“Oh, most excellent gold!” observed Columbus while on his first voyage to
America.”Who has gold has a treasure [that] even helps souls to paradise.”
Peter Bernstein, The Power of Gold
FX Trading – Bubble Theory Battle Royale
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I spoke at a conference yesterday. It shall remain nameless in order to protect the guilty. What was most funny/incredible/nutty is a belief by said conference chief the US dollar, and in fact all paper currencies, will disappear within 10‐years. We will then move to a commodity‐based monetary system and Mr. Greenback will be gone.
Anxious as I was to try out the 10‐year dollar disappearance idea on someone who wasn’t drinking the newsletter crowd Kool‐Aid, so I called my number one son, John Ross, and shared the idea; JR asked the following right out of the gate: “Does this guy think the US currency is going to start disappearing a bit each year, then eventually vanish, or is it a 10‐year date to destiny whereby someone flips a switch, then poof it goes away?” I told JR I wasn’t sure the purveyor of said lunacy had thought through the technical problems of replacing the world reserve currency. Maybe a house to house search team would be in order.
I hope you think that kind of thinking not only represents nonsense, as I do, but is a flashing yellow light exemplifying the max one‐way bets against the buck. But, given the implicit signal by the US Fed last week of rates on hold forever, and no bone at all thrown to the buck by the G‐20 over the weekend, it seems an orderly decline in the dollar is the policy tool at hand. So further, or even much further, it could go.
There is only one problem; the dollar is tied at the hip with the stock market; negatively correlated tick by tick.
S&P500 Index (black line) vs. US Dollar Index (purple):
Many of us now believe stocks are in bubble territory and prone to pop. If that’s the case then the dollar is prone to stage a very big rally. Both events would throw cold water on the current policy of using the dollar to juice stock markets to enhance the so called wealth effect of real people and thus build confidence—to stimulate the minions into doing what they do best—shop!
So, the question of the day: Is there a bubble in asset markets?
….read more HERE.