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About That "Strong" Dollar

Tyler Durden's picture




 

Submitted by Simon Black via Sovereign Man blog,

I’ll admit that I wasn’t much of an athlete as a kid, at least in any traditional sport.

 

(I famously struck out a tee-ball when I was five years old, managing to hit the stationary tee three times in a row. I’m not sure this feat has ever been duplicated before or since.)

 

But my parents still enrolled me in all the local sports leagues ‘til about sixth or seventh grade– you know, the ones where they have to put your kid in the game as long as you pay the dues.

 

Fortunately (or rather unfortunately) they lumped all the sorry kids onto the same basketball squad. Strength in numbers— we all sucked together.

 

And, bearing in mind this was the 80s, our opponents wasted no time pulverizing us into dust, then rubbing our noses in defeat.

 

Every single game was like a bad Karate Kid sequel… except more guys in skeleton costumes without the climactic Crane Technique victory at the end.

 

Occasionally (by which I mean rarely), one of us would miraculously score a basket.

 

This was a momentous achievement for us, and one that would be wholeheartedly celebrated by the entire team.

 

 

And invariably there would be someone from the opposing team who would jog by and snarl some pithy 80s sports metaphor, my favorite being “Scoreboard.”

Now, if you’re not a native English speaker, “scoreboard” is an idiomatic expression generally employed by some gigantic douche-bag to remind people that he’s still winning.

It basically means, “Whatever you’re saying, doing, or arguing doesn’t matter, because we’re winning.”

I’ll use an example: “Yeah, the US has $18 trillion in debt and a central bank that’s nearly insolvent… but you know what? Scoreboard.”

The point being that the dollar is ‘strong’ right now relative to other currencies. A number of currencies from the euro to the Japanese yen, for example, are all near multi-year lows.

So, who cares about the dollar’s weak fundamentals because it’s so strong right now. Right?

It’s important to first understand that global capital flows are extremely fickle.

Central bankers around the world have conjured trillions of currency units– dollars, euros, yen, etc. And those currency units have to find a ‘home’ somewhere.

If you’re holding $10,000 or even $10 million, many people just stick it in a bank.

But if you’re sitting on hundreds of billions, you have to find a safe place to park it.

Traditionally (and absurdly), institutional investors favor government bonds as that ‘safe place’.

It used to be you could just park it in some western government bond and walk away for a nice dinner and a movie.

Not anymore. Now you have to be constantly worried and alert.

Because in an instant, the US government could shut down again. Japan could default on its prodigious debt (in excess of 200% of GDP). The eurozone could come apart.

Any number of things could happen.

And as a result, capital regularly shifts from one major currency to another based on the market’s assessment of risk, i.e. which one is the ‘least ugly’ right now.

At the moment, the US dollar is choice.

This isn’t necessarily a vote of confidence for the dollar. It’s more like a vote against all the others.

If big institutional investors must choose between bankrupt America and bankrupt Europe, right now they choose America.

But this is a decision that can and will be changed in an instant. Just look at the Swiss franc.

Since September 2011, the Swiss National Bank (SNB) had essentially put a ceiling on the appreciation of the Swiss franc with respect to the euro.

The franc had been rising for months. And I predicted in July 2011 that the SNB would intervene with some sort of controls.

They did, shocking the world with this statement on September 6, 2011:

“With immediate effect, [the SNB] will no longer tolerate a EUR/CHF exchange rate below the minimum rate of CHF 1.20. The SNB will enforce this minimum rate with the utmost determination and is prepared to buy foreign currency in unlimited quantities.”

Investors yanked their money and the franc dropped like a stone.

But a few days ago, the SNB reversed this control. They are now no longer limiting the rise of their currency.

And the franc soared 10% almost instantly– a HUGE move for a major currency.

Why did this happen? Because in a universe of options that only includes the dollar and euro, the dollar wins.

But if you expand that universe even a little bit to include the Swiss franc, suddenly the real truth comes out.

Investors have far more confidence in Switzerland than the United States. They’d rather hold francs.

