I wanted to point this out as I feel it’s important to get a longer term vision of things.
What better example than the good ol USD. Using “$dxy” you’ll need to pull at least a weekly chart going back as far as 2008…..then draw a simple trend line ( I use crayola crayons not a laser pointer ) connecting the “highs” in 2009 , 2011 – and “now” – as you should arrive at the current area of price around 84.48 completing your line.
If “indeed” this current area serves as solid overhead resistance, and turns the USD lower ( consistent with the continued trend of “lower highs” ever since the crash of 2008 ) would you not agree – this lines up perfectly with the longer term fundamentals as “policy” would have it that the Fed wants a lower dollar?
Now……consider the opposite “technically” – then apply your fundamental analysis.
USD breaks higher…and actually creates a “change in trend” ( making a new “higher high” ) thus breaking the previous long term series of “lower lows” since the onset of massive QE back in 2009.
Fundamentally speaking – would that make sense?
Seriously…..we need to throw this around, and I want you to comment / contribute here.
With such amazing efforts over the past 5 years by the Fed to “weaken the dollar” – can you really imagine that “now is the time” to “scrap the idea” – and see the dollar change this long standing technical and fundamental trend?
I await your valuable contributions.
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At the very start of this year something changed. Since that time the USD and market now mostly have a positive correlation. It could be a aberration or something the Fed is doing on purpose. However the whys are not important, only price.
This being said – would it not make equal sense that they both “fall together” as well then?
As I envision a time where all things “U.S” are sold with reckless abandon.
and people still dont know why precious is falling. because maybe the dollar/fed are doing exactly what it should in worldwide turmoil by showing stability in the buck. scarcity of us dollars also is playing a role.what we should be more concerned about the price of the buck,is whether we as a country start seeing deflation,or inflation as a result of dollars in circulation,or lack thereof, which will soon decide what level the greenback falls,or rises.also,imo, the knockdown of gold and silver is a distraction for the rest of the world,”to not” settle petro in gold,but to keep settling in usd’s.the variables are only part of the whole make up. enjoy the dollars rise while you can,and bank coin. a year from now may be totally opposite. as for me,fuck the markets anymore.i am trading all my green backs for pm’s.i take on at least 3 pounds of silver every month,and personally hope that the dips keep coming.
Now that’s spirited – great response!
The long term considerations for USD, do of course raise the age old question of “deflation vs inflation”. So again fundamental long term implications based in USD direction.
Does anyone really imagine that “the cost of stuff” is going to get cheaper?
Since “stuff” hasn’t gotten more expensive (at least not to the degree money printing has taken place) then I have to assume that the deflationary vortex is massive. This is like the end of the Star Trek reboot where they eject the core into the black hole….
I really have no clue…but I also find it interesting to see Yen strength…how is THAT possible.
I can see arguments for a stronger dollar in the short term but as I have said before on this blog I don’t feel the US has much choice but to keep the stimulus flowing. That being said, if they get too carried away some years down the road they could freak out the bond market due to heavy foreign ownership, also cause ruffles with the reserve or ‘settling’ currency. Marc Faber is a weird but smart dude and I sometimes I think he is right when it comes to much of this ending in war.
Long term USD is pooched.
Short term let’s celebrate those yen longs! I am freaking slaying it right now. Is it too early in Canada to have a drink?
In Mexico ( I already have a beer sitting next to me ) it’s never to early!
Canada? – ya man! – pretty much the same!
The “war” angle may sound a lil out there but does make alot of sense.
If you’ve ever watched documentaries on the history of money / banking / Rothchilds etc – it’s all too clear.
Wars make a “lender” – a shitpile of coin.
oh for sure the war angle is out there. I’m not a fear monger and generally things work out. BUT, several central banks in debt laden countries with low employment numbers are doing some very wacky, desperate, shit so 5 – 10 yrs out who the hell knows.
yes kong i do think some things have gotten cheaper,and others are ridiculously high.if one does a lot of shopping for all sorts of stuff,it’s kinda right in front of ya. deck screws,drywall screws, although the spot for lumber is down,by no means when a consumer buys,it’s still very high.dont start me on potaoes.lol
I don’t know if you are in the U.S or not – but “stuff” hasn’t gotten more expensive?
I borrowed this graphic as a good illustration:
http://forexkong.com/2013/05/11/decline-of-the-u-s-dollar/
As well – current JPY strength is a matter of equities being sold in fear that the new “Abe Enomics” may roll into disaster – if indeed interest rates move to the critical 4% area.
http://forexkong.com/2013/05/23/japanese-bond-implosion-explained/
I can’t post all the same stuff in two different places so…..have a quick peak
Hilarious!
