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Rick’s take on the USD and if the Fed can do anything about the upward move

March 11, 2015

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28 Comments
    Mar 11, 2015 11:39 AM

    THANKS RICK…………

    Mar 11, 2015 11:14 AM

    Good interview guys and good thoughts on oil, the general markets, the dollar and PMs.

    Commodities have been getting punished in price due to the currency wars pushing up the dollar, and a general lack of interest as the general markets push higher and higher. I also believe seasonally this a rough time period for PMs, but that this was quite expected.

    The March (PDAC curse) and May (sell in May and go away) have traditionally been seasonally rough months for the PMs and this was mentioned in Dec and Jan as likely pullback territory. I have commented several times recently that Gold missed it’s chance to turn the tide in late Jan/ early Feb. Now, I wouldn’t be surprised to see a counter trend move back up in PMs for 2-3 weeks in late March-April, when the dollar puts in an intermediate top.

    I’ve stated for a while that the dollar would get up to the 100-102 level before putting in short to mid-term top (but did think it would take a little longer to get there). Very soon though, the Euro will stop correcting and revert to the mean, and the dollar will come down a bit. This may provide a short term boost to oil & PMs. However the final push in the dollar later in the year could go even higher before it tops in the Summer, while the commodity complex bottoms.

    Mid-term I think we’ll get one more bigger down-leg (likely in late April/May) for most of the commodity complex. The related miners may bottom first, and certain stocks may still hold above their November/Dec 2104 lows, but some are already closing in. For sentiment to get wiped out entirely, it would stand to reason that some stocks will still make new lows before the “major bottom” is in. This really depends on the depth and velocity of the final correction that will end the 4 year Bear in PMs.

    Until that cycle works itself out we’ll get more of the same, but it does seem like things are falling faster in PMs and the dollar is rising faster than anticipated. It is likely to reverse in the very short term as soon as the Euro should bottom this week.

    Lastly, my thoughts on the general markets are that we may have a mini-correction, but that the blow off top won’t happen until summer and then topping into the fall for a terrible 20% correction suddenly (Sept-Oct) in the Nasdaq, Dow, S&P, and Russell 2000. By this point the dollar will be moving down into a new bear market and we’ll probably be back into the currency wars with the US dollar.

      Mar 11, 2015 11:25 AM

      Good observation shad;however remember that we are in a deflationary era right now and that does not bode well for commodities in general.One reason why I could see gold going up is if us federal government is downgraded.Gold yields nothing and as long as rates remain at or close to zero the speculation on the stock market remains.Like greenspan ;yellen will raise interests rates in stair step mode;thus giving chance to big institutions to sell their positions.

        Mar 11, 2015 11:36 PM

        Good thoughts Don. Yes, we are currently in a deflationary spiral, but the biggest factors contributing to that are the strength of the dollar and zero interest rate environment created by central banks. When the dollar tops and rolls over it will take some of the pressure off PMs, oil, and other commodities priced in dollars.

        Historically, most bear markets in PMs have been 3-4 years, and we are about 4 years into this bear. The dollar has been on an absolute tear and is getting frothy so it is likely we’ll see a topping pattern over the next 1-3 months. It stands to reason that this topping in the dollar will lead to an increase in the commodity space.

        Now to your second point about gold yielding nothing, that is absolutely true. That is why in a zero interest rate or even low interest rate environment it tends to do best, because people that are saving right now are getting punished with negative returns. If you put you cash into a money market, or CD, or savings account, you have been making less than 1% for years now, so you are actually losing money to inflation by doing that. Another way of saying it is that if you are actually keeping cash or adding cash to a saving account, CD, or money market then you are flushing part of it down the toilet.

        In this kind of an environment, it doesn’t matter that gold doesn’t yield anything, because it is an insurance against bad central bank policies and the currency wars. It is a storage container of wealth, and many times it is non-correlated with all other assets. Yes, it has tendencies to move inversely to the dollar, but then again, look at the recent trends in Nov, Dec, and Jan where it moved in tandem with the dollar. Normally Gold moves in step with oil, but as oil was collapsing, gold was not really affected and decoupled over the last few months. Now I do believe these tendencies are returning with the dollar and oil will be re-establishing themselves further as the commodity complex bottoms as an overall basket while the dollar tops.

