Dollar Rally !
By Barry Ritholtz - December 18th, 2009, 11:29AM
We know that “Short the US Dollar” has been a crowded trade for soem time now. And, after falling 41% from 2001 to 2008, the fat part of the collapse has already happened.
Will it continue? That’s what today’s chart looks at.
How likely is it that the rest of the world will stand idly by and allow: a) US manufacturing competitiveness a huge advantage via weak currency?; 2) Massive US debt to be inflated away through dollar weakness?
Quite possibly not, as other currencies engage in a race to the bottom. The chart below suggests a dollar rally is in the offing:
>
US Dollar Index Weekly with MACD
Courtesy of Ron Griess of The Chart Store
December 18th, 2009 at 11:36 am
Related:
http://www.businessinsider.com/china-is-unloading-us-dollars-rapidly-2009-12#top
Click on the ‘view presentation’ link at the bottom. Plenty o’ chart porn. Still trying to digest it.
December 18th, 2009 at 11:41 am
But but but but … the dollar chauvinists say we have to have a strong dollar. Why, Larry Kudlow himself says that a weak dollar is bad for America. Isn’t that because it weakens our ability to become a manufacturing/export economy? Isn’t it? ….
December 18th, 2009 at 11:46 am
There used to be a highly popular weather forecaster here in Minnesota. I heard him interviewed once; his secret was: never bet against the trend. Whatever the weather is today, predict that for tomorrow. One day you’ll be wrong and on that day you just change your forecast, then you’ll be right again for a while.
December 18th, 2009 at 11:55 am
f411,
your logic is perverted.
a ‘cheap’ Dollar reduces the Purchasing Power of the Worker’s wages.
if we followed your thinking along, We should want to work for Nothing, so that We may be able to Export more(to others).
you should try again. Sustainable Export business is predicated upon Quality Goods & Services that are Highly Valued, in the Marketplace.
If that wasn’t true, Nikon would, merely, be a Kodachrome memory..
for X-Mas, Santa yourself some better Programming tapes..
December 18th, 2009 at 11:58 am
Some more chart porn (3 charts only) on the dollar: http://www.kristjanvelbri.com/2009/12/dollar-rally-not-finished-yet
Isn’t it funny though, given that during the last weeks of dollar decline, the media was all over the place but the dollar only managed to bottom trawl? Seems to me that the magazine cover indicators has once again managed to prove that the masses are wrong. I mean, 3% bulls? No doubt Robert Precther will feel satisfied. Too bad that his predictions only hit jackpot twice daily – his like a broken clock on the wall.
December 18th, 2009 at 12:04 pm
MEH-
I was going to correct our man f411- but saw that you took care of that “unenviable” task-
thanks dude
December 18th, 2009 at 12:05 pm
@Mark
A cheap dollar only subverts the worker’s ability to purchase foreign goods. Workers ought to be buying more American goods and less goods overall for their own economic well-being.
December 18th, 2009 at 12:08 pm
@f411: No mention about what an outrageously cheap dollar eventually does to the worker’s purchasing power of key items like gasoline, heating one’s home, buying a home and other assets, food, etc? No mention of what it does to one’s savings and to those who are on a fixed income? I guess those things don’t matter?
December 18th, 2009 at 12:14 pm
Zimbabwe has a very cheap currency from what I understand-
things must be going gangbusters over there
December 18th, 2009 at 12:14 pm
@Mannwich
Most of what we eat is produced here. Most of the energy we use ought to be produced here–in fact, I’d say that cheap petroleum in the 1980s was the goose that killed American prosperity in the 2000s. Carter had actually put us on a course to sustainable domestic energy by 1981, but every bit of that program–including the solar panel Carter had installed on the White House roof–was torn out by Ronald Reagan.
And interest rates…my parents look back fondly on the early 1980s, when they received extremely high interest rates on their savings accounts. Of course, they conveniently forget that the trade-off for those high rates was extremely high unemployment, a massive spike in poverty, and huge cuts in state/local services.
