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Guest Post: Heresy And The U.S. Dollar

Tyler Durden's picture


Submitted by Chris Martenson contributing author and Zero hedge familiar Charles Hugh Smith

Heresy and the U.S. Dollar

There is only one word to describe the opinion that the U.S. dollar is in a multi-year uptrend: heresy. Understanding why this is so may well be critical to understanding market action in the 2011-2016 timeframe.

Embracing the contrarian viewpoint offers little joy, because heretics are constantly being hounded by devotees of orthodoxy seeking their conversion to the one true faith or their crucifixion as mortal threats to the orthodoxy.

Why is this so? For two simple but profound reasons. The human mind strongly prefers certainty to uncertainty and simple, fixed explanations over complex, contingent explanations.

The human mind has a second, superglue-like quality: Once a viewpoint has been plucked from the swirling chaos of beliefs and explanations, then the mind quickly solidifies that view, resisting any future modification. Very little energy is devoted to questioning the position, while enormous energy is devoted to defending it.

This reality is expressed via “confirmation bias,” the term used to describe our tendency to focus on data that supports our pre-selected view and ignore data which challenges it.

Orthodoxy—fixed positions that are articles of faith to be defended against all challenges—is thus a psychological safe haven in a risky, dynamic world. Having a belief system or global explanation not only offers us the comforts of certainty, it also enables us to make forecasts based on that explanation. Those forecasts become part of the orthodoxy which must be defended.

Being a trader makes one a heretic, because traders see orthodoxy not as a safe haven but as a mortal danger. This is the root of trader expressions such as “Marry your spouse, not your portfolio.” From painful personal experience, traders learn that trading based on orthodoxy eventually leads to crushing losses.

Why is this so? There is a difference between being “right” and making money. The devotee of orthodoxy is committed to being “right” in a global sense; i.e., confirming that the orthodoxy’s forecast will be proven correct. The trader is only interested in being “right” in a much narrower definition: Did the trade gain value or lose value? The market is the only arbiter of “right” and “wrong” to the trader, and all of the ceaseless debates and arguments between the believers of various orthodoxies are viewed as potentially dangerous distractions.

The trader recognizes multiple timeframes and grasps that a trade has to align with the market action of a specific phase to be successful; i.e., gain in value. A trade may be successful in a three-day timeframe, but  unsuccessful in a three-week timeframe, and ultimately successful in a three-year timeframe.

The problem with orthodoxy is that adherents believe it must be correct in all phases and timeframes. Thus the Bull is wiped out in Bear markets and the Bear is wiped out in Bull markets, trend followers are wiped out in volatile phases, and those trading volatility churn away their capital in non-volatile trending markets.

This partly explains why the number of traders/money-managers who outperform index funds in the long run over both Bull and Bear markets is essentially statistical noise. The appeals of orthodoxy are that powerful.

Traders are heretics for another reason: They reject the illusion that there are “investments.” To a trader, the word “investment” is simply a marketing ploy of the financial Status Quo, a word designed to evince a plummy, wood-paneled security from risk. This reflects the core article of faith of the financial Status Quo orthodoxy, which is that risk can be massaged away.

Traders understand that risk cannot be massaged away, and that capital put into any market at any time is always at risk. Every investment is a trade, and every trade is a speculation. Thus there is no “investment,” there is only speculation, and the slightly sweaty, unpleasant proximity of speculation to risk is not masked with the heavy perfumes of PR, it is embraced as the one true lodestone.

Traders understand that suppressing risk simply guarantees a greater eruption of volatility in the future.

Traders are anathema to orthodoxy on multiple fronts. Devotees of orthodoxy understand the devotion of others in opposing camps, and even as they argue they feel comfortable with their shared worldview. But devotees distrust traders because they reject orthodoxy as the “solution;” it offends devotees that traders either change camps constantly or are studiously unattached to all camps.  

To the true believers of one investment orthodoxy or another, traders are renegades profiting where they “shouldn’t”--being short as the market declines, for example. In other words, the “right” way to “invest” is to choose an orthodoxy and cling to it through thick and thin until proven “right.”

To the trader, this approach is equivalent to lighting one’s capital afire and watching it burn. The trader thinks in terms of probabilities, not certainties, and looks to charts as reflections of human behavior. A forecast is simply an assessment of probability, a snapshot taken in the present of multiple dynamics and timeframes.

The trader also offends orthodoxy, not just by refusing to place his faith in one camp or another, but in rejecting the entire notion that “big” global forecasts have any meaning in terms of making money in the here and now. The trader is aware of the various dynamics of hyperinflation, deflation, stagflation, biflation, “muddle-through” sideways markets, “stocks are cheap,” “don’t fight the Fed,” the potential collapse of advanced civilization, and so on, but doesn’t base trades on these dynamics.

Traders understand that the market, and indeed, human history, is fundamentally a highly complex non-linear system. Change the parameters or the inputs, and even small fluctuations can trigger outsized consequences.

As a result, forecasts of future events become less predictable the farther out in time we extend the forecast. Traders understand that X and Y might well occur in five years, but it’s difficult to distill that potentiality down to a money-making trade in the near term.

We all like being right and making money trading the markets, but the two are not identical. The adherent of orthodoxy finds the markets confounding when they don’t conform to the orthodoxy’s forecasts and explanations, and this frustration finds expression in confirmation bias; i.e., seeking data that supports the position and downplaying whatever doesn’t, arguing vociferously on the basis of financial fundamentals, and seeking external explanations for the failure of the forecast (manipulation, seasonal trends, and so on).

The one phrase you will rarely hear issuing from orthodoxy is “I was wrong and I’m radically changing my view.” It’s painful to be wrong; our human pride is wounded when our convictions turn out to be misplaced. It’s also painful to lose money in a losing trade, but when given a choice between the two, adherents of orthodoxy prefer to lose money rather than surrender their convictions.

Traders view convictions as a potentially deadly trap, and have trained themselves to find comfort in uncertainty and permanent contingency. It’s easier to jettison a trade than a conviction.

As a thought experiment, look at this chart and decide if it is bullish or not.

Does your view change if it is a chart of a commodity? What if it is a chart of a mining company, or a tech stock?

What if it is a chart of the U.S. dollar index, the DXY? Well, it is. How resistant do you find yourself to viewing this chart as unambiguously bullish? Do you find yourself seeking evidence that it isn’t really that bullish, evidence that “this looks ready to roll over and decline?”

In certain camps, it is an article of faith that the U.S. dollar is deservedly doomed to extinction. The trader accepts this as a future possibility, but does not see any tradable evidence of this possibility in this chart/snapshot of the past two years.

As traders, we are well-served by a willingness to seek evidence which undermines or challenges our positions, as this habit counteracts confirmation bias. As traders, we see probabilities for advance and decline in all charts, and the assessment isn’t about being “right” or “wrong” but about the higher and lower probabilities implicit in the chart.

Anything, including a bullish dollar, can become an article of faith in an orthodoxy, just as anything can become heresy.

If this chart is bullish, what does that suggest about the probabilities of future price action in the US dollar (i.e., the DXY)? In Part II: The Technical Argument for a Stronger Dollar, we use technical analysis to explore the case for a possible multi-year advance of the dollar from here. A key question for investors (especially gold bugs) to ask here is this: Whatever the probability, what impact would a sustained rise in the dollar have on your current portfolio?

Click here to access Part II of this report (free executive summary, enrollment required for full access). 


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Tue, 10/04/2011 - 23:00 | 1740016 bigwavedave
bigwavedave's picture

I like this article up until the chart. The rest is crap. Wont bother with Part II

Wed, 10/05/2011 - 00:43 | 1740179 akak
akak's picture

I agree, and fuck all those ignorant fools who voted your comment down.

The problem with the above analysis (such as it is), and the chart, is that both rely on the fundamentally flawed assumptions that 1) a fiat currency can actually rise in value (i.e, purchasing power) over any prolonged period to any meaningful extent, which is historically undocumented and politically absurd, and 2) that the contrived and artificial US Dollar Index is the same thing as the US dollar, which it is NOT.  The DXY is merely a measure of the US dollar against other, more-or-less equally depreciating fiat currencies.  As such, it is an all but meaningless measure over any significant timeframe --- a given value of the DXY today compared to the same DXY value 30 years ago patently does NOT represent the same datum, as the purchasing power of the US dollar 30 years ago was multiples of its depreciated value (purchasing power) today.

If one is strictly interested in the short-term, with a narrow and blinkered focus which ignores the big picture, then yes, perhaps the above US dollar analysis may have some validity, IN THE SHORT TERM.  But most of those who are not beholden to the financial and political status-quo (which excludes most traders by definition) will realize that without question the long-term trend for the US dollar is guaranteed to progress in only one direction: down, down, down --- and you can take that analysis to the bank (just don't take your gold there).

Wed, 10/05/2011 - 00:46 | 1740205 Fedophile
Fedophile's picture

Traders understand inflation and its effect on purchasing power.

