombarded daily with "California is far worse off than Greece" type of messages...
Pots and kettles?
Will the USD rally because of flight to safety or a big carry and FX swap unwind?
"Europe is far worse off than the US."
That's a rather broad statement to make. In terms of real economy, I'd say Europe, as a whole, is better off than the U.S.
America's economy is a shit-show that fuels freakishly-strong TBTF banks, ships manufacturing overseas, underfunds pensions, bombs more than everyone else combined, and craps all over its lower-middle class, especially the savers. The EU is pretty shitty, but at least it has a few (big) strongpoints like Germany.
The charts go up until they go down again and vice versa, rather like a honeymoon pr**k.
Richard Russell proclaimed a bear on the Dow in March 2009 then reversed his prediction every 2 months all the way up to 12000. Completely useless.
the Charts provided by Phoenix Capital Research are incorrect:
on May 23rd. DX posted a short term high at 76.36 on an intraday basis and at 76.10 on a closing basis
on June 16th. DX posted a LOWER HIGH at 76.1 on an intraday basis and at 75.75 on a closing basis
both on an intraday and on a closing basis june 16th was not a higher high, it was a lower high.
It would help if people got facts right before drawing conclusions
yeah thankd Graham
but a few weeks back you were trying to sell advice on how to survive an inflationary storm with a collapsed dollar now its deflation again
AAt least be man enough to admit you may have been wrong and have had a change of
heart. I aDMIOT WE ARE DOOMED though and agree with most of your articles
but less shilling please
In my post last week I explain why QE2 funds going to European Primary Dealers and then to EU banks to defend the Euro peripherals (nice word for PIIGS). This explains why the Euro has remained strong and is now going to fall hard against the dollar.
HAS THE FED MADE AMERICA VULNERABLE TO A EUROPEAN COLLAPSE?
Federal Reserve documents, recently declassified under Freedom of Information Act subpoenas have demonstrated that virtually 100% of $600 billion in new paper money distributed by the Fed in their QE2 stimulus scheme appears to have gone to European banks. QE2 may have done nothing to create jobs here at home; but the flood of the Fed’s U.S. cash into Europe explains why the Euro currency has been strong, even as European Banks are facing massive sovereign debt losses from their holdings in Portugal, Ireland, Italy, Spain, and Greece (“PIIGS”). With today’s announcement that Moody’s may downgrade the credit rating of two of the Fed’s largest European trading partners, America is financially vulnerable to a European collapse.
Congress passed legislation in 1977 that gave the Fed a “Dual Mandate” to maximize American employment and keep our purchasing prices stable. The Fed seeks to achieve this Dual Mandate by injecting money into the economy to encourage employment growth; or draining money from the economy to slow the rise of inflation. The Fed currently has an established network of 20 very high credit quality “primary dealer” banks and brokerage firms that are allowed to transact directly with the Federal Reserve’s trading desk.
The Obama Administration and most economists cheered last fall that the Fed’s QE2 stimulus would dramatically increase consumer demand and shrink unemployment in the U.S. We argued that the Fed’s stunningly large paper money printing scheme would just fire up inflation and might actually hurt employment as higher purchasing costs hammered business profitability. Now that worldwide inflation has burned down the Middle East, accelerated the European sovereign debt crisis, fomented social unrest in China, and caused unemployment to rise in the U.S.; both conservative and liberal Americans are angry at the Fed’s miserable performance.
The Dual Mandate for the Fed may have sounded reasonable in 1977, when the vast majority of Fed’s primary dealers were American based firms. But today the majority of the primary dealers are controlled by foreign banks and most of those banks are European - BNP Paribas, Société Générale, Barclays, Credit Suisse, Union Bank Switzerland, and Deutsche Bank. These banks are also reported to be the largest holders of the PIIGS sovereign debt. After analyzing the secret Federal Reserve trading records recently declassified under a Freedom of Information Act, Analyst Tyler Durden of Zero Hedge stated:
“the Fed has been conducting yet another stealthy foreign bank rescue
operation, which rerouted $600 billion in capital from potential borrowers to
insolvent foreign financial institutions in the past 7 months. QE2 was nothing more
(or less) than another European bank rescue operation!”
As his chart below demonstrates the increase in total cash holdings of foreign-related banks in the U.S. since the start of QE2 is $630 billion, according the Federal Reserve weekly H.8 data.
The chart also explains why the exchange rate of the Euro currency has been miraculously so strong versus the United States dollar, at a time when the insolvent PIIGS have been hemorrhaging cash. European primary dealers appear to have taken on the full $600 billion in borrowings from the Fed QE2 through their U.S. bank branches. Then with just a mouse click the dough was surreptitiously wired to their headquarters offices in Europe. This titanic influx of Fed cash overwhelmed the currency markets and drove the Euro exchange rate up.