Interestingly..I’ve been taking better stock of prices here in Mexico as of late, where in general I can go to the local grocery store and fill the fridge with all the usual fruits and veg (potatoes included, as well avocado and strawberries) pick up a dozen fresh prawns, sandwich meat and bread – a 26 oz of rum/vod/tequilla, a 6 pack o beer and a couple full double chicken breasts for about 45 bucks max.
I get “chills” thinking about the purchase price of the same in Canada / Vancouver area.
I guess alot of it is relative too…..ya lumber crushed wow.
What would cause Japanese interest rates to rise to this so called critical level?
What’s stopping the BOJ from pinning the entire curve to 0%? What’s stopping the treasury from only auctioning off paper with 1 year to maturity or less? I don’t know if that’s a long term solution, but it would essentially eliminate borrowing costs in the near term.
I don’t know the Japanese system all that well, but I can only assume it’s like the US who auctions off treasuries to primary dealers who are obligated to buy them, which eliminates the possibility of a failed auction.
Yo Tonka – please watch that video in the link below, and get back to me – as the data isn’t mine.
I just thought it outlined the “theoretical” ramifications of access money printing, drying up bond buyers etc…
The outline of Japan’s situation looks pretty similar to the U.S current path in my view.
I know the video. I saw it a while back, but watched it again to refresh myself.
My problem with people claiming disaster is coming, is that they don’t necessarily understand the inner workings of the system and all the options available to the government.
I’m going to assume Japan’s system is much like the US (I could be wrong).
So, government securities are auctioned off to whoever wants them. But, primary dealer banks are mandated to make markets in all government securities that are being auctioned. This means if everyone in the world decides tomorrow that JGB’s are worthless, the banks will have to soak up every bond auctioned. Take that to the extreme and you have to conclude that it’s not possible for a bond auction to fail, or for the government to run out of money. Unless you want to assume the primary dealers are going to give up their mandate, which also means giving up all the benefits of being in such an exclusive club.
Also, the central bank, with their unlimited balance sheet, could announce that 30 year bonds will yield 0%. And 30 year bonds would promptly yield 0%. They probably wouldn’t even have to buy anything to force the yield there. The market would just step out of the way. Who would buy such worthless paper? The banks that are mandated to do so.
The treasury also doesn’t have to issue long bonds if it doesn’t want to. They could fund the entire government off of 90 day bills and their negative real yields. Who would buy it? The banks because they have to.
I know the numbers are big and scary and generally don’t add up and it could all still end in disaster. But I have never met someone who claims disaster is on the horizon and knows the inner workings of the system. They always fail to see just how much dry powder the government has left that can be used at any time.
This is especially harmful if you are so convinced of disaster that you decide to bet on it and you end up on the wrong end of a VERY asymmetrical trade (see Kyle Bass).
So you are saying banks have endless liquid to soak up or absorb the changes, Tonka? Impossible even w a central bank pumping cash to them. The problem will seep out.
Last I checked Kyle Bass made a lot off the yen and has limited exposure to JGB’s from what I read.
To the extent that Japan is so much further down the road than the U.S – it warrants observation / evaluation if nothing else.
If you believe that governments can hold rates at 0% and concurrently “print forever” with no negative ramifications then you have much more faith in the “system” than I. As I see it – it’s the people of a given nation that suffer the most. Ultimately to the degree of civil unrest, and yes “hell knows what next”.
If you are in support of the current government actions, who can argue with that – as that is exactly what they hope/want you to be.
I cant’ make predictions for the outcome….but do enjoy the debate along the road “to it”.
Most of the disaster types that are well known are talking another 10 yrs out projecting the same game plan.
It’s not something I necessarily believe. It’s just that if we want to talk about something as extreme as the third largest economy defaulting (let alone the US which represents over 20% of global GDP), we need to consider just as extreme events happening in the other direction. No, the government probably can’t hold rates at 0% forever and the banks don’t have unlimited liquidity. But they could certainly do it in the short to medium term, which could wreak havoc on a portfolio. Like usual it depends on your time frame.
Stepping back a bit to more realistic scenarios, do you think the markets would be at all spooked if Japan started moving towards issuing shorter term debt? Do you get the sense that something like eliminating the 30 and 10 year bonds is a scenario that could play out in the near term? The US eliminated the 30 year for a while without any problems.