Wed, 10/05/2011 - 01:14 | 1740241 Nate H
Nate H's picture

Also deflation...

Wed, 10/05/2011 - 01:20 | 1740254 LeBalance
LeBalance's picture

Purchasing power of USD over last 100 years:

Or one might look at the Price of Gold over the last decade.

I am uncertain how staring at the above data one arrives at the conclusion that the dollar is in any sort of uptrend.  But maybe in some illusionary "let's compare against other paper assets" one can.

Wed, 10/05/2011 - 01:24 | 1740263 akak
akak's picture

I am uncertain how staring at the above data one arrives at the conclusion that the dollar is in any sort of uptrend.  But maybe in some illusionary "let's compare against other paper assets" one can.

To claim that the dollar is "rising" is analogous to standing on the deck of a sinking ship, next to another sinking ship, while that other sinking ship begins to take on water more rapidly, and then proclaiming "Gee, look, that ship is now lower than mine --- I must be rising out of the water!"

Wed, 10/05/2011 - 04:30 | 1740400 css1971
css1971's picture

I prefer the parachute analogy.

Having said that. If fiat money is devaluing, other assets would by definition be increasing in price. I'm not seeing it. I'm seeing them decreasing just now, so where is the inflation happening?

According to RobotTrader that would be consumer discretionary stocks. Commodities? Nope all are tanking. I'd actually like to know cos that's where you put the money. At the moment, that looks like UUP.

Here's the thing which gold and silver bugs need to remember... 95% of money is credit, not fiat, and credit can and does vanish in a puff of paid off principal.

The problem is not and never has been gold vs fiat. The problem is fractional reserve banking vs full reserve banking.

Wed, 10/05/2011 - 05:03 | 1740418 zhandax
zhandax's picture

In any endeavor, the line between here and there is not straight.  Especially not in the markets.  It is not universally accepted yet that all fiat is doomed to fail.  Therefore, the jagged chart between now and the future.  Don't doubt it, but don't trust that there will be a straight line decline, because there won't.

Wed, 10/05/2011 - 07:05 | 1740491 css1971
css1971's picture

I agree which is why trading is the simple practice of stepping on the up elevator while others are taking the down elevators.


Wed, 10/05/2011 - 06:46 | 1740461 All_Is_Well
All_Is_Well's picture

Gold cannot and does not "vanish in a puff". It is the realization of that fact that makes gold money.

Wed, 10/05/2011 - 08:08 | 1740635 PivotalTrades
PivotalTrades's picture

Or write offs!

Wed, 10/05/2011 - 08:17 | 1740651 DosZap
DosZap's picture

Commodities? Nope all are tanking.

Well, I wonder why?.

Could it be becaue the CME has beaten them to death w/margin hikes?.I think YES.

Where would G & S be now, if the CME had not hit it with the hikes?,over $2k for gold,I am certain of that.

The key is like the Utah bill, get rid of PAPER PM's, and let them)( PM's) find their true value relative to the fundies.

Wed, 10/05/2011 - 02:41 | 1740336 pcrs
pcrs's picture

A slippery slope. Wars all over the place, but now there are 6 wars going on simulatneously. That will require a lot of printing.

Wed, 10/05/2011 - 01:21 | 1740256 akak
akak's picture

I have no doubt that the better ones do, but I still question how many Americans, at least, of ANY financial persuasion really understand it (aside from the central bankers who foster it and inflict it upon us).

Wed, 10/05/2011 - 03:55 | 1740376 AldousHuxley
AldousHuxley's picture

Thus...TBTF...if regulators don't understand it, if Buffett doesn't understand it, if Soros doesn't understand it, if the Goldman CEO doesn't understand it, if the risk managers don't understand it, then WTF are they doing with our money?

Wed, 10/05/2011 - 04:41 | 1740408 css1971
css1971's picture

Ah, the old Hanlon's Razor. I happen to disagree, malice explains much more.


Wed, 10/05/2011 - 07:47 | 1740587 Sam Clemons
Sam Clemons's picture

The article writer doesn't appear to understand verbal inflation.  Unnecessarily verbose attempt at trying to be intellectual and deep.

Wed, 10/05/2011 - 01:20 | 1740252 jeff montanye
jeff montanye's picture

excellent insights akak.  particularly liked your comment about the difference between the purchasing power of the dollar (measured against goods and services) vs. the dxy (measured against other currencies).  it is that difference, especially in times like the last three years (or ten) that makes the argument for gold particularly compelling.  of course it might also be true that a relatively stronger dollar could assist the coming equity decline.

Wed, 10/05/2011 - 01:34 | 1740269 Smithovsky
Smithovsky's picture

His post had absolutely nothing to do with the purchasing power of the dollar, all he's saying is that, to traders, dollar-long is the winning (short-term) trade at the moment.

Decent article, although it took him thirty paragraphs and a chart to basically say "traders do the trade which has the highest probability of making money and don't care about fundamentals".


Wed, 10/05/2011 - 01:37 | 1740275 akak
akak's picture

Granted, within the relatively short time frame of the attached chart, the purchasing power of the dollar has not greatly diminished.  However, I have seen more than a few analysts attempt to make utterly specious but similar analyses using multi-decade charts of the DXY, which is either ignorant or disingenuous in the extreme, precisely for the reasons which I gave above.

Wed, 10/05/2011 - 02:03 | 1740297 Smithovsky
Smithovsky's picture

Why did someone put words into the author's mouth and start talking about purchasing power of the dollar?  He didn't mention it once.  All he said was that the orthodox view is that the dollar is doomed, but he didn't disagree with it, just said it to make his main point that the traders don't care about the long-term view.  To them, the way to increase the profits in their trading accounts in the following weeks is to stay long dollars.  It's implied that when the charts turn bearish, the traders will reverse their positions, but not until then.

Technical analysts are quacks to me, by the way.  But hey, to each his own.

I bet a lot of people here were thinking of the same one thing when he mentioned confirmation bias.  

Wed, 10/05/2011 - 02:05 | 1740309 akak
akak's picture

Perhaps it was my mistake to begin discussing the purchasing power of the US dollar, as my initial glance at the DXY chart above led me to believe that it was a decade-long one, in which case the purchasing value of the dollar WOULD be entirely relevant, as the DXY is very pointedly NOT a measure of the absolute value of the US Dollar, merely a comparison of its current relative value against several other, simultaneously and continuously-depreciating world fiat currencies.  Anyone who would use such a long-term chart of the DXY is a fool or a pro-dollar propagandist, but I cannot lay that accusation against the authors here in this particular case.

Wed, 10/05/2011 - 02:02 | 1740306 disabledvet
disabledvet's picture

as i disable my rich text again...i agree with this provided it's understood across all fiat classes. in short all money is basically worthless. numbers however don't lie no matter how much all of you do. the assmumption that the purpose of the system is to blow itself up would be hysterical were it not so wrong. GREED can blow up your financial system...just as much as FEAR can prevent it from having any recovery for decades. LUCKILY WE HAVE A STUDENT OF HISTORY AS THE HEAD OF OUR CENTRAL BANK. He saw the greed and was man enough to fear it and respond by dropping those interest rates to zero--even "Quantitatively Ease." He now feels the fear...but since he anticipated that he is now "Twisting" show that this fear is a healthy sign of confidence returning so "be not afraid" for this particular fear is helping us focus on the task at hand and thus giving us all a chance to be rewarded for our professionalism. I know...I know...none of you Trust in Ben. Who do you trust in then? Or what even?

Wed, 10/05/2011 - 03:02 | 1740348 akak
akak's picture


Thanks for the laugh!

It's one thing to be a student of history --- but quite another thing to have learned the proper lessons from its study.  From the look of things, and based on his every congressional testimony, public statements and official publications, Ben was either heavily involved with a beer bong during his student years, or else lay in a coma for those four years.  I used to believe that the man was simply utterly and completely clueless (as are all Keynesians, by definition), but after his massive campaign of financial repression and wholesale monetary carpet-bombing, I am now more inclined to believe that he is pure evil.

Tue, 10/04/2011 - 23:00 | 1740017 Uncle Henry
Uncle Henry's picture

Tromp l'oeil.

Tue, 10/04/2011 - 23:01 | 1740019 LeonardoFibonacci
LeonardoFibonacci's picture

I am wounded but not slain, i will lay me down to bleed a while and rise to fight again! Our markets are not efficient, they are manipulated for the elite to take away from the sheeple.  Soon even pension funds will be destroyed and the middle class will get screwed / FUBAR.  The elite will one day fear the uprising when they sit in their dining rooms while the looters and commomers come in hoards to make their own justice prevail.  The elite should fear that day & that of the judgement of God!

Tue, 10/04/2011 - 23:20 | 1740049 Lucius Corneliu...
Lucius Cornelius Sulla's picture

By the time the looters arrive, they will have been long gone.  All of the big money people have residences all over the world.  You won't find any looters in the Caymans, Bahama, Uruguay or a dozen other safe havens.

