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Long Term - Short USD

  1. The Formula is simple:

    Interest rates rise and affect the drivers of the US economy, housing, but before that auto production goes from bull to bear markets. This impacts many other industries and jobs. These markets are either rising or the activity is falling at an increasing rate. That is economic law 101. There is no such thing in either market as a plateau of prosperity or Cinderella situation.
    Friday you witnessed the Dow rise sharply in the AM on economic news indicating deceleration of activity. This continued until a major corporation announced poor earnings, making the Dow fall faster than it rose, moving it deeply into the red.
    The formula economically is inherent in #2 which is lower economic activity equals lower profits.
    Lower profits leads to lower Federal Tax revenues.
    Lower Federal tax revenues in the face of increased Federal spending causes geometric, not arithmetic, rises in the US Federal Budget deficit. This is also true for States.
    The increased US Federal Budget deficit in the face of a US Trade Deficit increases the US Current Account Deficit.
    The US Current Account Balance is the speedometer of the money exciting the US into world markets (deficit).
    It is this deficit that must be met by incoming investment in the US in any form. It could be anything from businesses, equities to Treasury instruments.
    If the investment by non US entities fails to meet the exiting dollars by all means, then the US must turn within to finance the shortfall.
    Assuming the US turns inside to finance all maturities, interest rates will rise with the long term rates moving fastest.
    This will further contract business activity and start a downward spiral of unparalleled dimension because the size of US debt already issued is of unparallel dimension.
    Therefore as you get to #11 you are automatically right back at #1. This is an economic downward spiral.

    There is no way out of the above and no factual argument can refute this. In particular the Cando (resource and water currency) and the Euro (the un-dollar) are buys on all reactions.
     
  2. Ok, so you keep buying the dips -- where will your stops be?
     
  3. Here is some thoughts leading up till the November Elections.

    Be prepared for a big liquidity drop to keep housing and the stock market solid leading up to the elections. This will be done by increasing liquidity - but killing the dollar at the same time. But voters don't care about the dollar, they don't feel it...but international investors and central banks sure will.

    The Fed does not make interest rates, never has and never will. Rates are made in the marketplace and the Fed follows along with heavy PR and great bravado.

    Politics rule everything done. Politics will rule the Fed. The Fed always economically supports the incumbent and has since 1913. The Fed will not fail to show its more than 100 year unbroken political character for the mid term elections of November 7th.

    Interest rates are going to rise as is inflation. The dollar is going to fall.

    This is an exercise of PR utilizing smoke and mirrors to give the investment public the feeling that economic gods run the Fed with the power of a trillion Conans and clearly possessing infallibility. That is the crock of all crocks.

    The Bank for International Settlements has released a paper that questions the wisdom of the Federal Reserve in the action it has taken and the impact on business psychology. They question if the Fed is not toying with a major breakdown in confidence they will not be able to resurrect. The BIS speaks of a potential major economic mistake and deep plunge in business activity with its impact on the highly complex and brittle financial system.

    This could occur, but more by mistake than intention. The oldest and most certain conspiracy on the planet is the conspiracy of rank stupidity.
     
  4. Buying dips based on fundies while using support/technical levels for stops might get confusing after a while . . .
     
  5. Not as hard as you think.

    You establish the fundamental longer term trend and then look at the technicals. When it seems that it's hard to decipher what will take place, you know the trend...and then can apply the proper wave count or read on the situation.

    Not an exact science, but can be very advantageous to understand the big picture.
     
  6. What if EUR just keeps breaking down technically but your fundamental picture remains the same or gets you even more bullish? Are you going to let the technicals tell you what to think, or are you going to use adverse price action to your advantage as entry points?
     
  7. I'll take advantage of the "reactions" and use those opportunities to add. I never use too much margin so I'm never pressured into making a trade I don't want to. So, instead of selling at a time so many rookies do...I'm able to properly add.
     
  8. Yeah, that strategy had me a bit confused as well.
     
  9. Coalition Urges Government
    to Lower Dollar Value

    By Kylene Kiang
    Cox News Service
    via The Western Star, Lebanon, Ohio
    Thursday, July 13, 2006

    http://www.western-star.com/school/content/shared/news/stories/TRADE_DEF...

    WASHINGTON -- Academic, business, and labor groups called on the Bush administration Wednesday to lower the value of the dollar in order to alleviate the country's ballooning trade deficit and its adverse effects on American industry.

    "These free-trade agreements are really outsourcing agreements that got us into this mess in the first place," Kevin Kearns, president of the U.S. Business and Industry Council, said of the proposed revision of U.S. trade policy.

    The U.S. trade deficit in goods and services rose by more than $100 billion last year to $725 billion, or about $2 billion per day. The latest U.S. trade figures released by the Commerce Department on Wednesday showed a $63.8 billion deficit in May -- a 0.8 percent increase compared to April's deficit of $63.3 billion. The findings represent the sixth largest deficit in history.

    Richard Trumka, secretary-treasurer of the AFL-CIO, said that eventually Americans must either produce more of what we consume or be forced to consume less.

    "Unless there is a change in direction, the threat of a steep global economic downturn is real."

