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The
Financial World has entered a period that is strikingly similar to that of
2008, at least regarding three key issues. They are:
1) The
Oil/ USD correlation (as noted recently on ZeroHedge)
2) Bearish
bets against the US Dollar
3) “In
the Know” investors getting out of the market
We covered
#1 in Part 1 of this series of articles. This article is focused on #2: investor
bearishness regarding the US Dollar.
As you know,
I’m a huge Dollar bear. As noted in Monday’s Free Market Forecast last week on Gains Pains & Capital, not only has
the US Dollar broken down through multi-year support, but it has even taken out
its 2010 lows:
Long-term, I
fully believe we will be seeing an 50% devaluation in the US currency in the
coming years as predicted by the massive Head and Shoulders pattern in the
greenback:
However,
right now US Dollar bearishness has gotten to a point that we should at least
get some kind of short-covering bounce. Last week, the Commodity Futures
Trading Commission reported the largest net short dollar position in three
years last week. They are even more bearish than they were in 2010 or 2009.
Now, they
have a very good reason to do this. The US deficit in February was the LARGEST
in history. And with the US’s public debt at $14 trillion we’ve got a
debt-to-GDP ratio of 100%. Throw in unfunded liabilities like Social Security
and Medicare and the REAL debt-to-GDP ratio is north of 400%.
On top of
this, our entire debt issuance system has become a giant Ponzi scheme in which
the Treasury issues new debt to Wall Street banks, which then flip the debt
over to the US Federal Reserve a few weeks later. Indeed, yesterday’s Fed QE 2
action saw the Fed buying 53% of the new debt issued a mere 13 days ago.
Thus, to say
that the US Dollar and debt system are broken would be the understatement of
the century… However, the
US Dollar has become a massively lopsided trade with investors betting heavily
on its demise. When you consider its position relative to the Euro (another
doomed currency), it is clear that the US Dollar could bounce just based on the
lopsidedness of this situation.
In this
sense we are in a state of “do or die” for the Greenback. From a “do”
perspective we could see a small bounce, possibly to 77 or 78 just based on how
lopsided the US Dollar trade has become.
In contrast,
from a “die” perspective, the greenback has taken out its multi-year trendline:
If we don’t get a bounce in the Greenback
soon, we will be heading for something far worse than 2008: a CURRENCY crisis.
Sure seeing the stock market collapse was bad. But what about the US Dollar,
the world’s reserve currency collapsing?
On that
note, if you’re getting worried about the future of the stock market and have
yet to take steps to prepare for the Second Round of the Financial Crisis… I
highly suggest you download my FREE Special Report specifying exactly how to
prepare for what’s to come.
I call it The Financial Crisis “Round Two” Survival
Kit. And its 17 pages contain a wealth of information about portfolio protection,
which investments to own and how to take out Catastrophe Insurance on the stock
market (this “insurance” paid out triple digit gains in the Autumn of 2008).
Again, this
is all 100% FREE. To pick up your copy today, got to http://www.gainspainscapital.com
and click on FREE REPORTS.
More to
come…
Graham
Summers
PS. We ALSO
publish a FREE Special Report on Inflation detailing three investments that
have all already SOARED as a result of the Fed’s monetary policy.
You can
access this Report at the link above.
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