Wed, 10/05/2011 - 00:11 | 1740148 Ima anal sphincter
Ima anal sphincter's picture

Take the country back. Take the military back. Find these pukes and DEAL with them.

Tue, 10/04/2011 - 23:15 | 1740038 X.inf.capt
X.inf.capt's picture

they cant hold it together forever....

lets get this over with.....

and rebuild it for the youth...

we owe them that....

Wed, 10/05/2011 - 00:04 | 1740124 Quixotic_Not
Quixotic_Not's picture

Rebuild what?

The country has been looted, ALL of its wealth extracted offshore and/or leveraged against by the Ivy League brethren -- The Politeers and the Banksters (who are brilliant in their deceptions btw)...

And what exactly do I owe the youth of an electorate that can't help themselves but vote for the (D) & (R) Free Shit Empire™?

I am not a Democrat and/or a Republican - I am an AMERICAN - And I don't owe the progeny of the huddled mongrels two pennies!

As far as I care, the whole diseased puss-nation can eat each other!

Of course, I've been preparing for just this TWILIGHT ZONE scenario since the dumbed-down-to-succumb sheepsters rejected Perot's life line and chose TBTF/TPTB Clintoon for the best actor category...

Good luck young'ins, you're all about to reap the whirlwind your family chose for you!

Bonus point:  Who is John Locke and what did he mean to the Sons Of Liberty?

Wed, 10/05/2011 - 00:18 | 1740160 X.inf.capt
X.inf.capt's picture

you do it your way, ill do it mine....

you want to see americans eat each other, kill each other....

o.k. to each his own...

ill do what i can to help, and i will not fight....

p.s. locke, founder of liberalism....his writing influenced the founding fathers....

Wed, 10/05/2011 - 00:35 | 1740176 Quixotic_Not
Quixotic_Not's picture

"locke, founder of liberalism"

You have to be fuckin' jokin?

Locke's second treatise not only destroyed the "Divine right of kings" once and for all, it was the legal precedent that established the UNITED STATES OF AMERICA.

I'm not surprised though, you do sound like one of those educated, yet ignorant, socialist/progressives that would LOVE to see the AMERICAN experiment die.

FWIW, in the former Democratic Republic of the USofA, it was Unconstitutional to issue debt based currency (Art. 1, Sect. 10), but that didn't stop the tyrannical likes of Abe Lincoln or FDR...

The solution is simple, but the We the People are too divided and the sheeple too stupid and/or addicted to the (D) & (R) Free Crap Empire™...

The state of nature has a law of nature to govern it, which obliges every one: and reason, which is that law, teaches all mankind, who will but consult it, that being all equal and independent, no one ought to harm another in his life, health, liberty, or possessions ~ John Locke 1690

Hell, even the so-called enlightened don't get it...

Whenever the legislators endeavor to take away and destroy the property of the people, or to reduce them to slavery under arbitrary power, they put themselves into a state of war with the people, who are thereupon absolved from any further obedience. ~ John Locke 1690

In a "free" society, not everyone is economically "equal"; Ergo, in a society where everyone is economically "equal", no one will be "free".

Self-delusion and unrealistic expectations are correlated with debt (e.g. fiat currency), big surprise.

Good luck with your new country Thankfully I got to experience the golden years and WORKED HARD, without DEBT, to prepare for the rest of my wife's and my time on this lil' mud ball spinnin' round the sun...

P.S.  I never want "want to see americans eat each other, kill each other....".

The riff raff I referred to are definately not AMERICANS, and they chose the bed they made...not me!

Wed, 10/05/2011 - 00:44 | 1740203 X.inf.capt
X.inf.capt's picture

Liberalism originally meant liberty before it hijacked by the socialist movement...
I understand your frustration....I volunteer working with vets, and none of us are doing as well as we were 3 years ago...yeah, I get it...
See the American dream die? My direct ancestor fought at Yorktown, a rebel...
No, I don't want it to die, and will not make it happen
Socialist, i m an American, and as an American I'll help my fellow Americans, not kill them....any of them.

Wed, 10/05/2011 - 00:57 | 1740213 Quixotic_Not
Quixotic_Not's picture

Well, the .gov declared a HOT war against We the People 18 years ago, when they torched 80 men, women and CHILDREN at Waco, which fyi was brought about by ex-vets working as enforcers for the Ivy League banksters/politeers.

It woke me up, and I strove to help the Patriot movement educate Americans, but all we found was Democrats and Republicans.

Nary an AMERICAN to be awoken to the threat facing the Republic founded by the Sons of Liberty...

And as a progenitor of the AMERICAN experiment (two families on the Sons of the Revolution Charter) I can tell you that I found myself a man without a country.

It's over, and what is coming I'm afraid will make the fascist/socialist upheavals of the early 20th century look tame by comparison...

Facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passion, they cannot alter the state of facts and evidence. ~ John Adams

Associate yourself with men of good quality if you esteem your own reputation for 'tis better to be alone than in bad company...Guard against the impostures of pretended patriotism. ~ George Washington

If you love wealth more than liberty, the tranquility of servitude better than the animating contest of freedom, depart from us in peace. We ask not your counsel nor your arms. Crouch down and lick the hand that feeds you. May your chains rest lightly upon you and may posterity forget that you were our countrymen. ~ Samuel Adams

QN out!

Wed, 10/05/2011 - 22:50 | 1740227 X.inf.capt
X.inf.capt's picture

good night', QN.

excellent debate, hope to do this again....

again, you do what you will,

and ill do what i will,

see ya at the other side of this collapse.

+1 to you

p.s. i didnt like what happened at waco either, but i blame ms. reno for that, not the people following orders, it was one of the reasons i resigned...the leadership of the mid 90's.

Tue, 10/04/2011 - 23:16 | 1740040 Alea Iactaest
Alea Iactaest's picture

When I looked at the chart I was really worried that I saw a very bullish formation. Trick question? Maybe. I kept looking for something I was missing, some bearish tell.

After reading the rest of the article I need to take a break. The chart *does* look bullish. And that could wreak havoc with any number of trades I've been considering.

Wed, 10/05/2011 - 00:30 | 1740181 Cliff Claven Cheers
Cliff Claven Cheers's picture

If I agreed with you, we'd both be wrong.

Tue, 10/04/2011 - 23:18 | 1740046 luckylogger
luckylogger's picture

This is a very good piece and addresses the reasons most fail, including me more than once. Very good job and thanks for posting, will share with my friends and soon to be yours!!!

GOOD JOB !!!!!!

Wed, 10/05/2011 - 00:04 | 1740130 Arkadaba
Arkadaba's picture

Liked it too. Well written and logical.

Tue, 10/04/2011 - 23:21 | 1740052 wcvarones
wcvarones's picture

The DXY is a soft target, because it's one bullshit paper currency against a basket of other bullshit currencies.


Will the Euros print faster than Zimbabwe Ben?  Probably.  The Canadians and Australians and Chinese?  Probably not.

Sure the DXY could go higher.  But I wouldn't bet against hard assets in a world of global competitive devaluation.


Shall we play a game?

Love to. Let's play Global Competitive Devaluation.

Wouldn't you prefer a nice game of chess?

Later. Let's play Global Competitive Devaluation.



Tue, 10/04/2011 - 23:27 | 1740066 gramps
gramps's picture

^ Exactly

Tue, 10/04/2011 - 23:35 | 1740081 Atlas Shrieked
Atlas Shrieked's picture

Agreed, but the DXY is heavily weight against the Euro.  So when the Euro tanks, the DXY strengthens, despite the USDollar being debased by the Fed.  It explains why gold and silver experience weakness, but the debasement has a bigger effect, and that's why on occasion the USDollar and gold move in tandem, instead of inversely.

Wed, 10/05/2011 - 01:45 | 1740284 akak
akak's picture

Good points, Atlas.  And it bears repeating, as you alluded, that the US dollar is NOT the same thing as the artificial and rather arbitrary US Dollar Index, which does not even weigh the US dollar against all other world currencies, but against only a handful of those which were significant to US foreign trade in 1970 or so, and which pointedly includes neither the Mexican peso, the Chilean peso, the Brazilian real, the Taiwanese dollar, the Malaysian ringgit, the Korean won, the Indonesian rupiah, nor most significantly, the Chinese yuan.

Tue, 10/04/2011 - 23:26 | 1740060 lewy14
lewy14's picture

[Edit - redundant to the comment above]

Tue, 10/04/2011 - 23:28 | 1740063 Lucius Corneliu...
Lucius Cornelius Sulla's picture

It sucks for investors in this age.  All assets are overvalued on a cash flow basis relative to risk/reward which offers a decent margin of safety.  If you sit in cash then inflation gets you, unless of course a torrent of deflation is unleashed.  Meanwhile, gold is awfully bubbly along with every other asset class.  Dow $3,200 anyone???

Tue, 10/04/2011 - 23:34 | 1740080 gramps
gramps's picture

Golds inflation adjusted all time high is $2400 and that is according to the governments bullshit inflation statistics. When we experience a global reserve currency crash do you think that number will hold. Any "investor" that doesn't own gold is an idiot.