    Lowering the value of the dollar would, in theory, lower the price of American goods abroad and increase imports. Those who argue against devaluation say that higher interest rates and inflation would result.

    "We've done it before, and there was much success lowering the dollar in the 1980s under (former Secretary of the Treasury) James Baker. As a result, we saw exports soar," said Robert Scott, a senior economist with the Economic Policy Institute.

    Members of the panel said the nation's burgeoning trade deficits are the result of unfair trade practices in countries including China and an erosion of the U.S. manufacturing base, in addition to the overvaluation of the dollar.

    According to the AFL-CIO, the manufacturing industry is by far the largest sector affected by trade. Since President Bush took office, 2.9 manufacturing jobs have been lost and more than 40,000 factories have been closed as a result of the trade imbalance.

    "If we do not demand a dramatic change in U.S. policies now, we will wake up one day in the not-too-distant future and find that our only comparative advantage is in shopping and debt," Trumka said.

    Another possibility discussed was the enacting of a temporary, across-the-board import surcharge as defined by article 12 of the World Trade Organization.

    "It's long past time to consider doing things differently," Trumka said.

    Devaluation of the dollar would bring only a one-time impact in inflation, said University of Maryland professor and economist Peter Morici. He estimated a half percent to a 1 percent increase in prices. "And that would be well worth it to end all this borrowing."

    Morici said the most significant thing that could happen to decrease the trade deficit would be if China increased the value of its currency.

    The low yuan has, however, benefited American consumers, said Morici. "We might be seeing lower prices at Wal-Mart, but that's all on the backs of Chinese workers, most of whom have a very low standard of living."

    The coalition of labor and business leaders highlighted the trade deficit between the United States and China, which grew to $202 billion in 2005 -- the largest bilateral deficit in history. They noted that in addition to keeping the value of the Yuan artificially low, the Chinese government has a track record of oppressive labor policies, disregard for intellectual property rights, and the dumping and counterfeiting of manufactured goods.

    U.S. Rep. Sherrod Brown, D-Ohio, who attended the meeting for closing remarks, called China the "gun at the head of every labor official negotiating for wages."

    Congress also needs to set global standards for labor conditions to protect and improve the worldwide standard of living, Brown said. "You can go to Malaysia, to a Motorola plant, and the workers there can't afford to buy the cell phones they make."

    "The good news is that the Bush administration's trade agenda is in tatters," said Brown in reference to the Central American Free Trade Agreement and Oman Free Trade Agreement, which is under scrutiny in Congress.

    "It really amazes me, after all these years in the trade debate, that people in Washington have drunk so much of the free-trade Kool-Aid that they still to this day don't see the crisis in trade policy that has unfolded in front of them."
     
  10. Well...

    At this level (1.2636 to 1.2622) the euro is weaker than the dollar is stronger.

    We'll either consolidate here for awhile, or continue a downward drift.

    A 1-minute chart tells the whole story.

    DD
    1.2627
     
  11. So... how are you guys making out who are "short" USD?

    FX
    1.2509
     
  12. This Thread is the LONG TERM TREND !!!

    Let’s put things in perspective. The chatter given for the dollar’s rally the past 2 days was “safe haven flows”. The only problem with this rationale is that gold and to some extent recently even crude oil, is considered a safe haven. Gold sold off sharply today and crude was down. Additionally, the Swiss Franc is considered a historical safe haven play. It too was down. Typically a safe haven play also sees bond prices moving up as money flows into that pit. Bonds were down today for most of the trading session, struggling to rise and just barely poking their heads into positive territory with the yield on the One and the Two Years actually ticking up, not down as safe haven flows normally suggest. The stock market indices also faced what seemed a strong selling headwind for most of the day, especially considering the extent of their recent move lower. The S&P closed lower on the day and the DOW squeaked out a positive close by a meager 7 points. As a matter of fact, just about everything was down today. The only thing that wasn’t was the dollar. So all that money out there was flowing into the dollar as a safe haven play! Pardon me for saying but I have been around these markets too long when I say that this doesn’t pass the smell test.

    You do not have a safe haven flow into the dollar when all dollar denominated paper assets are down or managing a mediocre rise at best. What really happened today was that we were treated to a short squeeze in the dollar, nothing more nothing less.

    In addition, maybe someone from the currency interest rate differential crowd can tell us exactly how high rates will have to rise on dollar paper to compensate in the face of the following article. Imagine a company such as Widgets Inc. issuing paper paying a nice fat yield of 20% when the company is on the verge of bankruptcy and you will see how much sense this dollar safe haven nonsense talk has to it. “Quick Momma – let’s take all that inheritance money we are going to pass on to the kids and park it in Widget Inc. bonds. After that we can sleep soundly at night knowing that we have made a quality safe haven play”. I don’t know which the scarier scenario is – that there are analysts who spout this nonsense because they actually believe it or people who actually do it.

    http://www.worldnetdaily.com/news/article.asp?ARTICLE_ID=51078
     
  13. I agree, I think the dollar is a bomb ready to go off. And the Asian countrys may be getting tired of holding the dollar for the US.