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EU sanctions, higher jobless claims, and lower mortgage applications – What does all the negative news mean?

September 11, 2014

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Discussion
9 Comments
    Sep 11, 2014 11:05 AM

    Maybe the rah, rah rah about the dollar is a little irritating. It is supposed to be in decline according to all who subscribe to the gold thesis. But it has been one of the most obvious trades this year and I don’t think it is over yet. We are awfully close to key resistance and if it break up look out. And look out for energy prices too as they could fall back further.

    What this has done for US stock markets is make them all the more appealing for foreign buyers and Europeans especially. An increased capital shift will thus be underway. There is an extra bang for the buck so to speak so even more capital will be drawn in as long as Mario Draghi keeps his foot on the gas.

    How I see this playing out is we now have significantly added support for US equities represented in all the major currencies from the Yen to Euro to Sterling. We will not have a taper tantrum as a result and the last of QE will resolve itself rather seamlessly as capital keeps streaming in from abroad.

    So I am therefore remaining solidly in the bull camp for the dollar longer term even though it looks close to a corrective event on its way to much higher levels. This coming pullback (should it arise) will be greeted as an excellent opportunity by European traders to enter US stock markets and we will go bullish stocks again.

      BDC
      Sep 11, 2014 11:33 PM

      See my post at “The Doctor Is In”.

    Sep 11, 2014 11:35 PM

    I’m only saying don’t get as fixated on the strong dollar as some have incorrectly been too bullish on gold. There are a host of reasons why a TOO-strong dollar would end up being self-correcting, because it would trash too much else. Note that over the last few years, the US$ Index traded in a fairly narrow range, with just a couple exceptions of brief upside breakouts. Neither lasted too long.
    The only way IMO that this move continues for quite a while (not impossible, of course) is if things really become unhinged; a la 2008, or some BIG blowup in one or more trouble spots. And if all that happens, Fed officials will trip over one another on their way to the first available microphone to assure us, “Here We Are! Never Fear! We’ll Catch You!”

      Sep 11, 2014 11:53 PM

      Good point Chris. It is easy to get too bullish on the other side of the trade especially if it has been going your way for awhile. There is always time to take a breather and reassess before going forward again.

        Sep 11, 2014 11:07 PM

        Besides which, Dennis Gartman just said we’re only at the beginning of a dollar bull move — that probably means it’s nearly over.

          Sep 11, 2014 11:48 PM

          Ha! Maybe he is right this time. Go dollars!

    Sep 11, 2014 11:57 PM

    To be fair, he’s not always a contrary indicator – he said some time back that one should buy gold only denominated in euros or yen, which he was right about.

    Sep 11, 2014 11:11 PM

    Japanese investors reallocated money from emerging market debt to European sovereign debt for a good portion of 2013 and 2014. These bonds provided a decent relative nominal yield as well as the potential for additional capital appreciation. With the introduction of Abenomics, Japanese investors also stood to benefit from the currency effects of the depreciating JPY for bonds that were issued and paid coupons in EUR. The recent backup of the German 10yr yields that we are now witnessing is likely the result of these investors now moving money out of these investments with the weakening of the EUR as well as with the prospects for additional capital appreciation in Bunds limited.

    Sep 11, 2014 11:08 PM

    No doubt part of the equation, Peter.