Unfortunately the European mouse clicking affair became a much more dangerous game today as Moody’s credit rating agency put the Fed’s French primary dealers, BNP Paribas Bank and Société Générale Bank, on credit watch for a possible downgrade due to their holdings of Greek debt. Given that the Greeks now share the same credit rating as the People’s Republic of Cuba and all the Fed’s European primary dealers own huge amounts of Greek and other PIIGS debt; the Fed’s loans are looking extremely dicey.
Most Americans have so far ignored the European sovereign debt crisis as somebody else’s problem. But the last time a Federal Reserve primary dealer got into credit problems; Lehman Brothers almost destroyed the America’s entire banking system. With Greece already preparing to default and the other PIIGS looking vulnerable, don’t be surprised if the Federal Reserve has made America vulnerable to a European collapse.
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The Bernank cannot afford a deflationary collapse. This is very destructive:
http://finance.yahoo.com/blogs/daily-ticker/retirement-know-dead-europac...
The Bernank needs to prop up RE and the stock market with printing.
It's not up to the Bernank.
Agree, Europe in much better shape. Read the excellent GEAB Bulletins, especially the last which is No. 56, explaining how Europe is taking realistic steps to address problems
OK, I take your point to mean that tech analysis may not be much but it is all you have. My point was that according to what is taught in colleges re finance and econ we should be able to develop a fair picture of pricing in any given market over time via the data/signals we can collect, either using fundamental or tech analysis. But this is no longer the case, and I for one will not be putting my nest egg, betting my future on anything right now. At least nothing I can't hold in my own two hands with a clear legal right of ownership. I sure would not buy a piece of paper that says I am part owner in a corporation (or government), dips or otherwise.
Oh and if you do go to Oracabessa make sure you are heterosexual because otherwise you will have serious problems and no help is available from the authorities, in fact you will have to pay a bribe to get out of the country if you do seek their help.
Dear Boiltherich,
Your observations about the futility of technical analysis also bring fundemental analysis into the same grave. But the markets have to agree upon some type of measurement regardless of any situation, if not, the market would remain static because no one could formulate an action.
Still, some of your observation is accurate, in that singlar markets can easily be misleading. So, the alternative to abandoning technical analysis can be overcome (and rightly so), via technical analysis. So by including the PM's, index ETF's, Financials, Currencies, Grains, et al it is possible to assemble a picture of the markets in time. Throw in some indicators to reveal bias in the market and you can start to make an educated guess with entry and exit points and play the bull or bear.
Fundementals? I'm not sure there are any fundementals anymore. In fact I'm quite sure there are not,... save for one. BTFD, stupid!!!
Continuation of POMO indeed! 7 Days, 8 Days a weeks until forever we'll just POMO along on a weakly (on purpose) announced schedule of temorary POMO until we explode! That's righth my friends,... come stay with us a butiful Orcabessa and e'joy the flowing rivers and faunta..... gurgle... splat.... going down.......
They are funnymentals.
B-b-but, I just finished reading The Financial Crisis “Round One” Survival Kit. When the big one hits, I'll be so confused.
All three "free" reports from Phoenix Capital Research are here on scribd:
The Financial Crisis “The Final Round” Survival Kit
http://youtu.be/Gdv5EtZQ6jg
Form months he was pitching the dollars demise but has now has flip-flopped.
Zero credibility.
He has not flip flopped. He has repeatedly noted that the dollar is going to fail as a reserve currency due to the feds monetary policies and this gov being in debt ten miles deep. In this post he is stating that at this moment in time our worthless doomed currency is the best of the worst --- for now. The flight to quality will temporarily boost the dollar, but for how long is the question. I think he is fucking spot on with his analysis.
There are a lot of conflicting and just plain odd signals in charting all over global markets, equity, debt, ForEx, you can't find a market or sub market that is not sending strange signals. To choose one in isolation and interpret it as anything other than background noise in a system that no longer follows rules is just a waste of time. Technical analysis is moot by now with so much false data in the financial and economic world, all it can give is false feedback, ditto fundamental analysis. Both require assumptions about accounting and knowledge of aggregates and supply/demand, assumptions that just no longer hold true between mythalogical accounting, secret aggregate data (M3 for example) and massaged supply and demand issues, as well as other plain fictional data and outright manipulation of markets and indexes.