Tue, 10/04/2011 - 23:39 | 1740093 Lucius Corneliu...
Lucius Cornelius Sulla's picture

I thing you just might have a slight case of "confirmation bias".

Wed, 10/05/2011 - 00:24 | 1740169 Caviar Emptor
Caviar Emptor's picture

@Lucius: you're decribing the "biflation conundrum" : inflation erodes cash and savings, deflation is taking down asset values and net worth with it. Both can and are happening at the same time. There won't be a wave of mass deflation because TPTB won't allow it. Bernank just said so again this week. His choice instead is biflation which he mistakenly believes gives him some cover for failed policies. It won't

Wed, 10/05/2011 - 08:58 | 1740629 DosZap
DosZap's picture

Lucius Corneliu...

Gold is not BUBBLY, it's being artificially held down, it should be( if you consider the fundies) at $5k an ounce now.

Our Dollar is simply asswipe, #1 in the group of asswipe currencies of a lower degree.

How would you like it to be the winner of the BEST,WORST athelete at an event.

Makes me cheer.

The ONLY reason it's UP, is the rest of the planets currencies are worse.

We are on par w/ Greece.


Tue, 10/04/2011 - 23:32 | 1740073 RagnarDanneskjold
RagnarDanneskjold's picture

I put the QE dates on this chart of the euro.

U.S. dollar inflation (money supply includes credit) ended in 2008 at the peak of credit creation. Since then, the fedgov's borrowing has offset private sector deleveraging, but with the Tea Party victory and move towards austeity, deleveraging is now greater than debt increases. It is the acceleration that matters, not the direction. Even if the total credit were growing, a decline in growth leads to an economic slowdown, but now we're into pure deleveraging territory. The super committee may be a "joke" in the long-term, but if they cut $1 of spending now, that's $1 more in deleveraging. Besides the issuance of Treasuries, the only thing holding down the greenback was the Federal Reserve's QE programs.

Protectionism also grows more popular, and it may go global. China loses a trade war with America, big time, if America raises tariffs generally to prevent businesses just hopping over to another cheap location. Foreigners will buy fewer Treasuries because they will have fewer USD.

What does the European financial system need more of? Dollars. Where are assets headed as they escape from Europe, China and elsewhere? USA.

Demand for dollars is rising, supply of dollars peaked in 2008, went sideways until 2011, and has started going down.

Tue, 10/04/2011 - 23:45 | 1740102 MrPalladium
MrPalladium's picture

Excellent summary without the preachy, conceited sermon about traders and trading we see in the lead article above.

Tue, 10/04/2011 - 23:32 | 1740075 emunah73
emunah73's picture

It's interesting... I know a former trader who got a nice job in JPMorgan in 2009 selling annuities to old folks :) He believes in the market, in the value of dollar and in the recovery of US economy. When I told him that dollar will be worthless he was laughing hard and since then keeps asking me how come that dollar is still worth something. Moreover he believes that Obama will win again due too successful fight for better economical perspectives...

I feel sorry for him looking at him as at some species doomed for extinction. Finance is his whole life he has no other skills, not much social skills apart from superficial salesman charm. He would be pleased by this article so I will not show it to him :D

Tue, 10/04/2011 - 23:41 | 1740096 RagnarDanneskjold
RagnarDanneskjold's picture

No, he would no be pleased. You do not understand the implications of this chart. If the US dollar stages a major rally now, it signals a major deflationary wave and it will destroy foreign currencies, send the stock market to new lows, kill junk bonds. A hyperinflation of the Chinese yuan is on the table if things get out of hand and the Chinese policy response is poor.

If you believe the U.S. dollar is garbage, then every other paper is garbage because USD is the backbone of the global fiat system. The U.S. dollar will be the last paper to die, not the first, and it will rise spectacularly before flaming out and imploding. 

Or if you are a conspiracy theorist, everyone, including the US government and Fed, knows there will be a new global financial order, created by governments. If this system comes into place now, the U.S. is in a weak position. But if the euro is destroyed, the yen and the yuan hyperinflate, oil economies wrecked with oil at $30 a barrel, etc. etc., DXY at 110, and then the U.S. says: let's create a new global financial system using a basket of world currencies as the new reserve currency. Much better negotiating position.

Gold will do well, but it could go way, way down first in dollar terms at the same time it hits all-time highs in every other currency. The question in, what's your base currency?

Tue, 10/04/2011 - 23:54 | 1740117 emunah73
emunah73's picture

Yes, true I don't really understand implications of this chart. Well, my ignorance in economics is shrinking slower than dollar power :D As of now I earn in dollars, have some free of debt real-estate in Eastern Europe, part of it in complicated ownership so I'm glad that dollar will rise - it will be easier for me to buy and own whole property.

I'm not conspiracy theorist though I find them amusing.

What do you think about annuities?


Wed, 10/05/2011 - 00:07 | 1740135 Manthong
Manthong's picture

Uh... so what do you do?

The dollar is deflating in regards to real living expenses and taxes, real estate is deflating,  the stock market is deflating, foreign currencies are deflating, in this scenario, precious metals are deflating...

Seem to me that some sort of decoupling of SOME asset class has to happen...


Wed, 10/05/2011 - 00:11 | 1740149 emunah73
emunah73's picture

well, I know how to live for peanuts. My real estate has for me sentimental value I'm prepared to hold on to it for at least next 10 years and I think that its relative value can grow - anyway I can always have some income from it. So I don't worry. But what about annuities in the scenario painted in above article. I would like to know if my acquitance is on the dark side or not :D

Wed, 10/05/2011 - 00:13 | 1740154 Quixotic_Not
Quixotic_Not's picture

One more time, for those of us slow on the uptake around here...

After all is said and done, and all the screamin', fightin' and dyin' has been satiated, Ag and Au will be the ONLY stores of wealth left standing.

If sheepsters still think that the .GOV/FED Matrix won't devalue the U$D into negative status, they haven't been a payin' attention (probably can't afford that either)...

We are in the middle of the collapse of the BIGGEST Ponzi scheme of all time (leveraged wealth extraction/warfare) and the reset is a comin', so I hope you're ready!

Contrary to the heresy uttered hourly by the lame stream media, this is not a liquidity problem, this is a STRUCTURAL problem...


Wed, 10/05/2011 - 00:20 | 1740163 Caviar Emptor
Caviar Emptor's picture

Yup. The ole playbook isn't cuttin it for them anymore. They're going into shutdown mode gradually. Their chief weapon, inflation slavery, is faltering. 

Wed, 10/05/2011 - 04:19 | 1740389 buzlightening
buzlightening's picture

You got it! If it burns it's not money.  Eyes to see! Ears to hear!

Wed, 10/05/2011 - 00:13 | 1740151 cbaba
cbaba's picture

You are Dead wrong. The base currency is the GOLD, it was for 6000 years and it will be again.

There will be no other single reserve currency after the dollar crash.  All new paper currencies will be based on gold.


Wed, 10/05/2011 - 00:47 | 1740161 Cliff Claven Cheers
Cliff Claven Cheers's picture

@ RagnarDanneskjold

Doesn't Europe seem hell bent on not priniting?  Hasn't the ECB only purchased a small amount of bonds with money out of thin air.  Seems to me they might be the last one standing.  

What are your thoughts?


Wed, 10/05/2011 - 00:56 | 1740216 RagnarDanneskjold
RagnarDanneskjold's picture

My thoughts are: the Germans are hell bent on not printing. Other euro members, not so much. My thinking is that the euro will break-up because they can't get out of their situation without printing. They either have to print to save Greece (and the others), or if they won't save Greece, they have to bailout their banks. So if they print, relatively "good" for USD. Their other option is Germany and the northern countries exit and there's a northern euro, aka "Deustchemark and friends", and a southern euro lira/drachma/peseta. In this case, the overall euro value would probably decline slightly: euro north up a bit, euro south way down. Whatever the mechanics of it, a euro breakup results in currencies that are too small to substitute for USD. I expect no breakup in EU, common market, etc.

My main thought is that Europe is in a political crisis, not a financial crisis. The financial crisis is real and difficult, but if they agreed on a solution it is solvable with pain. And it's not as simple as getting new leaders to agree, the crisis is coming from European people who do not want to see their national identities evaporate. They got ahead of themselves with the euro because they didn't do the political/financial integration first. In some countries, voters rejected the various treaties, but the leaders kept holding votes until they got it right. Now, the people have a chance to put their foot down, and they're also more anti-EU today than they were 5 or 10 years ago, when they could barely get a majority of YES votes. Recently Hungary passed the law to let mortgage borrowers repay at below market exchange rates, sending losses to Austrian and Italian banks. Countries are looking out for themselves.

I expect deflation. The global financial system, including Europe, needs US dollars and only one country can print them:  USA. So will the Fed, already unpopular for sending money to Europe, destroy USD to save EUR?