Short Yen treated me very well “as well” – for several months leading up to the new administration / policy etc….
And I’m of the same questioning Jskogs – the endless liquidity notion holds little water, as time will come to pay the piper – when?…perhaps when the American people finally “FINALLY” realize / come to terms the fact that this isn’t working and revolt?
Get those drones a flyin, and lets get on with that gun control. Not to mention take back all yer gold!
Go Fed go! – ( dripping sarcasm )
I find these arguments can go around and around forever. But I’d still like to get your thoughts on two things:
1. Does it bother you that the vast majority of people take it for a fact that developed nations are screwed under a massive pile of debt? Surely it won’t play out the way people expect it to, which is why I attempt to come up with bizarre alternative possibilities, regardless of whether or not they are based in reality.
2. What are the ramifications if a country stops issuing longer term bonds? I can’t think of any ways it would immediately effect the governments balance sheet (but I certainly could be wrong). So, is it just a possible market confidence issue? This is just something I could see Japan attempting.
Tonka. Indeed the “discussion” can go round n round forever – with so many variables and so many views/ potencial outcomes.
There really is no “right or wrong” in that something as simple/arbitrary as “time frame” could just as easily have some dork labeled a “guru” and a genius a “doorknob”.
You’ve got great views…great questions….obviously knowledgaeble – mucho respeto.
My macro view as to why/how “any and all” of this is happening plays little role in making a living trading foreign exchange.
1. Not playing out the “way people expect it to?” – you are “people” and have an expectation….but you feel yours is “opposite” that of “most people”….hmmm……perhaps they feel the same of your view no? Opinions will always be exactly that – opionions. This is what makes a market.
2.I have aboslutely no clue what it could matter ” the maturity ” given an environment where there is no “actual person with real money contributing to the system” buying bonds other than the ponzi government scheme – which surely cannot go on forever. If a country can’t find anyone to buy their debt – I imagine trouble on the horizon.
Nobody has mentioned my major concern and that is you froze all points right now and calculated out you have the problem of debt growth outpacing income growth. Isn’t that the primary concern long term? I own a business and that would keep me up at night
The weekend is here guys – absolutely fantastic input here today – much appreciated.
Hope everyone has a good one!
The foregoing made for a very good Sat morning read. Like JSKOGS I own a business in Canuckistan. I trade a few million $us/$cad yearly (less than $10m), for hedging purposes. To have access to the thinking/logic of forex traders as opposed to hedgers is very interesting. Thanks.
I’m originally ( well Edmonton “originally” but… ) from Van area as well.
I truly believe that forex analysis leads markets, and have a standard catch phrase – “I’m very often early…..but rarely ever late.”
Hope to be of help.
Pension funds are bankrupt. Retirees seeking income based retirements are getting screwed. Meanwhile the Europeans have to rob bankholders to come up with capital and their market is not liquid enough to ever displace the large global demand for liquidity and protection in moments of crisis. The dollar is the only global game in town unfortunately which means huge capital inflows could potentially get here imo.
Velocity of money slowing thanks to Europeans policy of tax and austerity….
When does the “Bernanke call” on the dollar protecting you from a rip end? Surely the market doesn’t wait until he’s gone and replaced by a “volker” type interest rate hiker.
I’d say… absolutely a possibility the dollar “romps” higher.
Nevertheless always 2 sides to the coin…. and the short side is a valid one still.
There was always a valid explination for anything going higher near the peak or going lower at the bottom. Doesn’t make it right. So I think you have to pay attention to price action at least allow it to prove you right or wrong and don’t ignore it from that perspective. UUP above $23 and the short train is dead.
Better position to manage going short because at what point is the dollar bull case dead?
Technically I don’t know of spot other than maybe a death cross of moving averages. So risk/reward probably favors a short in the dollar and long in the euro.
ForexKong – we share a common path, although I suspect from different vintages = UofA – Van – NC – back to Edm. Forex – Biz buys in $cad; sell in $us & Yen.
Been lurking around iBC for about 3 yrs.
Great stuff Mike – and yes as always…two sides of the coin for sure.
I’m really not one for making any long term predictions as we constantly see the landscape changing, and do “trade what I see” for the most part.
Here in the short term, it’s very possible USD sticks around this area / pokes higher – although I am looking for downside over the summer, and then a substancial move upward. We’ll take it as it comes.
Small world – wow….real small.