Tag Archives: US Dollar

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By Biiwii

  • Gathering thin reeds  –Jeff Saut  [biiwii comment; oh jeff, how could you own anything by putnam? oh, they’ve cleaned up their front running act?  i see.  all the same, no thank you…  not that it matters to you, but you are on notice for inclusion in this segment in the future.  putnam?  really?  every time I saw the ‘proud sponsor of the n.e. patriots’ ads this past football season, I wanted to hurl]
  • btw  –Josh Brown
  • HP Warns and Blames the Mighty Greenback  –Across the Curve  [biiwii comment: add hp to the list.  since q4 we have been on watch for the strong dollar dynamic to have some effect in corp. america.  not the end of the world, but an effect]

 

The Reality of ‘Flow’

By Alhambra Investment Partners

To many, the “strong dollar” will always be an economic condition. If the price of the dollar is rising, then it will be assumed, mostly by economists, to be a relative judgment in favor of domestic growth potential and reality. That view misses the very relevant fact that “dollars” are not necessarily of domestic origin or for domestic purposes. The eurodollar standard ensures that “money supply” is tied very closely to overseas financial factors, which include perceptions about the US’ place in the global economy.

So it may seem tautological to compare commodity prices denominated in “dollars” with the “dollar” itself. However, these are actually different systemic factors combining to intertwine financial function with economic function.

ABOOK Feb 2015 Flow Dollar Rising Commodity Inverse Continue reading The Reality of ‘Flow’

Proof That Cash is a Position Too

Guest Post by Opportunity Identified

Those who check out our work often, know that we are advocates of patience, risk management, and high probability asymmetric risk/reward scenarios. This is a fancy way of saying we like to minimize loss while maximizing gain. Isn’t that what every investor wants? Related to our approach, we have been known to tell our readers that “cash is a position too.” In this article, we’ll show you just how valuable cash is as a position. At this point, it needs to be made clear that there are many opinions about the functionality and validity of fiat currency. That is not what this article is about. We are not here to debate whether the U.S. dollar is worth the paper it’s printed on. We are writing to show you that holding U.S. dollars is a valid investment position and one that can protect your capital.

Continue reading Proof That Cash is a Position Too

US Dollar is Wandering Off Track

Guest Post by Tom McClellan

Dollar Is Wandering Off Track

Fed Funds versus Dollar Index
January 29, 2015

It is widely believed among economists and currency analysts that currency values follow the relative interest rates.  We are told, “Money goes where it is treated best”, and so the currency which offers the best interest rate will attract the most capital.

But that does not really explain what has been happening over the past year.  The US Federal Reserve has kept short term interest rates near zero, and just about every other central bank around the world has done the same.  But the US Dollar Index is up 16% versus January 2014.  So clearly the microscopic differences in interest rates do not explain this behavior.

If you were to look at a coincident chart of the Fed Funds rate versus the Dollar Index, it would be tough to prove that there is any real-time correlation at all.  But people still think that such a correlation exists, and so they imprint their beliefs about what interest rates are going to do onto their expectation of what the currency will do.  The expectation that the Fed will raise rates ahead of the European Central Bank (ECB) has pulled a lot more wealth into the dollar, boosting its value versus the euro.

But the belief that a relationship exists between interest rates and currencies is not completely wrong.  The key to unlocking that relationship lies in seeing the lag time involved.  This week’s chart helps to explain that relationship better.  The plot of the effective Fed Funds rate is shifted forward by 3 years to reveal that the Dollar Index tends to follow in the same footsteps 3 years later.  So yes, interest rates matter, but not for 3 years.

Interest rates are not the only factor which matters.  Other topics will come along from time to time, and occupy investors’ attentions.  This perhaps explains why we are seeing a rally in the Dollar Index now, even though the Fed Funds rate has been flat for several years.  If one believes the legitimacy of this interest rate model, which has over 40 years of history to demonstrate its prowess, then there has to be something wrong right now.  Either the Fed is stomping on the useful message from the bond market by engaging in price-fixing of the cost of money, or else the Dollar Index has no business being way up here.

My inclination is toward the latter hypothesis.  The US economy is supposedly great, and worthy of a high currency valuation.  But real employment numbers (not the massaged government ones) are not that great.  And the falling oil prices will hurt the portion of US GDP related to oil production, whereas western Europe stands mostly to benefit from lower crude oil prices with no downside since the countries of western Europe hardly produce any oil.  So this excursion off track by the US Dollar Index is likely going to have to get given back.

At the point when the Fed finally does start to raise rates, then we can start the 3-year clock for a real rise in the dollar.