December 18th, 2009 at 12:22 pm
@Bohemian:
Zimbabwe was prosperous until the leadership scrapped their economic engines (agribusiness) to benefit a small cadre of connected people.
Sound familiar? It should–it’s the same policy that Ronald Reagan implemented in the US from 1981-9. Reagan destroyed American manufacturing to benefit a few of his well-connected cronies and Wall Street. The only problem was that he had a Democratic Congress that wouldn’t let him finish the job, so we actually have a chance of restoring sustainable prosperity. That’s Obama’s vision…he just needs to be a bit more bold.
December 18th, 2009 at 12:30 pm
F411 – You are an idiot. Do you even know what the total manufacturing base in the USA is today? Do you know how it compares to China? Do you know how it compares, in total volume of goods, to 30 years ago? My guess is you can’t answer any of these questions because you do not know. Why you continue to come here to be ridiculed by people who obviously are your betters is a mystery to me.
December 18th, 2009 at 12:31 pm
“Obama’s vision”
good one
December 18th, 2009 at 12:31 pm
The dominant trend has been down – so a retest of the lows would appear to be a minimum requirement if dollar strength is to continue.
Watch for a double bottom
Two support levels marked on EURUSD ($1.4075 and $1.4183)
Live chart: http://www.zignals.com/main/dashboard/dashboard.aspx#/chart?param=U1NFVEZfZTNiN2QyMzAtNTdmMC00?end
December 18th, 2009 at 12:34 pm
Part II -
” Workers ought to be buying more American goods and less goods overall for their own economic well-being.”
So now you’re telling people what they should and should not buy, what are you some throw back to 50’s USSR?
“Of course, they conveniently forget that the trade-off for those high rates was extremely high unemployment, a massive spike in poverty, and huge cuts in state/local services?
Are you describing the early 1980’s or today? Do you even read the meaningless crap you post here?
December 18th, 2009 at 12:58 pm
[...] so that the U.S. Dollar Index Bullish Fund (UUP) has run out of shares. (MarketBeat also Bespoke, Big Picture, DJ Market [...]
December 18th, 2009 at 1:02 pm
@Marcus Aurelius 11:36 am
GREAT PRESENTATION !! Thanks for the link.
Now combine that with this little nugget from Dave Rosenberg’s 12/16 “Breakfast with Dave” newsletter:
[ We are not sure if this is a well known “fact”, but the U.S. government has a record $2.5 trillion of its debt, including bills, bonds and notes, rolling over in 2010. That, my friends, is 35% of the outstanding level of Uncle Sam’s marketable obligations having to be refinanced in one single year. One has to wonder how the Fed is going to be able to raise interest rates in such a backdrop of massive rollovers; and if it doesn’t and the economy manages to exceed expectations or we get some inflation, how it is that the near-record steepness in the yield curve doesn’t continue in the coming year. ]
This should not come as a surprise to anyone, as the Treasury has been shortening the maturity distribution of their debt over the past several years — I believe in order to try and manage the interest payments as the total debt increases. If true (and I see no reason to doubt it), then we can expect to see similar sized annual refinancings until we begin to sell more long-term Treasury debt (an unlikely prospect due to the steep yield curve and the impact on the amount of interest we would be paying).
Now if we combine a pullback in foreign Treasury debt purchases with a persistent need to roll over something on the order of 2-3 trillion dollars of debt annually, all I can see is Bernanke not having to do anything to raise rates — rates will rise, probably a LOT more than he would like, and he will be powerless to do anything about it.
I think the Congress is going to come come cheek to jowl with a profound inability to continue to spend beyond our means in 2010. Things have to get pretty bad before our legislators will pull their faces out of the gravy trough to look around, but I think we might just see that in 2010.
December 18th, 2009 at 1:30 pm
Gee – What will a dollar rally do the the inflated bubble price of gold?
December 18th, 2009 at 1:46 pm
Did it ever occur to you that large investors around the world are selling their winners or their losers in order to square up their books before the year’s end? The USD is like Dangerfield, in that its been getting no respect for awhile and due for a correction. So, after squaring up positions why not park your money there until after the 1st of the year when you can then take on new positions? Anything that occurs over the next two weeks in the markets is an illusion for the reasons I just mentioned.
