Monday, June 3, 2013

The dollar is still very weak, but up on the margin

I like to feature this chart every month because it is arguably the best way to judge the dollar's true strength against other currencies on a trade-weighted and inflation-adjusted basis. As it shows, while the dollar is still very weak from a long-term historical perspective, it is up from its all-time lows in mid-2011 (up 4.6% versus a broad basket of currencies, and up 11.6% versus a basket of major currencies). This fits with my prevailing theme that although the current recovery is the weakest ever, it is nevertheless the case that conditions are improving on the margin. It's the change on the margin, not the level, that is the most important from an investor's perspective.


Benjamin Cole said...

Hard to say if the dollar is "weak," at a new norm, or may go lower.

A "weak" dollar is excellent of the US economy, and I wish the Fed would target an even "weaker" dollar. "Weak" is "strong" for US tourism and manufacturing industries. Even some US services are demand overseas, such as our architects.

BTW, you might imagine from these charts that the Fed is "being easy" now.

But the let PCE deflator for the last year came in at 0.7 percent. That is not only absolutely and relatively low is well below the 2 percent target of the Fed.

I would like anyone to explain to me how "easy" money and and a "weak" dollar have led to record-low inflation rates----and sustained at low levels too. We are in a period of historically low inflation.

The world has changed since the 1970s, my disco pants no longer fit and I am bald.

And so the duty for central banks today is not to fight inflation, but promote growth and aggregate demand.

But like every public agency, they fight yesteryear's wars, and are not run out of business by competitive forces.

theyenguy said...

Dispensationalism presents the concept that liberalism was an age of nation state, investment choice based inflationism, producing a moral hazard credit experience of prosperity. Jesus Christ acting in dispensation, that is in the administrative plan of God for the fullness and completion of all things in every age, Ephesians 1:10, terminated liberalism in May of 2013, and is establishing authoritarianism, which is the age of regional governance, diktat based destructionism, producing a debt servitude experience of austerity.

From an investors perspective it is time to exit both equity and credit investments and start to dollar cost average into the physical possession of gold, both in bullion form and in Internet trading vaults such as Bullion Vault, and for Institutional Investors to do likewise as well as to start short selling.

On Monday, June 3, 2013, Turkey, TUR, plummeted, Japan, EWJ, and Japan Small Caps, JSC, and the Philippines, EPHE, traded lower, as the intraday chart of the S&P 500, SPY, manifested a parabolic rise, as Risk Assets, in particular the Small Cap Pure Value Stocks, RZV, such as the Junior Gold Miners, GDXJ, the Junior Gold Miners, GDXJ, Apparel Retailers DEST, CTRN, NWY, BEBE, BODY, BKE, PSUN, MW, WTSL, EXPR, GES, CBK, the Automobile Retailers, LAD, SAH, KMX, Recreational Vehicles, DW, WGO, and the Financial Services, such as WRLD, EEFT, ENV, GFIG, FXCM, rose, on higher Major World Currencies, DBV, and higher Emerging Market Currencies, CEW, as the US Dollar, $USD, UUP, traded lower, to close at 82.68, down from its recent high of $84.40, ignoring the WSJ report Weak signs for US output: Factories suffer worst slump since end of recession. US factories in May posted their worst month since the end of the recession, as weakness overseas overwhelmed a still-shaky manufacturing recovery at home.

Three signs of a stock market top.

1) Risk Assets peaking out. The rise in the Small Cap Pure Value Stocks, RZV, relative to the Small Cap Pure Value Stocks, RZV:RZG, has risen to a two year and six month high

2) Screencast reports that the SentimenTrader Smart/Dumb Money Index is now the lowest that it has been in more than two years meaning that lots of "smart money" has been getting out of the market and lots of "dumb money" has been pouring in.

3) Market Oracle reports Margin debt on the New York Stock Exchange has set a new all-time high. Margin debt is the amount of money borrowed to purchase stocks reached its all-time high in April 2013. Margin debt on the NYSE registered at $384.3 billion as the key stock indices hit new record highs. The highest margin debt ever reached prior to this was in July of 2007, when it stood just above $381.0 billion.

The chart of the 200% Dollar ETF, UUP, shows that the price objective of the US Dollar is being achieved; that is the topping out of the US Dollar is coming in around 82.95 to 84.40, as it will be pushed a little higher as Major World Currencies, DBV, and Emerging Market Currencies, trade lower in ongoing competitive currency devaluation, at the hands of currency traders exiting Yen based currency carry-trades, such as the EUR/JPY, and as bond vigilantes call interest rates higher and go short the most toxix of debt, such as Junk Bonds, JNK, on a steepening of the 10 30 US Sovereing Debt Yield Curve, $TNX:$TYX, seen in the Steepner ETF, STPP, rising in value. Soon even the US Dollar, $USD, will be falling lower into the pit of financial abandon, as all forms of fiat wealth, Major World Currencies, DBV, Emerging Market Currencies, CEW, Stocks, VT, and Credit, AGG, trade lower on the exhaustion of the world central banks’s monetary authority.