U.S. Dollar Index Breaks Down
In early April, we looked at the US dollar doing poorly versus the Euro.
Today, we see another depiction of this via a good chart from Jeff Saut. The dollar has broken its most recent level of support.
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U.S. Dollar Index
To those short the dollar, the trend remains your friend . . .
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Source:
“Risk versus Reward”
Jeff Saut
Equity Research Department, Raymond James & Associates
April 16, 2007
http://www.raymondjames.com/inv_strat.htm
Monday, April 16, 2007 | 11:47 AM | Permalink
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Comments
The scary part about the fall, it is no longer responding to the Fed hawkish talk. In addition, this lower dollar is exerting additional upward pressure to already rising inflation.
Posted by: V L | Apr 16, 2007 12:27:13 PM
The $USD needs to be adjusted ex. Euro, since the Euro is so volatile. Then everything should be peachy.
Or better yet....$USD should be adjusted ex. everything except the RMB. In that case, the $USD is perfectly fine!!
LOL.
Positions: short proforma
Posted by: johntron | Apr 16, 2007 12:56:08 PM
That's a brutal graph from a technical standpoint.
The real world consumer prices are unquestionably higher despite the inherently flawed numbers produced by federal bureaucracies, as was pointed out in the comments section from the last post.
I know this is a "big picture" site and individual stock advice is to be found elsewhere, but how much longer can irrationality in US equities continue?
Micheal S and others seem convinced that this is some pre-1929 environment, but how much "pre" is it? 1927? 1925? Nobody has these answers.
As I sit here the US DJIA is up 1% today and world bourses are at all-time highs, yet many on this site are kneading their fists in dismay. As Winston pointed out in the last post, there are reasons why "Don't fight the tape" and "The trend is your friend" are part of the lexicon of investing.
Obviously, keeping your retirement and/or trading assets in US dollars has been ghastly. Even Euros and the Yen have not outperformed US equities the last year, month or even week.
I'm not trying to start a fight, just wondering when the irrationality will end. Maybe we should look to technical analysis or even Chaos Theory. Anyone?
Posted by: Grodge | Apr 16, 2007 12:58:40 PM
Technical analysis will tell you a different picture than what is "offered" up in the main stream press....it has been somewhat worthless over the last three months.
One final time: This is a blog....do not confuse what I say HERE with what I DO in the market. Vastly different
Pre- 1929?? I don't get what you are attributting to me. can you explain??
Posted by: michael schumacher | Apr 16, 2007 1:04:44 PM
It's great for our trade deficit, though... ;^)
Posted by: donna | Apr 16, 2007 1:09:44 PM
Michael S,
Oops!
I apologize for the misattribution. It was Winston who had said, "At the moment, hope and greed are fueling the markets, driven by easy money. The same thing was occuring in 1929, and the early warnings were ignored."
MS, I enjoy your comments and the discussions are intellectually stimulating. I'm sorry I confused your comment with someone else's. My bad.
Please accept my apology.
Posted by: Grodge | Apr 16, 2007 1:15:05 PM
Reason no body knows when "support" will permanantly end is, all the fabrication in the info. Why not go another five or ten years and bring some real perspective to these spoiled kids living with their parents? Rich will grab more market share of China that way. Too bad there's the whole environment thing.
Rothschilds and Wellingtons will decide. Their emmisaries the Rockefellars or Kludges or whoever??? will respond in kind.
An interesting analysis would be to use supercomputers to follow the 100 richest family money. Then I bet we'd know. Buffet small fry is putting money into trains. Commodities portend a depression? Who knows man.
Posted by: John Thompson | Apr 16, 2007 1:18:27 PM
NP.....I have made reference to that time period but only in the sense of the rules that are in place to keep the markets from gourging on themselves. They don't seem to be working at this point.......LOL
Ciao
MS
Posted by: michael schumacher | Apr 16, 2007 1:19:05 PM
"I'm not trying to start a fight, just wondering when the irrationality will end."