        As for the last point about Yellen raising the interest rates in a stair-step fashion, that is fairly obvious, because if they raised them too much then this will spike the dollar even higher, lead to worse deflation, and will kill the “recovery”. I don’t think they’ll be able to raise the interest rates up more than a “token” 25 to 50 basis points, and that is really nothing….just window dressing. More than likely they’ll keep stringing the market along for another year or so without any real significant 100-400 point increase. Look how long they have already strung this charade along!! Ever since 2009 people have been waiting for them to raise interest rates and magically it never happens year after year.

        The central banks have printed waaaayyy too much money and have enormous debt, so there is no way they can raise interest rates very much without collapsing the whole system. I’ll be honest Don, the fed raising rates too high and killing the gold market doesn’t keep me up at night, because they’ve painted themselves into a corner : – )

        The one thing that has been the saving grace is that all the 0% interest rates have allowed banks to borrow money at virtually nothing, and stick it all into the stock markets, so that is where the inflationary result of the money printing has been constricted to. If the Fed raises rates to much, then that little game is over as well.

        Companies have also been able to borrow money for nothing and buy back stock, pay hefty dividends, and force their share price up by those tactics instead of honest growth. If the interest rates go up to much, then that game is also over and this will pressure the stock markets.

        When these general stock markets do their blow off top later this summer/fall the jig will be up. Let’s not forget they are 6-7 years into a bull market with very few meaningful corrections, the strong dollar is hurting mult-national corporations due to their products costing too much in the local currencies of other countries, the oil plunge is about to start showing its true ramifications in just oil, but servicing companies, and the financial sector. Many dollars were loaned out on projects that are no longer profitable, and the problems are about to come home to roost. When these multinational/oil/financial companies go down, they drag the indexes down, and this will cause a huge correction in the general markets (Sept/Oct is my target). When that money leaves the general markets, as the dollar is dropping down, and in an zero interest rate environment, then commodities will be the recipients of this re-balancing from fund managers.

        I think the lay of the land is about to get an enema this summer/fall, and it is about dang time.

          Mar 11, 2015 11:20 PM

          You are perfectly right shad.Many Oil fracking and junior minor companies will go belly up this year because of lower prices.Besides that across the S&P 500 index, nearly half of total revenue comes from outside the United States.Hence the stronger the dollar gets the more the profits shrink and everyone knows that when a company is no longer viable it will shut down either temporary or permanently.However the ultimate result will be more lay off.As you know many u.s. companies are invested in china where the mother of all bubbles exists i.e. the housing bubble.Many that will be laid off will fail on their mortgage/car loans/student loans and what happened in the u.s. will happen there.Europe is in dire economic straits and the strong dollar is not making it any easier giving that many ez are net importers of oil.Besides that greece will ultimately get out of the ez.It cannot service its debt.Imo they are only buying time.Left wing parties are gaining more popularity and they too could bring the demise of the eu as we know it today.Last but not least shad it is important to keep in mind that global financial institutions bet a tremendous amount of money on currency movements. 74 trillion dollars in derivatives are tied to the value of the U.S. dollar, the value of the euro and the value of other global currencies.When currency rates start flying around all over the place, you can rest assured that someone out there is losing an enormous amount of money. If this derivatives bubble ends up imploding, there won’t be enough money in the entire world to bail everyone out.Imo it wont take long before some highly leveraged institution that is knee deep into these derivatives will go belly up (lehman style)

            Mar 11, 2015 11:13 PM

            Extremely well said Sir Don Corleone!

            Great points about future layoffs, the Greek and larger European economic bifurcation, and the insanely huge derivative market in the currencies and the potential ramifications of an unraveling of that derivative beast.

    Mar 11, 2015 11:40 AM

    Why are all the solid gold stocks going up right now at 1:30 pm???

      Mar 11, 2015 11:10 AM

      I think some bigger funds are anticipating a short-term top to the dollar and bottom in the Euro. If they buy into the larger ETFs like GDX, HUI, SGDM, or TGLDX then this would support many miners simultaneously.

        Mar 11, 2015 11:19 PM

        P.S. – Confused I couldn’t help having a early 80’s disco funk fever moment when you called them “Solid Gold” stocks. I went and you-tubed a few Solid Gold segments from 1981 and 1983 and used it as my theme music for trading earlier today. Hilarious!