The next one to watch is the Hong Kong dollar.

Right now the HK dollar is pegged to the US dollar. But I’ve said it before: there may likely come a day when the Hong Kong Monetary Authority stops importing US monetary policy and abandons this peg.

We’ll see the same immediate surge. And anyone holding HK dollars will have a lot to gain.

 

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Fri, 01/16/2015 - 17:00 | 5671854 rubiconsolutions
rubiconsolutions's picture

Shiniest turd in the punchbowl.

Fri, 01/16/2015 - 17:04 | 5671858 Publicus
Publicus's picture

Choose freedom! Choose Bitcoin!

Fri, 01/16/2015 - 17:06 | 5671865 kaiserhoff
kaiserhoff's picture

But a vote against the others is the same thing, Simon.

What you gonna use, wampum?

Fri, 01/16/2015 - 17:19 | 5671925 Liberal
Liberal's picture

As a staunch liberal, I strongly do not understand those calling for gold and silver to become our currency again.  You can't chop up gold and silver and redistribute to those who won't...can't work.  You can't cut up someone's silver eagle and give it to someone else.  So why would you be for that?  That's barbaric!

Fri, 01/16/2015 - 17:31 | 5671947 homebody
homebody's picture

Liberal   You win.  Your post is the most sarcastic that I have read in months - keep it up.  Good laugh.

Fri, 01/16/2015 - 17:30 | 5671975 TradingTroll
TradingTroll's picture

Exactly. The USD is so much better. At a local Starbucks I tore a $10 bill into 5 pieces and gave one strip to the clerk. The coffee I was buying was $2,

 

She told me to bring gold or silver next time.

Fri, 01/16/2015 - 17:36 | 5672006 Liberal
Liberal's picture

That's wonderful.  But I prefer digital currency.  Think of all the wealth we can create with a few keystrokes.  And think of all the money we can confiscate from those who want to keep all of the money they earn without paying their dues to the government!  No more cash!  It's 2015.  Let's go digital!

Fri, 01/16/2015 - 17:43 | 5672027 homebody
homebody's picture

We already are mostly digital.  All we need now are several trillion dollar coins to back it up.

Fri, 01/16/2015 - 17:46 | 5672037 disabledvet
disabledvet's picture

Sure beats having to transport and actually count the real thing...or anything real for that matter.

 

"I just made up the 750 billion in my head.  HAHAHAHAHAHAHAHA!"

Fri, 01/16/2015 - 17:59 | 5672093 Liberal
Liberal's picture

I'm getting a hard-on just thinking about it but as a staunch liberal, I will strongly refrain from getting an erection because it might be racist or homophobic.

Fri, 01/16/2015 - 18:20 | 5672143 Bill of Rights
Bill of Rights's picture

Where have you been sleeping In a cave ? We're already full blown digital. Tell me when was the last time you mailed a check or mailed a letter?

Fri, 01/16/2015 - 17:10 | 5671892 Bay of Pigs
Bay of Pigs's picture

BTC has been cut in half in the last 3 months (over $400 to $200 now) and is in a down trend from over $1000 in late 2013.

Why buy it now?

Fri, 01/16/2015 - 17:03 | 5671861 InjectTheVenom
InjectTheVenom's picture

>>>  Gold & Silver

>>>  US dollar

Fri, 01/16/2015 - 17:08 | 5671882 kowalli
kowalli's picture

shit cost more than usa dollar

Fri, 01/16/2015 - 17:58 | 5672088 headhunt
headhunt's picture

When the developing nations no longer receive the free billions the US gives them there will be a different villain then.

The collapse of the US dollar means the collapse of the world economies and their respective dollars. that includes China and by proxy Russia. Europe, China and the US are linked at the economic hip - like it or not.

 

Fri, 01/16/2015 - 21:43 | 5672642 lasvegaspersona
lasvegaspersona's picture

head...unless the billions are worthless...in that case they would be better trading in their own currencies...