Grodge,
Short answer: No one knows.
John Maynard Keynes: "the market can stay irrational longer than you can stay solvent."
How can you predict the end when there are constant market manipulations? For example, the analysts have quietly lowered the earnings estimates so the companies can beat the estimates this quarter.
Posted by: V L | Apr 16, 2007 1:19:46 PM
actually, looking at the wave pattern in the chart, this might be a good place to look for a bounce to 86-88. maybe. possibly. could be worth betting a ducat.
Posted by: dark1p | Apr 16, 2007 1:34:33 PM
Nice chart.
Kevin has a great one too, of the Yen, on his blog (http://kevinsmarketblog.blogspot.com/)
http://bp3.blogger.com/_N9xrCjjHNRw/RiJ2q_bU2FI/AAAAAAAABgw/60ljhiPL17c/s1600-h/jhyrdf.png
Posted by: Yaser Anwar | Apr 16, 2007 1:49:22 PM
It is funny that every time Paulson declares, “The global economy is as strong in the last couple of years as I've seen in a lifetime” the stock market rallies.
Is it some sort of a buy signal for bulls?
It seems that the bulls are conditioned, every time they hear this statement they salivate and rush in front of each other to buy stocks.
Posted by: V L | Apr 16, 2007 1:54:13 PM
The chart looks quite different depending on what the x-basis is. From a EUR viewpoint, the USD is getting crushed. From a JPY viewpoint though, a short USD bet has been a consistent loser for some time.
Posted by: Estragon | Apr 16, 2007 1:56:44 PM
I couldn't find a chart (old enough) to link here, but take a look at a LONG TERM chart of the dollar -- 1980 - today, and you get a completely different perspective. The "strength" (read: explosion) of the greenback in the 90's - 2001 was a direct result of falling and stable inflation (compared to the rest of the world) and ultimately the implosion of the Energing currencies. This period ('90- '01) is an OUTLIER. The US dollar is now "coming back" to the "right level" for stable growth, and low inflation. The Emerging economies have gotten "religion" (e.g. Brazil) and now their currencies will enjoy higher buying power as a result. The short sighted view of the US dollar bears will die away.
Posted by: Fred | Apr 16, 2007 2:10:00 PM
Global growth is strong. Global financial conditions are not tight. US firms are becoming more competitive vis-a-vis Europe by the day.
Why is is taken as a given that a stock market that's modestly outperforming cash is acting "irrationally"?
Posted by: Macro Man | Apr 16, 2007 2:26:22 PM
VL-
Yes the "paulsen rally" as I call it....it basically means tht Goldman Sachs is bullish, no big revelation there however when the former CEO of said company says it it's sort of a tacit approval coming directly from the purveyor of the printing presses to continue to bid it up until...well it can't be bid up anymore!!...LOL
Ciao
MS
Posted by: michael schumacher | Apr 16, 2007 2:28:49 PM
Fred - here's another "LONG TERM" perspective:
http://research.stlouisfed.org/fred2/series/BOPBCA/chart?fred_user_graph_id=&fred_user_graph_category_id=&ct=&pt=&cs=Medium&crb=on&cf=lin&range=Custom&cosd=1960-01-01&coed=2006-10-01&asids=TWEXMMTH&cg2=Refresh+Graph
Note that there was a significant rise in the trade weighted value of the USD in the early to mid-80s, and a deterioration in the balance of payments. This makes perfect sense, imports got cheaper and exports more expensive. After a peak in the TWUSD in the mid-80s, the current account (with a lag) began to move towards balance.
The next episode of USD strength, from the mid-90s to around 2001 showed a similar deterioration in the balance of payments. This time though, the USD strengthened from a somewhat weaker point and not as far, and the current account balance weakened more quickly.