      Mar 11, 2015 11:00 PM

      Because the big miners always know something that we don’t;
      Gold price usually follows there move; so tomorrow gold should go back up.

    Mar 11, 2015 11:23 AM

    Pretty soon the dollar will be so valuable, you will be able to buy a new automobile for just a sngle $1 bill.

    Wasn’t long ago there was talk of buying a house for the price of just 1 gold coin.

    My how times have changed.

    Dollar To Da Moon!

      Mar 11, 2015 11:09 PM

      Undermine confidence in gold, you undermine confidence in the whole financial system.

    LPG
    Mar 11, 2015 11:36 PM

    M. Armsrtrong views on Gold – today commentary.
    http://armstrongeconomics.com/2015/03/
    GL to all investing/trading
    LPG

    +++++++++++++++++++++++

    Gold – The Downside
    Posted on March 11, 2015 by Martin Armstrong

    The Gold “POP” our computer pinpointed was right on schedule. We even managed to get the day of the high. Now gold has fallen to 1146 intraday and this is interesting. Our Daily Bearish Reversals are at 1146 and 1141 followed by 1130. Resistance now stands at the 1208-1215 level.

    While we see today may form a temp low if the settlement comes in over 1156, we are staring at rising volatility doing into next week.

    The general flavor among the average investors is that gold is dead and not worth even investing in. We need this sort of view to create the final low. It is still not ready for prime time.

      Mar 11, 2015 11:47 PM

      Wish M Armstrong would write clearer. He might be wise, but of what use is his wisdom if he cannot present it clearly. Then he throws in nebulous (to me) terminology such as daily bearish reversals. Plus I do not know what close he refers to, the NY NYMEX or the Globex as indicated on kitco. I guess he is saying it is possible gold could rally a bit if closes above 1156, but would meet resistance at about 1205.OTRW, I guess his computer indicates further downside for gold, until everyone thinks gold is useless as an investment. That is my best deciphering of his post. Maybe 2016 or late this year this pain could end. I guess I will continue to be mostly sidelined until the trend changes, but occasionally I might short.

    Mar 11, 2015 11:51 PM
      Mar 11, 2015 11:04 PM

      Nice chart Fran Six.

    Mar 11, 2015 11:03 PM

    Should be interesting if bonds make a lower high and turn down tomorrow. Next FOMC is on the 18th I think which is not many days from now. There seems to be a widespread belief they will raise rates. I think if they do they will hold off until the dollar and euro begin a technical reversal.

    Mar 11, 2015 11:27 PM

    The U.S. Dollar Is Going Parabolic – Something Somewhere Is Collapsing

    http://investmentresearchdynamics.com/the-u-s-dollar-is-going-parabolic-something-somewhere-is-collapsing/

      Mar 11, 2015 11:01 PM

      Funny, that’s what I was thinking. The chart looks like its in a fifth wave to me.

    Mar 11, 2015 11:56 PM

    With low to no interest rates and no official backing for the dollar why would the dollar be worth anything? It is just a GD piece of cotton paper with ink on it and in a lot of cases it isn’t even that much. Where is the value?

    Mar 11, 2015 11:00 PM

    What does it take to have a reality check and to put the world out of business?

      Mar 11, 2015 11:33 PM

      HELL !

        Mar 11, 2015 11:02 PM

        You mean the Second Coming Franky?

    Mar 11, 2015 11:40 PM

    The deal with the dollar is that it’s no longer the worlds reserve currency. The countries around the globe have been unwinding their foreign currency reserves based in USD. The trillions of dollars that are no longer in the global market is what has caused the dollar to go up. Less dollars = higher dollar.

    When the dollar, the euro and the franc reach parity, we should see the top in the dollar for years. That looks to be anytime now.

    Mar 12, 2015 12:35 AM

    I concur… this Fall ’15 it’s ALL gonna catch up to all of them.
    But like Chartster above me says… we could all be dead by then.

    Mar 13, 2015 13:01 AM

    Go on Rick. Take a stab. What is your potential target for the dollar? 120? 140? 160?
    If this is an impulse move from 80 to 100 and it ends today and corrects 38%, and then does one of your ABCD patterns then the next target would be 112.