I’ve never been much of a fan of technical analysis. It’s always struck me as something akin to reading tea leaves—and just as batty. But on the other hand, I’ve seen enough technical analysis deliver accurate predictions that I can’t really dismiss it completely.
Right now, the world is going through a pre-crisis mode—you can practically feel it in the air. The limitless deficit spending by the U.S. Federal government, which has instituted systemic +10% of GDP deficits year after year; the insane Federal Reserve policy of Quantitative Easing 2, which is nothing more than debt monetization as I wrote here, enabling the Federal government’s addiction to deficit spending; the popular uprisings sweeping through the Middle East and North Africa, affecting—wouldn’t you just know it—oil producing countries one after the other; the steadily rising food inflation, which in fact triggered those uprisings in Tunisia, Egypt and Libya, and which are beginning to affect the entire globe; the inevitability of a collapse of the euro—the other major world currency—because of the systemic tensions affecting the European continent, between the strong economies of the north, and the weak economies of the peripheries.
All these issues are bringing renewed pressure on the dollar—though which direction the dollar will react to that pressure is the issue up for debate right now.
The next ten days will be key: Will the dollar spike up? Become the safe haven of everyone fleeing from the world’s troubles? Or will the dollar nosedive, the first big step down in its death spiral?
This is where we’re at—and this turning point is happening now: Right now. Consider this chart, sent to me by my friend in Hong Kong, Michael Hampton:
Click to enlarge.
Technical analysts have all sorts of pet names for various formations—“cup and handle”, “head and shoulders”, etc. I have no idea how tea leaf-readers would call this bouncing off the bottom trendline that we see in this three-year cart—“dribbling the floor”? “Harlem Globetrotting”?
Whatever cutesy name you want to call it, it shows something sort of ominous: It shows the dollar index touching a bottom trendline, just as problems in the rest of the world are peaking.
The two simultaneous problems that are peaking in the rest of the world are rising commodity prices, and rising unrest in oil producing countries.
Michael is a great guy, a very smart man: He’s of the opinion that these two issues ultimately lead to the same thing—extremely high inflation, if not hyperinflation, as I have argued.
But he thinks that, before high inflation starts hitting us all at the grocery store and the gas pumps, there’ll be a risk deleveraging. As a result of this, he’s thinking that there will be a snap-back of the dollar (and the Treasury bond), as people run for cover and/or try covering their risk-on bets.
Click here to continue reading “The Dollar, and The Next Ten Days”
