Dollar Hits 2-Year High
October 22nd, 2008WARNING: This is not a recommendation to buy, sell or hold any financial instrument.
This last leg up on the dollar prompted a couple of emails.
Who? What? How? Am I holding US$ now? Etc. etc.
Please recall, U.S. Dollar Index: Bears, the Squeeze Is On, from August. Remember this chart?
Old U.S. Dollar Index, Weekly Interval Chart from Previous Post
What part of “This is it” didn’t you understand?
The beauty of diversification is not having to sweat it. And yes, when that upper channel line was taken out, I started accumulating US$ again, just like I said I’d do, and spending down our NZ$.
If you know how to trade options, you might consider some deep out of the money calls on GLD, November expiration, 105 strike, or so. You know, just in case a black swan shits on this dollar rally. I’m starting to see quotes from traders in the financial press saying things like, the dollar rise can’t be stopped. Mmm hmm.
Look at that dollar index today. Do you think that there’s any rational explanation for what’s happening right now? I know, I know. It’s related to the ongoing stock market crash and unwinding carry-trades. People are holding US$ instead of equities and higher yielding currencies. But is that rational behavior, knowing what we know about the dollar? This is why, in a matter of seconds, I can ditch my long dollar position, reverse it short, and/or buy some other flim flam slop (Swiss Franc, for example) that’s moving the other way. For now, the dollar is a “safe-haven” currency. HA! The Reuters story below says so!
That said, I haven’t sold a single gram of gold. In fact, I’ve been buying tiny amounts with each gap down as my US$ increases in value. Again, I buy and hold the real stuff as a strategic hedge against our cash positions.
Throughout all of this chaos, the net effect on our savings has been, * meh *. No big deal. As the NZ$ sold off sharply in recent weeks, gold in NZ$ climbed to an all time high. So, while some Kiwis and other investors in NZ$ fumbled over each other running for the exits, Becky and I kicked back, knowing that the net effect on us was * pfft *.
Many eggs, many baskets.
Via: Reuters:
The dollar jumped to a two-year high against a basket of currencies on Wednesday as investors bet that interest rates outside the United States will be cut sharply to try to bolster global growth.
Concerns there may be a deep slowdown in the world economy prompted investors to liquidate more bets against the dollar built up in recent years, which at one point this year sent the euro to a record high above $1.60, traders said.
The yen also climbed to a four-year high against the euro as investors further unwound risky carry trades that had been a worldwide fad since the early 2000s.
Traders said investors, from Japanese life insurance firms to hedge funds, were dumping riskier assets in thin trade, bolstering safe-haven currencies like the U.S. dollar and yen. Some said the euro’s recent slide against the dollar and yen also likely reflected fund repatriation by U.S. and Japanese investors.
“The pattern among investors has been toward avoiding risk,” said Kimihiko Tomita, head of foreign exchange for State Street Global Markets in Tokyo. “Repatriation is a main driver of the market now,” he said.
Thin volumes exaggerated the moves, with bid/ask spreads unusually wide. Even speculators were reluctant to step into the market, adding to the volatility, traders said.
Selling of the dollar and the yen to fund investment in the euro and other higher-yielding currencies and assets — different forms of carry trades — was most beneficial to investors when the global economy grew steadily and emerging markets boomed.
But all that has changed now, traders said.
“People are shifting from high leverage to low leverage and to cash, and this shift is expected to continue,” said Satoshi Okagawa, head of FX forwards trading group at Sumitomo Mitsui Banking Corp.
I think James Howard Kunstler had a good image for what this dollar-rally amounts to. It’s like the way the tide goes way, way out before a tsunami, revealing areas of the shallow-sea-floor that otherwise are never directly exposed to the light of day. But when that tide starts coming back in, boy oh boy, does it ever come back in!
@Kevin: the new header image is great. A bit of the old ultraviolence? 🙂
Obligatory media-whoring: if you haven’t seen A Clockwork Orange, go out and buy/rent/NetFlix/BitTorrent the thing and watch it. Or read the book.
I will miss “t3h horror!” pix of Paulson & Bernanke tho.
Here is the Black Swan event carefully planned out long ago.
Interest Rates Up, T Bill Crash, Good bye US Government.
Follow the money, everything else is Political Entertainment.
http://market-ticker.denninger.net/index.html
For myself, I’m taking that pesky little Roth IRA that I had in various currencies ranging from Icelandic to Australian (!) out altogether and putting it in a self-directed fund with Silver City Trust. http://www.SterlingTrustCompany.com. Franklin will then buy the metals to fund my “account.”
Since I have no stocks (except in my Thrift Savings account)I figure that cold, sturdy metal is the best way to go in these times. And I don’t care what color the metal is. Tee Hee.
I also don’t believe that the U.S. dollar is going to be a sanctuary for investors, or any other currency for that matter, for much longer now. I’ve come to realize that investing in a currency takes much more care and attention than I am able or willing to put into it. So be it.
If you have to find a place to park your dollars, I think the Central Fund of Canada also looks really good. I might be taking some of Mom’s cash out of the Merck fund and parking it there. Anything but dollars for me.
Might be worth it to find out who(whatever nepotistic and politically connected entity that finagled this dastardly plan)and throw some
in the kaboodle of the provider of New Jersey’s
new No School for ANY KID without mandatory yearlyFlu vaccinations plan.
The pharmadrone’s of Whitehouse NJ are disappointed in Eileen 😆
@GK:
eye-opening commentary at the link you posted.
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found the source doc:
http://www.newyorkfed.org/markets/statistics/deal.txt
is this as bad as it looks?