Whipsaw Wednesday – Dollar’s Destruction Saves Markets

Whipsaw Wednesday – Dollar’s Destruction Saves Markets (apparently)
Courtesy of Phil at Phil’s Stock World

Wheeeee, what a day already!  

The Dollar is down from 76 yesterday to 74.5 this morning, a stunning 2% drop for a currency in a country that didn’t have an earthquake or a revolution overnight.  75.63 was our low of last November (a one-day spike and we were back at 81 by the end of the month as the market fell apart) and before that we only touched 74.23 briefly in November of 2009 (it’s a bad month for the dollar) and we flew up from there to 78 in December and 80 in January.  

I already sent out a morning alert to Members pointing out more ways in which the dollar bears circled the wagons yesterday after US currency made a rare showing of strength on Monday, which promptly collapsed the markets.  The BOE voted to hold rates steady this morning yet the Pound STILL rose from $1.616 yesterday to $1.637 this morning (up 1.3%) against our currency – which had no decisions and no official announcements of any kind.  

$USD WEEKLY

Does that sound A) Irrational B) Insane or C) Like Wednesday?  As David Fry notes: “Monday’s S&P debt downgrade shocker is quickly old news and steamrolled by freshly minted cash (POMO) with ideas of more to come.  Keeping money printing presses on high was a green light to sell the dollar which always causes commodities to rise. Why is that a good thing The Fed is also rumoured to be selling puts on Treasury bonds to keep rates low combined with maintaining the bogus inflationary “core rate” to keep you mesmerized. It’s some Orwellian-speak to keep the masses happy even though they see the disconnect at the pump and check-out counter.”  

That disconnect this morning sent gold over $1,500 per ounce and oil touched $110 a barrel where, of course, we are shorting it (very tight stops).  Unfortunately, the hawks may shriek louder, but the doves have the power at the fed and investors tend to overestimate the influence of the hawkish side of the Fed, according to former Fed economist Roberto Perli, who explains why Fed Funds futures consistently predict more and earlier tightening than actually occurs.

Economists at the ECB are now predicting “A Century of Inflation,” driven by loose US Monetary policy and rampant Dollar-printing – a genie that already cannot be put back in the bottle as the money is already out there – it’s just a question of having a spark that re-ignites the velocity of that money and sends us into an inflationary spiral.  

We took note of one of the major signs we are looking for in Member Chat yesterday, which is the beginning of wage inflation as Poland’s Solidarity Union is planning a series of strikes to push for wage hikes in the case of quickening inflation.  This or something like this, could be the “shot heard round the World” as workers of the World begin to unite and demand to at least be paid enough money to be able to drive to work and, perhaps (dare we dream?), have enough money left to buy lunch.  

You watch the above video and think it couldn’t happen here but it doesn’t have to happen here – it can happen in Poland or it can happen in Greece or Portugal or Italy or — well who are we kidding – it is happening here.  Gold was $750 an ounce in late 2008, now it’s $1,500 an ounce and we’re talking about QE3.  Germany’s debt to GDP ratio when their country went into crisis in 1920 was 72%, about the same as the US’s current debt load and miles less than Japan, the World’s #3 economy, which has a 200% debt to GDP ratio.  

Inflation does spread too – in 1920, England had 16% inflation and France had 20% in the early stages of Germany’s inflation as they printed money and exported inflation to the rest of the World (sound familiar?).  Keep in mind that, unlike the US – Germany had STOPPED fighting the war it couldn’t afford.  

Unlike France, which had imposed a special income tax to pay for WWI, Germany had suspended the gold standard (Nixon did that to pay for Vietnam) and funded their war entirely by borrowing money.  Because the Western theatre of World War I was mostly in France and Belgium, Germany had come out of the war with most of its industrial power intact, a healthy economy, and arguably in a better position to once again become a dominant force in the European continent than its neighbours.  Although reparations accounted for about one third of the German deficit from 1920 to 1923, the government found reparations a convenient scapegoat.  Adolf Hitler rose to power criticising the national debt and the consequences of Socialism, which he said was destroying the country.  According to Wikipedia: “The inflation also raised doubts about the competence of Liberal Institutions, especially amongst a middle class who had held cash savings and bonds. It also produced resentment of bankers and speculators, whom the government and press blamed for the inflation.”

 Far be it for us to criticise bankers and speculators!  Of course we’re all against Socialism and those damned Liberal Institutions because that’s the German American way!  But, unlike Germany – WE know what we’re doing when we print money!  We also know how to speculate with the best of them and most of us at PSW already have our island getaways picked out and we’ll be long gone before it all hits the fan.  Our speculation this week was JAG yesterday morning and it’s already congratulations to Members as our new favourite miner takes off like an undervalued rocket this morning!  

TM should also be popping today so congrats to those put sellers but there is still time to go long on FTR off that $8 line.  UNG was a good pick-up on Monday and we’re still waiting for ADBE to pop but AAPL is already off to the races and our bullish put spread is looking good and, of course, our aggressive move on FAS should do well so a very nice day for the bulls as we do our level best to fight inflation (in our own accounts – everyone else is screwed).  Having been so bullish on Monday (we shop when there’s a sale!), we watched and waited yesterday other than my call for more CSCO and reiterating our bullish position in INTC.  

I remind you of this to make sure you understand that, with the same logic, we will be looking for short opportunities today.  We are neither bullish nor bearish – we are rangeish and we’re going to be looking for nice shorting opportunities this morning as we have no reason to think the Dollar will really break down here and those 100% lines have proven very tough resistance to get over.  

Yesterday we were in the middle of our range and it was time to get technical – today we are nearing the top of our range and it’s time to concentrate on the fundamentals – if gold holds $1,500 and oil holds $110 and workers begin getting paid more to cover it – then we can begin looking for the next 10% gain in the markets but, right now – we are living in a weak-dollar fantasy and partying like it’s Germany in early 1921 as the Gold Bug Speculators celebrate their wise investments as gold crosses 1,500 an ounce – unfortunately, the value of every other Mark-denominated asset was down 50% by the end of the year. 

Let’s be careful out there!  

 

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