There is one simple reason why I stay bearish on risk…the american $.

As the world’s reserve currency, U$D is bought when crisis occurs and, in period of expansion, it ‘s sold. Check this out  :

 

    Grey highlighted areas are crisis periods. One can see the correlation between crisis and U$d strength,  although U$D weakness is little harder to see during expansion periods.  The official end of the 2007-2009 financial crisis meant weak U$D . I think this fact can be easily explained : period of panic, strong U$D, period of growth, you don’t need insurance, you don’t invest in U$D. But, I have a problem with that. I’m not convinced we’r experiencing a period of growth. Have you recently tried to find a job in construction, finances or industry in the States? In Europe? Did you see the last news from China? Ok, I might be wrong but, if we admit we’r inside a period of growth, how much lower the U$D can go the next 2 years ?? 0.50€ ? 50 yens ? 0.50 AUD ? Doesn’t make any sense to me. The U$D cannot go much lower, which means :

1. Economy is going down if the correlation is still valid
2. or, if not, U$D will go up along with financial markets, but you need to give me a reason for that : interest rates …and Bernie doesn’t agree.

Everyone can see the inflationary process on the U$D , process that is higher than on the others currencies, this is the central tendency on the U$D since the end of the gold-standard system. On conspirationist or anti-system websites , you cannot miss the comments of the purchase power of the $ that is going down, this think is a common truth in the US. Do you know which is the most expensive city in the Americas ? São Paulo, Brazil (where I Live) . The second ? Rio de Janeiro, Brazil. There is one thing I can tell you, if you find life is expensive in the States or Europe, come up here !! It’s just nonsense because in the States or in Europe, you have something for your money, here NO . The car prices are incredible, restaurants, taxes and all the sides things you have to pay (security, health care,  education). Believe me, I lived in Canada and I saw, for regular folks, you can make a much better living first in the US, after in Canada, after in Europe and after in Brazil. The exchange rates are not rights, that’s it . How U$D can go down since 2010 against the Brazilian real when the inflation over one year is 10% here and officially under 3 % in the States??  On the chart you cannot miss the two last crisis recoveries : a free fall of the U$D right after, Why? My idea is that the stimulus methods of Greenspan and Bernanke allowed to short the length of the crisis at the cost of the devaluation of the U$D.

One can thinks that crisis are the point where imbalances are balanced , when bad companies die to leave space to better run and more efficient companies, a kind of period when the economy reorganizes itself to adapt to an environment that has changed. My belief is the monetary policy of Greenspan and Bernanke didn’t allow the crisis to reorganize the economic paradigm, that’s why there is internal imbalances in the States and in all the world and those imbalances are growing. It’s not only China that is a currency manipulator !

1. So..to resume, if you got my point, it’s that USA is manipulating its currency , but the trouble is that now, the U$D is too low, it cannot go any lower so we have to reorganize this economic paradigm that is 40 YEARS old.
2.  I don’t think we are living in a time of economic growth and development in the States, Europe and Japan so I think we are INSIDE this reorganization NOW.
3.  I think there is huge imbalances in the different currencies of the world (not only there, but my post is just focused on it) that need to be solved quickly, which doesn’t necessarily  strong U$D, but at least a FAIR value.

 

When you add trendlines to the chart from the St Louis FED, it looks like that :

 

 

We are at the end of this descending wedge, in 2008, when the financial crisis was at full speed, we rebounded on a descending trend-line that was nearly 30 YEARS OLD!!!

So…everybody knows the Keynes sentence : “Markets can remain irrational longer than you can remain solvent”, we are talking of a 40 years old pattern. I don’t think the U$D can surge 10% next week or month, but I think this trend is bottoming.

After all, what we need for that move ? A Chinese PM that cannot answer the call of Sakozy because he is in a tunnel ? A Chinese official that release by mistake the real economic numbers? A big European bank that go bankrupt ? A downgrade of France ? This MF Global “difficulties” to become sour ? Portugal to say “Me too” ? A sex-tape of Berlusconi?

Today I moved my stop at break even on the trade I opened during my first post  €/JPY @ 107.85, stop @ 107.85, target 97.85, just in case we hit 1300 on S&P..but, you know what, I will still be bearish !

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