Finally, if you expect the current system to roll along with various stop-gap measures along the way, a Japanese style affair, then yeah, the euro could survive and be the last one standing. I just don't think the global government's can hold it together, especially when they are increasingly pursuing self-interested policies.

Wed, 10/05/2011 - 01:11 | 1740237 Cliff Claven Cheers
Cliff Claven Cheers's picture

Thank you very much for your insights.


Wed, 10/05/2011 - 08:42 | 1740715 DosZap
DosZap's picture

Cliff, (sorry not Ragnar),

WHY should they print?.

When WE are sending their banks trillions?.

If you could make what you do sitting on your butt, and someone gave you the same amount, would you bust your ass/


Wed, 10/05/2011 - 00:41 | 1740199 IEVI
IEVI's picture

DXY at 110 ..I don't think so.

DEFLATION will not be allowed.


At a Cleveland Fed forum on 9/28 Fed Chairman Bernanke said that "the central bank might need to ease monetary policy further if inflation or inflation expectations fall significantly... Bernanke indicated a willingness to push deeper into the realm of unconventional policy if economic growth remains anemic. ""If inflation falls too low or inflation expectations fall too low, that would be something we have to respond to because we do not want deflation."



Wed, 10/05/2011 - 01:04 | 1740225 RagnarDanneskjold
RagnarDanneskjold's picture

They have to destroy USD to generate inflation; QE1 and QE2 failed because the inflation only lasted as long as they printed. In the end, you may well be right, but I think the political will is not there yet. If DXY is 110, the Tea Party will call for Gideon Gono replace Bernanke. There will be total agreement on the need to print like maniacs.

Wed, 10/05/2011 - 06:55 | 1740473 PrintButtonMoney
PrintButtonMoney's picture

QEIncorporated: Part Three ... 

Along With Greece, information which comes from the source of all truth and knowledge ...

is about to receive, Ala Disney Europe, it's own service by QEInc, EuroBranch.

Gotta love the destruction of sovereignty that comes with owing other countries so much 'money'

Strap ourselves in?


Tue, 10/04/2011 - 23:43 | 1740100 Atlas Shrieked
Atlas Shrieked's picture

Agreed long-term that the USDollar is headed to zero, but until then, it is still regarded as a safe haven, and that condition will be in place for a while, as market participants flee to the dollar away from other "risky" assets.  Give it a few years and they'll get a big oops when they figure out they just jumped out of the pan and into the fire.  I'm thinking somewhere in the 2013 - 2015 timeframe, America will have its huge wake up call.

Why?  Gold bull runs historically last 14 years before peaking, unlike equities bull markets which generally last a generation, perhaps 15 - 20 years.  If the low in gold was in 1999 or 2001 (take your pick), then the high will be 2013 or 2015.  Of course, with the US in danger of default, there may not be a bubble collapsing, and instead of turning our gold and silver in for a profit, we'll be spending it, which basically means a financial armageddon would have occurred and we're back to the barter system--until a new sound (i.e. gold-backed) currency emerges.

Tue, 10/04/2011 - 23:57 | 1740123 zorba THE GREEK
zorba THE GREEK's picture

73... What if he is right?  You should keep your mind open. Only an open mind can properly evaluate information.

I have been a gold bug for 10 years, but I keep an open mind. I don't want to fall into the trap of holding on to

gold when the party is over. I'm constantly evaluating my position and I am ready to exit when the evidence shows

that gold entered a bear market.

Tue, 10/04/2011 - 23:35 | 1740077 Manthong
Manthong's picture

It will likely take a sovereign or moneyed cartel to head for the exits and go for the gold (first) before the dollar is relegated to its proper place in the annals of fiat.

Tue, 10/04/2011 - 23:40 | 1740094 Johnk
Johnk's picture

Bullish on the dollar?  Does the last 100 years (actually the last 5000 years, but I digress) mean nothing?

From an earlier ZH post today:

"The Consumer Price Index was 10.0 in December 1913 when the Federal Reserve was created. Today, the index stands at 227. Prices have risen 2,270% in the almost 100 years since the Federal Reserve’s inception, or inversely the dollar can buy what it took $.04 to buy in 1913."

Sure, the dollar INDEX might be "up", Chris, just not up against anything like tuition, taxes, food, utilities, insurance, medical care, etc. etc. (i.e., stuff in the real world).  

Now, can we argue about how many angels can dance on the head of a pin?


Wed, 10/05/2011 - 00:16 | 1740158 Caviar Emptor
Caviar Emptor's picture

Most consumer-significant items (staples, stuff needed to live and survive in society) hae gone up 500-1000% in just 40 years. 

Wed, 10/05/2011 - 00:25 | 1740170 dr.charlemagne
dr.charlemagne's picture

1) USD purchasing power down 98% since 1913

2) Competition for commodities is increasing dramatically, slow down or not

3) All recent Republican administrations have expanded government and the debt

4) Even the Tea party can not take away Medicare and Social security

5) 1.5 Trillion in New Federal Debt/yr

6) strong dollar = no manufacturing jobs = bigger welfare state

7) imploding stock market = widespread pension failures = bigger welfare state

8) the fed chairman and TPTB are terrified of deflation 

9) we have experienced significant real inflation in basic necessities despite a pathetic velocity of money

10) negative real interest rates

11) War, the single greatest debt creator, is simmering at every corner of the globe

12) The rich get richer from both money and debt creation under the federal reserve system

13) deflationary collapse means everyone defaults including the US, its dollar goes down with the ship

14) China and many others are calling for a new world monetary system


Thats a quick list of my confirmation bias. Turmoil with the Euro is rallying the USD for a couple weeks, does that mean I should have an epiphany and dump PMs? Does a hot summer mean global warming is going to flood New York?

Wed, 10/05/2011 - 00:45 | 1740204 Cliff Claven Cheers
Cliff Claven Cheers's picture

Nice summary.

Tue, 10/04/2011 - 23:44 | 1740101 xtop23
xtop23's picture

TMV bitches

Tue, 10/04/2011 - 23:45 | 1740104 CapitalistRock
CapitalistRock's picture

This article confuses the DXY with the value of the US dollar. That's a costly mistake. We are rapdily accelerating into a currency war in which the DXY might be bullish in years ahead while gold and all other real assets rise in price.

In other words, don't forget that DXY is an outdated weighting among currencies. It is not an indicator of the dollar price of tangible items.

Ben Bernanke will rob you blind with an increasing DXY and you'll end up like all the other sheep wondering why prices are rising and you'll be blaming retailers or speculators or the scapegoat of the day.

Tue, 10/04/2011 - 23:52 | 1740109 chump666
chump666's picture

The USD is going to be major bid till end yr.  As Asia appears to be crashing, re: China/Japan/Taiwan and Korea markets all collpasing at once.

And when China goes they will re-peg the Yuan to the USD, which will send the regions currencies into freefall, sans the YEN.

As for the EUR...look forward to winter riots. 

Tue, 10/04/2011 - 23:54 | 1740118 chump666
chump666's picture other words stocks are done.  Should see some huge sell offs towards the end of 2011, as the meltups become less and less. 

Wed, 10/05/2011 - 00:28 | 1740178 RockyRacoon
RockyRacoon's picture

The dollar has but one value for me.   To buy metals when I accumulate enough of the paper to trade for the metal.   There are currently 3 metals in my portfolio:  Au, Ag, Pb.   The ratio of the trade is essentially irrelevant.   All the rest is noise.

Wed, 10/05/2011 - 02:47 | 1740341 akak
akak's picture

Don't forget about Fe and Zn, which I am sure are foremost on the minds of you and your fellow masked brethren every garbage night as the cans are put out on the curb, just waiting for your noisy and messy depredations.

Wed, 10/05/2011 - 11:37 | 1741500 RockyRacoon
RockyRacoon's picture

If you've ever seen the damage a coon can do to your attic, you'd not be surprised that galvanized steel is merely putty.

Wed, 10/05/2011 - 01:33 | 1740274 The4thStooge
The4thStooge's picture

yeah, i don't see that chart as bullish for the dollar, i see it as bearish for stocks and (unfortunately) PM's atm. on a side note, as i'm typing this, the hang seng is in the process of massive dose dive.

Tue, 10/04/2011 - 23:53 | 1740113 Robert-Paulson
Robert-Paulson's picture

Color me stupid, but does anyone know why the Hang Seng Index (HSI) is closed at the moment?  Japaneese Holiday?


Please advise and thanks

Wed, 10/05/2011 - 00:02 | 1740126 chump666
chump666's picture

Hang Seng is the HK index...some holiday.  Nikkei is selling due to o/s holders dumping Japan stocks. 

Tue, 10/04/2011 - 23:55 | 1740119 ArkOmen1
ArkOmen1's picture

That chart wouldn't be bullish if it were measured against gold. Dollars priced vs gold chart, please.

Wed, 10/05/2011 - 00:47 | 1740206 alien-IQ
alien-IQ's picture

your desire of what you want the chart to be is not allowing you to see it for what it is.

trade what is not what you wish it was.