The world can easily live without dollars....BUT if you can't see the world from that perspective...well then you will always see it as you do now.

Fri, 01/16/2015 - 18:28 | 5672111 ajax
ajax's picture

 

 

The USD went from CHF 1,01 to 0,86 in the blink of an eye this week. Just be glad you're not living on a USD pension in CH or anywhere in the EU. Add to that FATCA and you've got millions of Americans of basically middle class means living in Europe who have been fucked royally. A lot of ex-US military live in Europe, they have dual-citizenship status families and they are being fucked over.

Fuck your bitcoin, boys.

And REPEAL FATCA

 

Fri, 01/16/2015 - 18:33 | 5672162 ajax
ajax's picture

 

 

Hey Simon: Je suis USD

https://www.youtube.com/watch?v=MXWHtuXu_mo

Fri, 01/16/2015 - 18:47 | 5672227 Bloppy
Bloppy's picture

The point is probably correct, but so what? Dollar hangs on by default and reckless federal government continues the madness

 

 

Hapless GOP schedules three presidential debates on loser network CNN:

http://tinyurl.com/ox6zdgp

Fri, 01/16/2015 - 17:02 | 5671856 Dr. Richard Head
Dr. Richard Head's picture

This whole passing the buck with QE from different central banks is sure getting old.  I wish someone would finally "win" in this game of Russian roulette. 

Fri, 01/16/2015 - 17:15 | 5671907 disabledvet
disabledvet's picture

In my view the French are about to abandon the euro.

 

Makes no sense for them to buy dollars!

So they and everyone else in the EZ start loading up on Swiss francs in anticipation of a MASSIVE "internal devaluation" of the euro (which will cease to exist) as all the nations of Europe return to their respective national currencies.

 

What is the value of Swiss Francs when that happens?  I don't think very much...but they will have value.

The euro will be worth ZERO at that point...but certainly will make a fine collectible.

Fri, 01/16/2015 - 17:46 | 5672046 falak pema
falak pema's picture

have you asked Mr Coeure?

Fri, 01/16/2015 - 18:21 | 5672144 ajax
ajax's picture

 

 

@disabled vet: sorry but the USD will be retiring first, it already is. Talk about flogging a dead horse. The USD has been so debased it's frightening.

Fri, 01/16/2015 - 17:08 | 5671876 Renov8
Renov8's picture

In the land of the blind, the one eyed man is King.................When are we going to open our eyes people?

Fri, 01/16/2015 - 17:24 | 5671951 Carpenter1
Carpenter1's picture

The most dangerous moves are the ones you don't fully understand at the time, but do later when an event occurs. That's how this SNB move will play out.

Fri, 01/16/2015 - 17:10 | 5671879 homebody
homebody's picture

Markets way up today because some bullshit number indicating consumer sentiment is at all time highs - who the hell are they asking?  No one in the fly-over States!

Fri, 01/16/2015 - 17:16 | 5671910 quasimodo
quasimodo's picture

UMich? if it's that one your talking about, then there is a severe lack of credibility unless your one of those that sits in the circle jerk.

Fri, 01/16/2015 - 17:11 | 5671899 Bell's 2 hearted
Bell's 2 hearted's picture

"At the moment, the US dollar is choice.

This isn’t necessarily a vote of confidence for the dollar. It’s more like a vote against all the others."

 

So?

 

King Dollar: That ain't gonna change anytime soon

Fri, 01/16/2015 - 17:13 | 5671900 freedom123
freedom123's picture

-> buy more USD, its value will rise

-> buy more RUB, it's value will rise

Fri, 01/16/2015 - 17:16 | 5671914 falak pema
falak pema's picture

Changing monies  on the FX is like changing the nationality of your princesses as ideal brides on the royal blood line market place. 

One day its the Italian princesses, the next its the french, then the mauresque of Spain, then the ruthene of Ukraine, then the Persians of Tehran, then its back to the Italians.

One hellva merry go round where woman's naked skin feel like the silk, the sign of riches; like today its all the smooth fresh feel of new FIAT currency.