Bottom line is the guy that wrote this piece is attempting to extrapolate something he can't, and nobody else can either (all of us)! You think you know where it is going and approximately when, but then it does not. Has not. I have seen a lot of tea leaf reading over the last few years with almost none of it being an accurate guess in either long or short term.
Dude, I don't know what your using for charts, but mine don't show any kind of a break out, even temporary, in fact, on tfc-charts it shows that recent highs stopped right at the down trendline. And as for the higher highs and higher lows I think you are showing very subjective and short-term thinking. What my chart shows is the dollar working down a symetrical wedge and rapidly coming to a vector decision point. Taken everything into consideration, meaning the action of other related charts as well as the overall health of the dollar chart and its associated indicators, I think your smoking some really good weed, mon.
Welllll,..... don't Bogart that joint my friend, pass it over to me.
Dollar has to go up, otherwise Benny cant start the printing. So no collapse for now, you´ll have to wait till winter.
Look no one can print enough dollars to support the people who are receiving Free in this country. Think back twenty years and we didn't have the immigrats and the "welfare complex famlies" (those who spawn multitudes of children that you support because you are productive). Let's just take a look at Los Angeles:
http://www.city-data.com/city/Los-Angeles-California.html
The data here say there are:
In other words you have two non-whites for every white. Now don't be throwing kumquats but since it is white productivity that created this country's success, just where do you think future success is gonna come from? (90% of the population until around 1980 when the wholesale reverse colonization of this country was engineered by the liberals, who were...ahem...accompanied by the "conservatives" drawn to the drug money of overseas "cheap labor").
It's an odd thing that somewhere some perverse thought that this country was somehow bad for being majority white and successful meant it had to be destroyed. I mean ya don't see Oprah living in Africa, but whine whine whine, lets get rid of the white people and their ways; maybe what should be happening is that black americans should be adopting the success modes created by white americans and demanding that foreigners be send back to where they came from. If immigrats continue, and the birth drop babies of the hispanics are not sent home, the bell is tolling for this country, and that means our beloved American blacks too. Stop complaining about Bernanke and look at what the immigrats mean...there will be no America, there will be no American dollar unless we turn back the clock on the immigrats and take back our country for ourselves.
Yes, I think all historians agree that immigation has been the downfall of America (at least from the native american standpoint (LOL))! Those lousy shiftless Germans, Irish, Italians, Chinese, Mexicans etc. (just name the newest immigrant group for that time period) Thank god we had lots of low level work to keep them busy (in the case of blacks it was called slavery). Yep, go for monoculture everytime since diversity is a well known problem in evolution as it prevents beneficial mass extinctions. How the amount of melanine in your skin can predict anything other than vitamin D producing capacity it a bit of a puzzle though.
agree.
Who gives a crap about skin color?
Now, if you wanna compare "cultures" or discuss melting pots vs. balkanization....
Alright, so answer me this:
Is there ever, ever going to be a time when the U.S. should slow or cease immigration, for any reason, whatsoever? Or should we have 350, 400, 450, 500 million, 1 billion Americans, who have arrived from all corners of the Earth?
If you don't have an answer to this, then don't insult people who are trying to have an honest debate about immigration.
Nothing like a bit of silly xenophobia to get the day started. Where did you go to school?
Can you actually respond to the arguments, rather than play the "racist xenophobe" card?
Having said that, I would make a couple of points:
1) the welfare mentality is pretty widespread now, biggest problem is blacks, but still alot of whites and mexicans, and the mexicans are churning out kids, to get u.s. citizenship, and it's in their culture
2) having said that, this is probably not the best place to discuss race/immigration - but it does relate to the overall picture, because all it does is increase welfare dependency at a time when jobs are few
I'm guessing the Citadel.
Yeah, well, with whatever pap you post the solution is always the free treasure trove and wealth of info available FREE from you. Go away.
On an unrelated note, looks like silver is feeling the Bernank Effect today. I was really hoping to load up on some sub-33 dollar silver before the "deflationary collapse" hits.
dp
you're a moron Mr Summers. I reckon you're about 16.
"Europe is far worse off than Us..." that's rubbish. US is gigantically worse off and has a PPT that likes this USDX trading range.
My Question Here: Who did "copy and paste", Phil's Stock World from you or vs?!?!
LMAO Big Time :-())))))))))))))))))
This is very interesting.
The key point being what portion of average prices was attributable to credit.
The question becomes what is this number.
To simplify this further.
There are 10 cars for sale with an average price of $35,000.
With credit, in a terrible job market would result in very few sales, but with no credit facility, sales would be nonexistent.
So the question becomes at what price will the cars sell if at all.