Wed, 10/05/2011 - 07:37 | 1740563 BigJim
BigJim's picture

His desire to see the XAUSD chart makes perfect sense if he wants to trade gold rather than forex.

Wed, 10/05/2011 - 00:05 | 1740133 alien-IQ
alien-IQ's picture

In the few replies posted to this article so far, evidence of "confirmation bias" and "orthodoxy" are plain to see.

To me, this article boils down to one simple idea: trade what you see...not what you wish, not what you hope, not what you think, not what you what you SEE.

If you're a trader...then you know this is fact. If you're an "investor"... you have my condolences.

I can already imagine many people made up their minds about this article before they got to the third paragraph. And by doing validate the points made in the article...the irony is that your confirmation bias or orthodoxy does not allow you to see that.

Wed, 10/05/2011 - 02:48 | 1740292 akak
akak's picture

Stubbornly remaining willfully blind to the big picture, and staring at one's feet ("trade what you see"), even as they carry one over a cliff, is an even better example of a curious psychological phenomenon which I have noticed in others for many years, and which  I have always thought of as "center-thinking", that which others are lately calling "confirmation bias". 

You have met the orthodoxy, and it is you.

Wed, 10/05/2011 - 07:48 | 1740591 BigJim
BigJim's picture

Yes... but.

The chart is relevant for forex purposes. If you're trading something other than currencies - PMs - for instance - it would make more sense to look at charts of those trades in USD before coming to any conclusions. As Akak pointed out previously, it's quite possible for the dollar index to rise while the price of everything else rises too. All it takes is for other currencies to depreciate in buying power faster than the USD.

Wed, 10/05/2011 - 00:06 | 1740138 barnabeg
barnabeg's picture

Can someone explain why anyone would care about the chart? When recession turns to depression, the printing press will go on overdrive. And that ain't bullish for the dollar. 

Wed, 10/05/2011 - 00:26 | 1740165 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

I care about the chart, because it looks bearish.  It looks like the dollar caught a little rally (and considering the long term chart we could call it a "Dead Bernanke Bounce") when the financial sector began failing, again, this August, or rather last spring, as it has been falling for a rather long time.  Should I put faith in the dollar when I know the Banking Housees, and their (yes their) Federal Reserve have their backs up against a wall?  Bernanke has joined the crying game that is saying for China to strengthen their Yuan, when the US has relied on a weak Yuan for decades.  And how will the Yuan strengthen when it is backed by the dollar?  You want to talk about heresy?  How about lunacy, let's talk about that!

The dollar has no intrinsic value, neither does any fiat.  We lie in the middle of the greatest ponzi game ever played; it is the fiat ponzi, and the taxpayers are the losers.  Oh, and the income tax is unconstitutional, but we are playing anyway, which means there really is no pot, it's just a game, but here we are, still playing.  Ante up!

Wed, 10/05/2011 - 00:35 | 1740192 dr.charlemagne
dr.charlemagne's picture

all about time frame

trading daily or weekly, bullish

monthly or yearly.......BEARISH

Wed, 10/05/2011 - 00:58 | 1740217 alien-IQ
alien-IQ's picture

it all started with a bullish one minute chart. then minutes became hours, hours became days, days became weeks, weeks become months, months become years. time is funny like that.

Wed, 10/05/2011 - 00:06 | 1740139 blindman
Wed, 10/05/2011 - 01:04 | 1740222 G-R-U-N-T
G-R-U-N-T's picture

I often wondered if Waits was/is a closet heroin addict simply because he always looks like he's working hard at pinching a loaf when he performs.

Wed, 10/05/2011 - 01:39 | 1740279 blindman
blindman's picture

Listen To The New Song "Back in the Crowd",

Wed, 10/05/2011 - 00:13 | 1740153 Caviar Emptor
Wed, 10/05/2011 - 00:20 | 1740164 blindman
blindman's picture

are traders heretics or true believers in the underlying
assumptions embedded in the chart data? have traders
really questioned the tenants of their fundamental
belief system? are charts just another way of enforcing
and confirming bias and justifying that bias, action and
behavior they are committed to?
"it's time, time, time
and it's time time time
yes it's time, time, time
that you love
and it's time, time, time." t.w.

Wed, 10/05/2011 - 00:24 | 1740168 defencev
defencev's picture

I pretty much agree with these analysis as long as Dollar remains World reserve currency. At the moment the direction of theDollar mostly depends on printing press of Bernanke and to lesser extent the situation in Europe. Of course, when Renminbi will take the Dollar position the Dollar will pretty much become irrelevant and may behave depending on usual balance relations (like current account deficit etc). In my view, if we have a new President who will be serious about cutting budget deficit and reviving US economy we will be able to see a significant strengthening of US Dollar.

Wed, 10/05/2011 - 07:55 | 1740605 BigJim
BigJim's picture

The USD became reserve currency because i) the US was the backstop of the anti-axis war efforts and was in a position to impose Bretton Woods, and ii) it was backed (at the time) by gold.

I can't see any another country's currency becoming the new reserve currency when the USD finally dies. We either get SDRs (if TPTB get their way) or, please God, it'll be PM backed.

Wed, 10/05/2011 - 00:28 | 1740175 dr.charlemagne
dr.charlemagne's picture

1) USD purchasing power down 98% since 1913

2) Competition for commodities is increasing dramatically, slow down or not

3) All recent Republican administrations have expanded government and the debt

4) Even the Tea party can not take away Medicare and Social security

5) 1.5 Trillion in New Federal Debt/yr

6) strong dollar = no manufacturing jobs = bigger welfare state

7) imploding stock market = widespread pension failures = bigger welfare state

8) the fed chairman and TPTB are terrified of deflation 

9) we have experienced significant real inflation in basic necessities despite a pathetic velocity of money

10) negative real interest rates

11) War, the single greatest debt creator, is simmering at every corner of the globe

12) The rich get richer from both money and debt creation under the federal reserve system

13) deflationary collapse means everyone defaults including the US, its dollar goes down with the ship

14) China and many others are calling for a new world monetary system


Thats a quick list of my confirmation bias. Turmoil with the Euro is rallying the USD for a couple weeks, does that mean I should have an epiphany and dump PMs? Does a hot summer mean global warming is going to flood New York?

Wed, 10/05/2011 - 00:34 | 1740187 Scalaris
Scalaris's picture

Great article. It sums up the evolution of my two and a half year trading / investing period perfectly. Frighteningly accurate description of my own convictional dichotomy deriving from a too often conflicting split personality of a trader / investor and my subsequent attempts of maintaining a behavioral system of equilibrium. 

Wed, 10/05/2011 - 00:34 | 1740188 celticgold
celticgold's picture

Falling down , tom waits

Wed, 10/05/2011 - 00:38 | 1740195 Fedophile
Fedophile's picture

If a sustained credit contraction takes hold, growth increases to 5% or more or the EU collapses I'll bite on a USD bull run. Until then; all things that go up, must come down.

Wed, 10/05/2011 - 00:43 | 1740200 Floordawg
Floordawg's picture

Wait... WTF.

Does this mean that pretty TV reporter was right about gold and the dollar!?


Wed, 10/05/2011 - 00:44 | 1740202 slewie the pi-rat
slewie the pi-rat's picture

"The trader recognizes multiple timeframes..."

this stuff would also apply to other games?  poker? 

graham nash david crosby - Southbound Train (1972) - YouTube

Wed, 10/05/2011 - 00:50 | 1740208 htp
htp's picture

It's dishonest to use a chart of dollar vs. other fiat currencies to prove the case of a strong dollar against gold. Use a chart of the dollar against gold instead. It's a totally different looking chart.

The amount of debt (~100% GDP) contradicts the notion of a strong currency. Of course other currencies are in similar position. They are all losing value.

Wed, 10/05/2011 - 00:56 | 1740215 zorba THE GREEK
zorba THE GREEK's picture

The dollar has not changed in value since its inception, it's worth 100 pennies.

It's the penny that has lost its value. It's not worth picking it up off the ground.

Wed, 10/05/2011 - 12:38 | 1741813 bid the soldier...
bid the soldiers shoot's picture

There are one thousand mills to the dollar. Before the penny looses value, the mill does.

"One mill controls them all."

Wed, 10/05/2011 - 01:00 | 1740219 TheSilverJournal
TheSilverJournal's picture

I don't know who would think the dollar is in a multi-year up trend when in reality it's almost extinct.

Wed, 10/05/2011 - 02:30 | 1740298 akak
akak's picture

The dollar can only be in a multi-year uptrend when compared to a basketfull of basket-case fiat currencies that are in an even worse multi-year downtrend.

Was the last ship to be sunk of the WWII Japanese Navy the "winner"?

Wed, 10/05/2011 - 02:34 | 1740330 nhr215
nhr215's picture

everything is a "paper" asset and a fiat currency. Unless you are literally storing gold in your basement, you own paper. Ditto for stocks, bonds, all currencies, commodities, etc. Everything is paper. The only way to determine worth is paper relative to other paper... Based on that, the dollar has done well this year. So has gold. So have bonds. period. end of story. anything else is fanatacism.