What a crazy world.

How do you like your tits Sir ? Sunny side up and blonde? or Darker nippled and Grexited?

Maybe you like them delicate and geisha eyed, or just bland and slit eyed?

We do have ALL types; 'cos we ARE the TBTF ! 

Fri, 01/16/2015 - 18:14 | 5672123 ajax
ajax's picture

 

 

@Falak pema: Nice one sir. Sounds like you've worked at a forex trading desk. That's exactly the sort of dialogue you hear all day every day - except you left out the part about the expensive cars.

Fri, 01/16/2015 - 17:27 | 5671930 headhunt
headhunt's picture

"Because in an instant, the US government could shut down again" - that is the biggest can of horse shit in the monetary world and does not mean squat.

On the other hand "Right now the HK dollar is pegged to the US dollar. But I’ve said it before: there may likely come a day when the Hong Kong Monetary Authority stops importing US monetary policy and abandons this peg. We’ll see the same immediate surge. And anyone holding HK dollars will have a lot to gain."

I suggest it is more likely China will do something crazy and anyone holding HK (which is really China) has a lot to LOSE.

Fri, 01/16/2015 - 17:23 | 5671939 Bell's 2 hearted
Bell's 2 hearted's picture

what Black omits

 

1) QE flooded world with $US.  Much of which went into emerging markets seeking higher yield.  A LOT of emerging market debt priced in $US

 

2) with QE spigot turned off ... and global economy slowing ... obtaining $US by emerging markets will not be easy (driving usd even higher) ... else they decide to default

Fri, 01/16/2015 - 18:26 | 5672151 LawsofPhysics
LawsofPhysics's picture

or simply abandon the dollar altogether.

Sat, 01/17/2015 - 14:46 | 5674187 bid the soldier...
bid the soldiers shoot's picture

It shouldn't be too difficult to get the ATM machines to dispense cowry shells..

Fri, 01/16/2015 - 20:18 | 5672428 bid the soldier...
bid the soldiers shoot's picture

What about 

1) QE flooded world with $US.

That flooded world" was a drop in the bucket compared to the QE that went into the US stock markets.

2) with QE spigot turned off 

QE ends October 31, 2014.  Markets get wobbly January 2015, 2 months later. 


"It's a bird.  It's a plane.  It's QE4." (loud cheering) 

Fri, 01/16/2015 - 17:25 | 5671949 Bell's 2 hearted
Bell's 2 hearted's picture

US deficit is shrinking ... less usd "out there"

Fri, 01/16/2015 - 17:30 | 5671971 Carpenter1
Carpenter1's picture

Is that why the gubbermint has to keep putting forward bills to increase the debt?

Less USD? You bet, but not because the govt isn't spending like the fools they are.

Fri, 01/16/2015 - 17:30 | 5671963 Son of Captain Nemo
Son of Captain Nemo's picture

Picking the two worst shit sandwich(s) on the tray and making the choice with nose clip which one will make you the sickest first!

Fri, 01/16/2015 - 17:32 | 5671981 Greenspazm
Greenspazm's picture

I'll take a side of onions with the double shiteburger.

Fri, 01/16/2015 - 17:28 | 5671965 Bell's 2 hearted
Bell's 2 hearted's picture

china unpegging from usd

tick tock tick tock tick tock

Fri, 01/16/2015 - 17:29 | 5671976 Son of Captain Nemo
Son of Captain Nemo's picture

Along with $500 billion U.S. Ts in Russia's possession...

"."

Fri, 01/16/2015 - 17:49 | 5672058 Consuelo
Consuelo's picture

And the glorious de-coupling taking place here in the last bastion of global economic strength - what's going with that lately...?   And if it continues, Yellen & Co. are satisfied to leave it alone and not absorb any more onto their balance sheet, no?   The more pertinent question moving forward, is perhaps to ask who has gold and how much?   In other words, I show you mine, you show me yours and credibility meets reality right then & there.   Of course, we're not quite at that juncture yet.   I am content to leave that to U.S. foreign policy to settle out in due course.

