Will the Dollar Rally?
After popping up at the end of 2010, the dollar has gone down since the New Year. Not straight down, mind you, but from a bit over 81 to now under 75. All this action has taken place below the 50-day moving average, which has been consistently below the 200-day moving average. It's time for the dollar to rally. Will it?
All I can say is that the time is right. On the other hand, if we don't see a rally soon, it will worry me. Why worry now?
Let's start with the recent budget proposals. They were pretty much a joke, and people are taking note. In fact, latest analyses I've read say that the $38 billion cut that the Congress advertised will actually be less than $1 billion - in fact somewhere under $500 million. How is this possible? Apparently a chunk of the "cut" was for dollars that, in reality, weren't going to be spent in the first place. In other words, they were items on the existing budget that weren't real. Don't ask. I don't really have time to dig deeper on this.
So we're seeing a fare amount of negative reaction domestically. What about our foreign trading "partners," you know, the Chinese, Brazilians, Russians Indians, etc.?
Well, it seems that the so-called BRIC countries have recently met on the Chinese island of Hainan. They've apparently agreed to establish protocols to trade with each other without using US dollars. Plus, they've called for a new monetary order, since the current one isn't working. The "monetary order" means the US dollar.
The meeting followed the recent budget talks in which they saw the US administration propose a budget that called for increased spending. It seems that between that and the actual compromise "cuts" - which they can see as well as we can were mostly phoney - they've decided that the U.S. really isn't serious about dealing with its government's financial mess. So they're pressing ever harder for change.
Now, with that as background, the dollar is poised to rally, based on past performance. But what happens if it doesn't? The worry here is that a lack of a rally would mean that confidence in the dollar is slipping at an increased rate.
It comes down to the fact that, even though the dollar is heading lower - which is no surprise - nothing typically just goes straight down (or up). Therefore if something doesn't "correct" it's calls for your attention. What's going on? We'll find out in the coming weeks, but it really is something that I've got to keep my eye on.
So while the dollar should rally, it's been really resisting so far. And that's not good.
The fact is, while I've been agnostic on the issue of deflation vs. inflation, even as I believe inflation will come ultimately, I'm now wondering whether the price increases we've seen aren't just temporary spikes, but might be the first manifestations of serious price inflation. And what worries me about that is once we get serious price inflation, we're back where we were in the 1970's - or worse.
All I can say is that the time is right. On the other hand, if we don't see a rally soon, it will worry me. Why worry now?
Let's start with the recent budget proposals. They were pretty much a joke, and people are taking note. In fact, latest analyses I've read say that the $38 billion cut that the Congress advertised will actually be less than $1 billion - in fact somewhere under $500 million. How is this possible? Apparently a chunk of the "cut" was for dollars that, in reality, weren't going to be spent in the first place. In other words, they were items on the existing budget that weren't real. Don't ask. I don't really have time to dig deeper on this.
So we're seeing a fare amount of negative reaction domestically. What about our foreign trading "partners," you know, the Chinese, Brazilians, Russians Indians, etc.?
Well, it seems that the so-called BRIC countries have recently met on the Chinese island of Hainan. They've apparently agreed to establish protocols to trade with each other without using US dollars. Plus, they've called for a new monetary order, since the current one isn't working. The "monetary order" means the US dollar.
The meeting followed the recent budget talks in which they saw the US administration propose a budget that called for increased spending. It seems that between that and the actual compromise "cuts" - which they can see as well as we can were mostly phoney - they've decided that the U.S. really isn't serious about dealing with its government's financial mess. So they're pressing ever harder for change.
Now, with that as background, the dollar is poised to rally, based on past performance. But what happens if it doesn't? The worry here is that a lack of a rally would mean that confidence in the dollar is slipping at an increased rate.
It comes down to the fact that, even though the dollar is heading lower - which is no surprise - nothing typically just goes straight down (or up). Therefore if something doesn't "correct" it's calls for your attention. What's going on? We'll find out in the coming weeks, but it really is something that I've got to keep my eye on.
So while the dollar should rally, it's been really resisting so far. And that's not good.
The fact is, while I've been agnostic on the issue of deflation vs. inflation, even as I believe inflation will come ultimately, I'm now wondering whether the price increases we've seen aren't just temporary spikes, but might be the first manifestations of serious price inflation. And what worries me about that is once we get serious price inflation, we're back where we were in the 1970's - or worse.
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