Wed, 10/05/2011 - 02:54 | 1740344 akak
akak's picture

I disagree.

I fundamentally do NOT have a problem with "paper assets", strictly speaking, but the US dollar, or any fiat currency, is most definitely NOT an "asset", but a debt, a liability, and an ever-depreciating one, as is every fiat currency.  Yes, you can contrive artificial indexes and make spurious comparisons of our failing, fraudulent fiat currencies against each other, or against bonds defined by those very same falling currencies, but in the end Joe Sixpack knows, patently and without question, that the spending power of the faux money in his wallet has NEVER increased from one year to the next, only diminished.  Attempting to claim otherwise is the sign of a fool, a desperate defender of the corrupt status-quo, or a pro-Establishment lackey and liar.  End of story.

Wed, 10/05/2011 - 01:08 | 1740233 Peter K
Peter K's picture

"Once a viewpoint has been plucked from the swirling chaos of beliefs and explanations, then the mind quickly solidifies that view, resisting any future modification. Very little energy is devoted to questioning the position, while enormous energy is devoted to defending it."

Very good description of the loony lefts devoition of all things Marxist/Socialist/Obamist. :)

Wed, 10/05/2011 - 01:14 | 1740242 blindman
blindman's picture
Tom Waits - Bottom of the World
Lyrics to Bottom Of The World :
My daddy told me, lookin back,
The best friend you'll have is a railroad track
So when I was 13 said, I'm rollin' my own
And I'm leavin' Missouri and I'm never comin' home

And I'm lost
And I'm lost
I'm lost at the bottom of the world
I'm handcuffed to the bishop and the barbershop liar
I'm lost at the bottom of the world.

Satchel Puddin' and Lord God Mose
Sitting by the fire with a busted nose
That fresh egg yeller is too damn rare
But the white part is perfect for slickin' down your hair

And I'm lost
And I'm lost
I'm lost at the bottom of the world
I'm handcuffed to the bishop and the barbershop liar
I'm lost at the bottom of the world.

Blackjack Ruby and Nimrod Cain
The moon's the color of a coffee stain
jesse Frank and Birdy Joe Hoaks
But who is the king of all these folks?

And I'm lost
And I'm lost
I'm lost at the bottom of the world
I'm handcuffed to the bishop and the barbershop liar
I'm lost at the bottom of the world.

Well I dined last night with Scarface Ron
On Telapia fish cakes and fried black swan
Razorweed onion and peacock squirrel
And I dreamed all night about a beautiful girl

And I'm lost
And I'm lost
I'm lost at the bottom of the world
I'm handcuffed to the bishop and the barbershop liar
I'm lost at the bottom of the world.

Well God's green hair is where I slept last
He balanced a diamond on a blade of grass
Now I woke me up with a cardinal bird
And when I wanna talk
He hangs on every word

And I'm lost
And I'm lost
I'm lost at the bottom of the world
I'm handcuffed to the bishop and the barbershop liar
I'm lost at the bottom of the world

Wed, 10/05/2011 - 01:17 | 1740245 JOYFUL
JOYFUL's picture

this article is a great opportunity for goldenholders to reconnect with the mechanical, rather than theoretical aspect of placing one's bet on the shiny metal...because just like mining, it requires some actual work, in the form of panning(sifting, whathaveyou) through the material to separate the dross from the golddust.

It's more than likely that the the only way to see the forest for the trees in a manipulated and controlled market (such as we know precious metals to be) is to be able to think and act as both trader and the same moment...the degree of emotion driven religious zealotry one finds within the gold community as expressed on the average PM forum is truly frightening....and probably a major reason that so few average Joes/Joesphines are willing to join us and extend our ranks beyond the absurdly low 1-2% of the population. Cults are always notable for their tendency to retreat from the way 'things really are'.

Chicken and egg...When we grow out of the need for self reinforcing circular arguments as to why gold/silver are the only solution, the dollar is doomed, etc., etc., and realize that "for everything, there is a season" a time to buy, a time to sell, and return to looking at gold as a measure of prudence in an era of imprudence, maybe our numbers will swell in accord with our willingness to drop the rhetoric and rely upon the implicit soundness of  our collective personal decisions to hold the only material which usury cannot destroy or debase.

"All our best men are laughed at in this nightmare land."  Jack Kerouac.


Wed, 10/05/2011 - 01:22 | 1740258 caerus
caerus's picture

short the dollar

Wed, 10/05/2011 - 01:28 | 1740266 buyingsterling
buyingsterling's picture

I disagree with the author's take on human decision making, particularly in this environment.

How many ZH readers think fiat is crap? Probably most. How many were raised in the home to believe that?

There's nothing special about ZH readers, we're like most people: We want an answer, one that makes sense. The people here are ahead of the curve because the system has already stopped making sense to us. Most people are still hearing the message that its a passing problem, and the government can do something constructive about it. That won't happen, so more and more people will start looking for truth and be receptive to it. Much of our usual thinking about many things, including human psychology, may turn out to be false in the coming years.

Wed, 10/05/2011 - 01:28 | 1740271 reader2010
reader2010's picture

Bullshit wrapped inside another layer of bullshit is still bullshit. 

Wed, 10/05/2011 - 01:41 | 1740282 dr.charlemagne
dr.charlemagne's picture

i like chris matenson. smart guy. this one sounds like he is talkin his book. he went long UDX recently i bet

Wed, 10/05/2011 - 01:50 | 1740291 caerus
caerus's picture

ES breaks 1100 this week I think and stays there

Wed, 10/05/2011 - 02:20 | 1740316 solgundy
solgundy's picture



Averages of daily figures. A weighted average of the foreign exchange value of the U.S. dollar against the currencies of a broad group of major U.S. trading partners.
Broad currency index includes the Euro Area, Canada, Japan, Mexico, China, United Kingdom, Taiwan, Korea, Singapore, Hong Kong, Malaysia, Brazil, Switzerland, Thailand, Philippines, Australia, Indonesia, India, Israel, Saudi Arabia, Russia, Sweden, Argentina, Venezuela, Chile and Colombia.
For more information about trade-weighted indexes see

Wed, 10/05/2011 - 02:39 | 1740335 akak
akak's picture

You are incorrect.

The DXY is a geometrically weighted index of some of the major trading partners of the United States. The composition if the DXY Index is heavily weighted towards the Euro and European countries that have not joined the European common market. The components of the DXY Index are (by weighting): Euro (57.6%), Japanese Yen (13.6%), Great Britain- Pounds Sterling (11.9%), Canadian Dollar (9.1%), Swedish Krona (4.2%), and Swiss Franc (3.6%) ... The DXY was created by JP Morgan in 1973, and it has only been updated once, for the introduction of the Euro currency.

Article Source:
Wed, 10/05/2011 - 06:13 | 1740373 chindit13
chindit13's picture

Embracing the contrarian viewpoint offers little joy, because heretics are constantly being hounded by devotees of orthodoxy seeking their conversion to the one true faith or their crucifixion as mortal threats to the orthodoxy.

Why is this so? For two simple but profound reasons. The human mind strongly prefers certainty to uncertainty and simple, fixed explanations over complex, contingent explanations.

The human mind has a second, superglue-like quality: Once a viewpoint has been plucked from the swirling chaos of beliefs and explanations, then the mind quickly solidifies that view, resisting any future modification. Very little energy is devoted to questioning the position, while enormous energy is devoted to defending it.


Do these words only apply to fiat, or could it also apply to gold and silver?  Just wondering.  You see, I'm uncertain, so I guess lack of certainty about PMs makes me a heretic?  I know all about the 5000 year track record, but since I don't intend to live another five thousand years, I'm just looking to match my existence with whatever means of exchange everybody else is using at that time.  I remember the last time fiat was about to disappear, and how it was to be replaced by gold and silver.  Thirty years and waiting.......

Being a heretic, I cannot help but think sometimes that gold and silver are merely the equivalent of a long running Broadway production of the Emperor's New Clothes, and at some point the human species will collectively decide, "it's just a piece of metal".

As for fiat, it may have lost out to gold, but in terms of things I might one day want to buy again (land in the US), it has gained value.  It has also been a whole lot easier to use on a day to day basis.  I bought silver in 1994, and gold in '99 and '00, but because I might well be a heretic, I only looked at it as a long term trade and have been winding down the position for about two years now.

Wed, 10/05/2011 - 04:09 | 1740375 walcott
walcott's picture

Look at platinum it contines to crash big time. Everything else follows. Palladium is about $100 off price it was about a year and a half ago. Good buying opportunity again for the stash. Don't kid yourself its not just paper going down. All of it is going down for awhile anyway. We will never get this hyperinflation if the freaking banks sit on the cash.

No credit is being extended to anybody. The entire united states is getting foreclosed on.

Don't buy a house don't buy any fucking stocks don't go to any of their stupid movies. Don't buy anything! The dirtbags in charge don't want you to participate. So don't. Fuck them!