Fri, 01/16/2015 - 18:23 | 5672146 LawsofPhysics
LawsofPhysics's picture

Interesting, do tell and explain this ....

 

http://www.treasury.gov/ticdata/Publish/mfh.txt

Fri, 01/16/2015 - 20:27 | 5672462 Winston Churchill
Winston Churchill's picture

Believing govt. figures is bad for your wealth LoP.

When I believe Belgium really bought those UST's, I'll believe

the Chinese number as well. I won't be holding my breath, though.

Fri, 01/16/2015 - 17:30 | 5671968 Greenspazm
Greenspazm's picture

Currencies have become pure digital abstractions backed by nothing except the word clouds (fart gases) of central bankers. Good luck with forecasting anything in that environment.

Fri, 01/16/2015 - 18:44 | 5672210 ajax
ajax's picture

 

 

@Greenspazm: "Currencies" aren't abstractions as long as what you pay your bills with and pay to eat with is paid in currency. Ask any American citizen living abroad what this past week just meant to them.

You really ought to get out more.

Fri, 01/16/2015 - 17:34 | 5671998 Duc888
Duc888's picture

 

 

 

 

".......Because in an instant, the US government could shut down again."

 

 

Do it.  Please.

Fri, 01/16/2015 - 18:13 | 5672119 Rat Race Winner
Rat Race Winner's picture

They spend MORE money when they are closed!

Fri, 01/16/2015 - 17:38 | 5672004 Yen Cross
Yen Cross's picture

  Central banks keep talking about "terms of trade" values as reasons for why their currencies are over or undervalued.

 How can "terms of trade" values be fully realized when central banks have completely destroyed price discovery through their coordinated market manipulations?

Fri, 01/16/2015 - 17:38 | 5672015 q99x2
q99x2's picture

Good article. Another good reason to buy gold. If the Swiss had purchased gold they would be out dancing tonight.

Fri, 01/16/2015 - 19:19 | 5672317 Clowns on Acid
Clowns on Acid's picture

Better for Swiss to buy Gold now, after Swissy appreciation. Keep cash in Swiss bank , yield = -.75. Keep gold right next to your Swiss made Mauser = yield = free. 

Fri, 01/16/2015 - 17:43 | 5672032 Lmo Mutton
Lmo Mutton's picture

Scoreboard.

Fri, 01/16/2015 - 17:48 | 5672053 chistletoe
chistletoe's picture

I do not get, at all, this machismo attitude about what is happening with the US currency ... what it means to me is, Toyotas, Nissans, and Mazdas all got a 30% sticker discount recently, and all the new factories that they built in North Carolina and Tennesse will now be closing because labor is so much cheaper now back home ... and more recently, Porsche, BMW, Fiat, Mercedes, Ferrari, Saab, and Volvo just got the same discount ... not to mention the fact that now AIRBUS also just got the same discount so Boeing can kiss all of its backlog "goodbye" ... and even the US beef and pigs will have to be sold inside our borders now because no one else can afford them ...

 

Only Fox would call this a good thing ....

Fri, 01/16/2015 - 18:09 | 5672114 robertocarlos
robertocarlos's picture

Those cars from over-seas will not be any cheaper. At least not 30% cheaper. Maybe over time they will be cheaper but you can't sell a Ferrari for 400k one year and have the next year same car sell for 300k. The guy who paid 400k would go nuts. Yes over the long term Americans will have less jobs. But bacon will be dirt cheap.

Fri, 01/16/2015 - 17:53 | 5672072 disabledvet
disabledvet's picture

"The dollar hoovers":

 

Oil, natural gas, coal, transportation, the dollar itself, CRAZY TALK, your phone bill...you name it.  There are just not a lot of dollars.

You can buy a business in the USA to produce dollars.

Provided that business produces dollars.

Fri, 01/16/2015 - 18:44 | 5672215 ajax
ajax's picture

 

 

"You can buy a business in the USA to produce dollars.