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Response to Kyle

[edit]  It’s a little promo-ish, but I did not solicit it and the whole back and forth is important IMO in delineating the boundaries between b/s and rationality…

Gary – I just wanted to say thank you for your very thoughtful public response to my email. I honestly don’t know of anyone else like you who would take the time to do that.

By the way, I like and appreciate your candid style of writing. I would be upset if you ever changed. Your willingness to call it like you see it is refreshing and why I became a subscriber.

You are right. There probably isn’t much on which we disagree, but certain things irk me and I feel the need to say something. I just can’t stand the emphasis placed on the dollar index, which is a completely made-up basket that essentially measures the “strength” of crappy green paper versus other colorful pieces of worthless paper. It’s silly.

That said, I do understand now what you were saying. Yes, people have been fooled into buying commodities and related equities in anticipation of a “dollar collapse.” That is true. Anyone holding coal, iron ore, copper, or oil stocks has been wiped out. And the Sinclair predictions for $50,000 gold and hyperinflation call from John Williams of Shadow Stats by such and such a date are quite lame and not credible at all.

Anyway, I hope you don’t change the way you write one bit. You are like a refuge for us in this age of non-stop BS propaganda.

As posted at NFTRH.com…

With his kind permission, I would like to publicly respond to a critique I got from subscriber, Kyle. This is not the first bone he has had to pick with me and if I am doing my job well, it won’t be the last that either he or others pick. Now, pissing off subscribers (my customers) is not something I want to do routinely, but I have a way of communicating that is just that, my way of communicating.

In that communication there are all kinds of buzz words and phrases I’ve made up, like Armageddon ’08, Inflation onDemand, Fiscal Cliff Kabuki Dance and probably 50 others over the years that just popped in my head and got popped right down into NFTRH, the websites or both. Then there is the Federal Reserve and the Outer Limits shtick and a hundred different ways to flog Fed officials (Good Cops/Bad Cops, etc.).

Those instances noted above don’t seem to upset people, but when I mention cults it starts getting dicey because so many of us identify ourselves, through ideology, to firmly held beliefs and cults well, they depend on an ideological grip on their members.  [edit] FWIW, I have my own firmly held beliefs, but I consciously try to make sure they don’t screw me up when managing the markets on an interim basis.

Continue reading Response to Kyle

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  • Gold… and a Ramble  –NFTRH [biiwii comment: he’s bitching and moaning again about the misperceptions game surrounding the monetary value relic]
  • Bracing for Stagnation  –Raghuram Rajan  [biiwii comment: errr… one of my heroes. thx for the link, Hammer]

 

USD & Euro Approach Key Date

Guest Post by Tim Knight

A fellow Sloper was kind enough to send me this post for you all……

The US $ is close to a reversal and days around Jan 22, 2015 are going to be key.  Long-Term the Euro is flawed but over the near term might be time to get bullish on the Euro and bearish on the US $

Fundamentals

The Fundamentals for a strong US Dollar and a weak Euro are many:

Continue reading USD & Euro Approach Key Date

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  • NFTRH continues to work the ‘Gappy New Year’ theme:  Gappy & Happy[biiwii comment: with all the subtlety of a sledge hammer]

 

Macro Markets; Change

Well, of course change is coming to the macro markets.  It has come every day since the beginning of time and today is different than yesterday.  But I mean a change in the market’s character is likely coming in 2015.

NFTRH notes the divergent Horsemen, Gold-Silver Ratio and USD, and also cryptically notes that people need to have the proper market interpretations at the ready in 2015.  It was just 6 months ago that we started managing a bounce in the roundly reviled USD in NFTRH.  Now look at it, everybody’s bullish the buck.

The stock market is down big today.  Oooh, that’s scary, eh?  Well no, not until it breaks some parameters.  Interestingly, some of my non-gold stocks are very green today.  I think (think, mind you) that the market is just cleaning out the pipes as sentiment got over bullish again over the holidays.  Those gaps need filling, after all.

But if and when it does go bearish for real I’ll plan to short this pig with conviction.  Right now the only thing I am short is junk bonds and that is working well.  I find it really interesting that everything is down in the face of the strong dollar but the precious metals.  That is exactly according to NFTRH’s plan on the big picture.  Exactly.  In the near or intermediate-terms, other things can and will happen.  But today is a microcosm of what I’d expect the big picture to look like under a strong dollar regime.

Meanwhile, the Gold-Silver ratio says Uncle Buck may be readying to take a break.  It’s either that or the GSR will get back in gear and croak everything.  I think the former may be in play.

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