The TWUSD softened after 2001, but the current account has yet to move meaningfully towards balance. History suggests the current account will eventually move back towards balance, and when it does, the probability is that a weaker USD will be part of the picture
Technically, the LT chart of the TWUSD appears to be bouncing weakly off a long term support level.
Posted by: Estragon | Apr 16, 2007 2:44:47 PM
>>Why is is taken as a given that a stock market that's modestly outperforming cash is acting "irrationally"?>>
Modestly??? look at where the dollar is relative to the "modest" performance of the stock market over the last two years.
and this is with the administration "supporting" a strong dollar...what happens when it does'nt?
hardly modest....
Ciao
MS
Posted by: michael schumacher | Apr 16, 2007 2:47:18 PM
MS - You say "and this is with the administration "supporting" a strong dollar".
Pray tell, what administration? Hu's your daddy now ;-)
http://www.ft.com/cms/s/bdb510e8-ebe8-11db-a12e-000b5df10621,dwp_uuid=9c33700c-4c86-11da-89df-0000779e2340.html
Posted by: Estragon | Apr 16, 2007 2:54:32 PM
Nice chart Estr...the superspike in the early mid 80's was from the Volker hammer. One can clearly see that if you "lop off" the 2 outlier spikes (~'81-'85 and '90-'01) we are at the trend line.
I'm astonished we don't see this BIG PICTURE very often.
As the cops say to rubberneckers -- "there's nothing to see here folks...move along!"
Posted by: Fred | Apr 16, 2007 3:14:08 PM
SPX is up three and a half percent this year...be generous and call it four with dividends. Cash return YTD is 1.3% or so. 2.7% is pretty modest, particularly given the returns available in other assets.
Given that the US is a net exporter of equity capital, perhaps a catastrophic decline in the dollar would render foreign markets unaffordable and keep more of the money at home. It will certainly raise the profitability of US multinationals.
Of course, these things are irrelevant if your start with your conclusion, cherry pick your supporting facts, and then deride all else as crooked or irrational.
Posted by: Macro Man | Apr 16, 2007 3:21:16 PM
In a world of fiat currencies, market participants crave the currency with the most stability. The last several years have been poor for the US dollar from a stabilty standpoint, so investors flock to Euros, or the British pound, or whichever currency is keeping its value the most stable in terms of gold.
http://www.kitco.com/gold_currency/charts.htm?GBP
Posted by: REW | Apr 16, 2007 3:35:27 PM
Funny that you get specific only after you've cherry picked. You did say the "market" and were not specific...but that's ok I see how you just did that to support your position of "modest growth".
Nice try
Ciao
MS
Posted by: michael schumacher | Apr 16, 2007 3:40:40 PM
This is most certainly NOT modest growth:
http://stockcharts.com/h-sc/ui?s=$INDU&p=D&b=3&g=0&id=p31137965903
now to further your statement let's look at the dollar over 2year's since that's how long the Bushies have been "strong" on it
http://stockcharts.com/h-sc/ui?s=$USD&p=D&yr=2&mn=0&dy=0&id=p31137965903
Does'nt take a rocket scienctist to blow a hole in your "moderate growth for stocks relative to the dollar" theory.
I see an express elevator in the first one while the chart of the dollar is all over the place but the end result is clearly not what you make it out to be when put against stocks.
I guess you did'nt know that..
Ciao
MS
Posted by: Michael SChumacher | Apr 16, 2007 4:00:48 PM
Why is is taken as a given that a stock market that's modestly outperforming cash is acting "irrationally"?
I don't know about the cash part, but with respect to the market in general - today we have homebuilder stocks up after an NAHB report came out that lowered forcasts, used the word "crisis" twice, and suggested that the risks are all to the downside. The stocks, of course, were up prior to the report, and since this report wasn't supportive of those higher prices it was mostly ignored.
You can't argue that we have a rational stock market... at least not with respect to stock valuations.
Posted by: super-anon | Apr 16, 2007 4:05:47 PM