Provided that business produces dollars."

Exactly. Weird but you're right.

Fri, 01/16/2015 - 17:53 | 5672076 localizer
localizer's picture

must choose between bankrupt America and bankrupt Europe

Tough call, huh?

Fri, 01/16/2015 - 18:04 | 5672098 Youri Carma
Youri Carma's picture

"I’ll admit that I wasn’t much of an athlete as a kid, ..." What is this, the 'Revenge of the Nerds'?

Suddenly any currency looks saver than the dollar, and the carpet will be pulled from under the dollar. With that strong currency you buy up as much gold you can get your hands on. Evil genius.

Fri, 01/16/2015 - 18:47 | 5672226 ajax
ajax's picture

 

 

"Suddenly any currency looks saver than the dollar, and the carpet will be pulled from under the dollar. With that strong currency you buy up as much gold you can get your hands on. Evil genius."

The Swiss just pulled the carpet out from under the dollar or hadn't you noticed?!!!

Fri, 01/16/2015 - 21:34 | 5672621 post turtle saver
post turtle saver's picture

well can't speak for him but I didn't notice... in fact, all my accounts are basically up YTD... so whatever caused it to happen, more action like that please...

Fri, 01/16/2015 - 18:39 | 5672192 DebtTheNewEquity
DebtTheNewEquity's picture

It is not a moral issue... it is simply the currency in which the debts are settled.  Get over it. 

Fri, 01/16/2015 - 18:38 | 5672193 mastersnark
mastersnark's picture

All these currencies suck so I guess I'll pick the cleanest dirty shirt. Boy howdy do I wish there was some other liquid asset, that is readily exchangeable for fiat when needed, that I could put my wealth into other than currencies. This stinks.

Fri, 01/16/2015 - 18:53 | 5672248 Yen Cross
Yen Cross's picture

 Let me know when you find it. Personally, if you don't mind my suggestion? The higher yielding currencies look good to me.

Fri, 01/16/2015 - 19:15 | 5672309 Clowns on Acid
Clowns on Acid's picture

Ba dump ! Are you guys working as a comedy team ?

Fri, 01/16/2015 - 20:04 | 5672401 Catullus
Catullus's picture

There is this whole thing where 50% of the Swiss GDP is export related. So maybe that strong CHF might have a more immediate impact that a strong dollar which really only affects those who haven't re-patriotated earnings back to the US.

So yeah. Scoreboard.

It's not the Swiss economy is going to pivot quickly to not going into recession.

Fri, 01/16/2015 - 21:46 | 5672662 bobbydelgreco
bobbydelgreco's picture

the swiss couldn't fuck their currency and ms piggy won't be able to fuck ours you guys just don't get it

Fri, 01/16/2015 - 23:11 | 5672861 are we there yet
are we there yet's picture

Thomas Jefferson's monitary views are getting more brilliant every day. We are in a living fiat labratory that does the opposite of what Jefferson wanted, and we can see the results unfolding.

Fri, 01/16/2015 - 23:49 | 5672948 Obama LaForge
Obama LaForge's picture

I'm not buying gold when the gold/oil price ratio is this high. Doesn't make sense. Yet. 

Sat, 01/17/2015 - 02:38 | 5673225 rex-lacrymarum
rex-lacrymarum's picture

Buy the ruble. Good value at current levels, and pays very high interest. 

Sat, 01/17/2015 - 08:37 | 5673405 ArtOfLife
ArtOfLife's picture

"a central bank that’s nearly insolvent"

The FED is running out of dollars? Really?

Sat, 01/17/2015 - 10:08 | 5673481 orangegeek
orangegeek's picture

A year ago it was a USD that was about to disappear.

 

Now it's a USD that's too high.

 

The USD's value is arithmetically calculated from 6 offsetting currencies - it's that simple - there's nothing else.

 

http://bullandbearmash.com/about/usd/

 

 

Do NOT follow this link or you will be banned from the site!