December 18th, 2009 at 1:51 pm
Dear Free Market…
Commodities are not in a bubble. I hope gold falls back to $1K so I can buy more.
December 18th, 2009 at 2:04 pm
Re: f411 and the strong/weak dollar:
I have to agree w/ f411, here. In light our personal and public debt levels, a strong dollar makes perpetual slaves of all of us. The alternative — a very weak dollar and its attendant inflationary spiral — while nasty and ultimately fatal to the dollar, would take less time to unravel while equalizing the disparity between the ‘haves’ (top 2%, or so) and the ‘have nots’ (me and you).
Either way, middle class gets screwed and our nation is in the shit can. The difference being that a strong dollar protects the people who derived benefit from our current indebtedness. If we get screwed, so should they. F ‘em.
December 18th, 2009 at 2:19 pm
Zimbabwe was prosperous.
Zimbabwe became independent of the UK in 1980. Mugabe has been in power since 1987.
Per capita GDP is ~$200. No, I didn’t forget any zeroes.
Zimbabwe ever being “prosperous” must be one of those things limousine liberals divine from looking at Nat’l Geog photos of happy children and colorful costumes.
If they ever met you in person, F411, they would smile and say, “Suck my dick, bwana.”
December 18th, 2009 at 2:24 pm
TZ-
hahahahahahaha- that gave me my biggest laugh today (-:
December 18th, 2009 at 2:25 pm
TZ nominated for “post of the day”.
December 18th, 2009 at 2:44 pm
Marcus Aurelius: All the charts show me is our shrinking deficit with China reduces the amount of Treasuries China needs to buy. People talking their position can show anything they want with pretty charts. Common sense is not very common.
December 18th, 2009 at 2:57 pm
@JT 2:44 pm
I presume that when you refer to our “shrinking deficit” you are referring to our trade deficit and not our budget deficit. Our buying less trade goods from China may oblige them to buy less of our Treasury debt, but our ballooning budget deficit means that we need foreigners to buy more of our debt, not less.
There is an obvious and implicit clash in all this.
Is that “common sense” enough for you?
December 18th, 2009 at 3:20 pm
contantnormal: The charts in linked article specifically suggest that China is ’selling’ treasuries because of lost confidence in the USD and as far as I know makes no reference to our budget deficit.
It is purely mathematical at this point. China is buying less Treasuries because their trade surplus with the US is shrinking.
China is the largest insolvent bank in denial. The US will be the only buyer if China decides to dump TSYs and it would be at a steep discount. Who really loses? Who really loses if the US defaults. The US would be forced to live within its means. That is bad because…why?
When foreign investors stop buying our Treasuries then we will be forced to stop selling them.
You read something that was not discussed in the link referenced by Marcus Aurelius. In your case common sense is not very common…bravo!
December 19th, 2009 at 1:45 am
[...] Dollar Rally! by Barry Ritholtz at The Big Picture [...]
December 21st, 2009 at 7:33 am
Dollar Strength Seen in Stocks 1st Since Lehman Died
The dollar is rallying in tandem with stocks and commodities for the first time since before Lehman Brothers Holdings Inc.’s bankruptcy last year sparked the financial crisis, signaling the worst may be over for the greenback.
The currency, equities and raw materials are on pace for their first simultaneous two-month gain since 2008 as the U.S. Dollar Index rises the fastest in 10 months. The gauge has moved in the opposite direction of either the Standard & Poor’s 500 Index or the Reuters/Jefferies CRB Index of commodities for 15 months straight and diverged from both in all but four.
Correlated trading reflects growing confidence in the U.S. economy and increasing expectations that the Federal Reserve will start draining some of the $12 trillion used to battle the worst global recession since World War II. Until now, the dollar climbed when traders sought protection from turmoil created by the credit freeze that started in 2007. It weakened when they took advantage of record-low interest rates by selling the currency to finance holdings of higher-yielding overseas assets.