Their entire paper ponzi scam society is a complete fake illusion. Every thing you see is a propped up illusion. And they forcefully make anybody working pay through 401k plans. Enslavement. Soon this whole country will be a Soros Nazi concentration camp like they want it. He's perfect for his role. He got his training as a grim reaper early in life. This is his moment again. He and his buddies love killing people. And he hates America and Americans especially. All those moterfuckers from eastern Europe are complete scum. Trichet what a bastard. Europe is their slum and America is their new ultimate slum.

Wed, 10/05/2011 - 04:29 | 1740396 FunkyOldGeezer
FunkyOldGeezer's picture

As a NON-AMERICAN, the relationship of the dollar to other currencies matters a hell of a lot!

GOLD is still priced in Dollars, last time I looked. A strong Dollar means my wealth appreciation in GBP is amplified through my metal holdings. One reason why the current take down hasn't been as diastrous as it might otherwise have been.

The one BIG question I am always having to wrestle with is GBP's relationship to USD. Since 2008, the two have more or less fallen together, but there are signs that something major, may just be around the corner. If USD starts to fall really quickly against GBP, that's when I might have to get out of the metals, if GBP starts falling quickly against the Dollar, I'm laughing all the way.

Otherwise, for a contrarian, why even attempt to form a macro view of where things are heading 2011-2016? Surely that's as 'othodox thinking' as anyone could possibly be? A trader hits the 3 day, 3 week and 3 year trends for profits, with the markets screaming "concentrate on short time-frames" at the moment.

Presumably, the author is a hedge fund trader and can't be that nimble.

Wed, 10/05/2011 - 04:29 | 1740397 buzlightening
buzlightening's picture

It's all an illusion.  Paper fiat money has no value, backed by nothing.  The value is based on people believing a lie.  Once you get off the grid, the world is not flat.  Truth sets one free from lies.  Paper money always returns to its intrinsic value; zero!  There's the truth.  Live the lie or prepare for the truth.  Simple as that. 

Wed, 10/05/2011 - 05:11 | 1740420 Prometheus418
Prometheus418's picture

I actually think the author is right here, but not on all fronts- and I'm not going all-in with the dxy.

Where I agree is that there's too much blind faith in all kinds of things right now, on both sides.  It's been my experience that everyone knows a storm is coming, and it's going to be a big one.  It's also true that no one knows what that storm is going to be, and we're just positioning as best we can.

I also agree that this is all going to be a matter of timing.  I don't discount the theory that we are going to hit a heavy deflationary phase- it looks like it has already begun.  I'm actually kind of looking forward to that, provided it translates into prices in the real world.

But the thing that some are forgetting is that while the PM investment strategy can be stupid in the short term, not everyone is as immediately wealthy and nimble as everyone else.  For those of us who are still relatively young, there simply has not been much time to accumulate a huge capital pool to work with- all of my prime earning years thus far have been in the teeth of this rotten animal of a depression, and there's only so much you can do with that.  There's never a time when $10,000 is just sitting in the bank as a lump sum to start up a brokerage account- that day will come, but it's not here yet.

So, it requires a different strategy and time frame.  I don't disagree that a person could do very well by shorting and trading forex in real time right now- but the buy-in is relatively high.  I have $600-800 a month to invest (if I eat my peas) and there's only so much a guy can do with that.  It's not enough for an ounce of gold, it's not enough to short a comex contract- what it is, is enough to buy physical assets in smaller quantities, like a squirrel saving up for winter.

That means buying a handful of silver every couple of weeks, as well as food and a few other things that will be useful no matter what the economy does.  Along with the silver, I'm also stacking cans of food and cord wood- which you *can* eat, and use to heat your house.  This will not generate a maximum return- it is an insurance policy, where only silver is a speculative play.  

But even there, it requires a strategy with a timeline, and that's how I am playing it.  There's no holding silver until doomsday for me, unless doomsday shows up someday soon- it's just a cost arbitage strategy to accumulate a pool of capital to invest in other things with- it's less liquid than paper cash, but more liquid than bonds or CDs.  

Hell, if I had the money right now, I'd be seriously considering buying BAC stock- not because I like it, but because I think that it's going to get bailed out at least once more, and it's cheap.  Wouldn't hold it long, but it's likely a decent trade in the short term.  Problem is, I'd have to liquidate physical metal for that move at a price point that is too low for my strategy, and it could all be gone in a matter of days if my analysis of it is wrong.

I also hedge the silver with rolls of dollar coins.  They spend the same as paper cash, but they're a little more annoying to use and carry around, so it's less tempting to go buy shit with them unless it's a true need.

So yes, there is a religious layer over the PMs for some- there's also a whiff of political protest in the strategy.  But that doesn't mean that there isn't a portion of people who aren't being strategic when investing- it's just that different circumstances require different strategies. 

Wed, 10/05/2011 - 05:43 | 1740429 Dr. Gonzo
Dr. Gonzo's picture

Actualy gold has been linear throuhout all human history. The only thing to be. All other currency and investments non-linear. Not worried about my gold positions. Any future dollar strength will be a blip on the radar screen of human history and that blip traders are trying to read into right now may not even be there and could be one gigantic trap so TRADE those dollars back and forth til your heart is content but be careful.

Wed, 10/05/2011 - 06:03 | 1740437 FoieGras
FoieGras's picture

This is a good article. Traders trade to make money. They trade bullish charts from the long side and bearish charts from the short side.

Clueless Dollar bears are always bearish, no matter if charts are bullish or bearish.

Wed, 10/05/2011 - 06:20 | 1740444 Sathington Willougby
Sathington Willougby's picture


Collapse of a monetary system isn't the collapse of civilization.  It's just failure to accurately measure a physical system.  Physically, promissory notes (money) are hardly more than a measurement.  A measurement of debt.  Psychological currency manipulation will never change the fact that the physical system was driven into an inefficient mode through bad measurement and decision making, and it's not allowed to return to stability.

Wed, 10/05/2011 - 06:35 | 1740454 Bendromeda Strain
Bendromeda Strain's picture

Currency Wars > Trade Wars > Hot Wars

If that DXY chart has a bullish setup, then that is good news, right Chucky? The Yuan is about to appreciate! Huzzah!

Wed, 10/05/2011 - 07:24 | 1740467 FunkyOldGeezer
FunkyOldGeezer's picture

"actually Gold is linear..."

Not strictly true and a partial myth put forward by Gold bugs. At 35 dollars in the  early '70s it was a dreadful store of wealth, if someone with a long investment time frame had purchased in the '20s.

For example, up until relatively recently, Gold underperformed big time for many years and still hasn't attained its CPI adjusted 1980 price, EVEN WITH A FIVE FOLD INCREASE SINCE 2000. From the beginning of this century until very recently, Oil out-performed Gold quite dramatically, so James Turk's interpretation of his Gold Vs. Oil chart for instance, is somewhat economical with certain truths regarding certain time-frames. I still buy into the fundamental thrust of his argument though.

YES, Gold mined 3000 years BC is still around, YES it still has a value, but I hate to think how much inflation there has been in 5000 years and whether or not, Gold has truly kept up with it.

Everything loses value over time?

Wed, 10/05/2011 - 07:30 | 1740539 deflator
deflator's picture

A scenario where the dollar could be in a multi year uptrend would involve commodities prices to be lower than the cost of producing them. A sustained rise in the dollar would also put a lot of pressure on financing growing U.S. debt. Alright, I'm going to stop imagining that the dollar could be in a multi year uptrend, because there is no way they will allow a sustained deflationary environment.  They will cause hyperinflation before allowing a sustained rise in the dollar.

 It may be orthodoxy but I have an unshakeable belief that governments will want to continue to grow regardless of actual growth in energy terms.

 The idea that the dollar is entering a multi year bull run is about as old school U.S. centric as it gets and completely ignores the past 20 years of globalization.

 Growing out of control U.S. government spending is not sustainable in a sustained multi year deflationary environment.

Wed, 10/05/2011 - 08:08 | 1740634 FoieGras
FoieGras's picture

And how are 'they' going to 'create' inflation? You're acting as if that's a matter of printing a button. Why haven't the Japanese been able to 'create' a modicum of inflation despite throwing 300% of GDP at the problem? 300%! That'd equate to $45 trillion if normalized to US GDP.

Effect in Japan? Inflation rate over 21 years is 0.3% annualized.

Wed, 10/05/2011 - 08:33 | 1740686 blindman
blindman's picture
Webster Tarpley - World Crisis Radio Oct 1st 2011

Wed, 10/05/2011 - 09:22 | 1740930 lieutenantjohnchard
lieutenantjohnchard's picture

over all excellent article. the only hitch is that dxy is bascially euro, yen and pound. somebody here may know the mix. but when one looks at the "dollar" versus all currencies the drop is more pronounced, although lately the trend has reversed somewhat. the second hitch is that from what i can tell based on what "insiders" write is that fed policy is dollar devaluation.

that said, cm's points are very accurate.

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