2012 The Year of the Mighty US Dollar
Blog readers are very knowledgeable about the powerful Hurst cycle within the US dollar. This blog has been blowing the US dollar bull trumpet for a good six months. The last two months of 2011 has seen short covering of the US dollar on the back of a weak euro. However there a many out there that do not believe the US dollar will gain strength. Please consider this.
USA QE3 not a done deal in early 2012, consider
- It is an election year, and Obama not a sure thing. Bernanke will not act without support from the media, congress and Wall Street.
- US inflation around 2%, more QE could send oil up 50% to 100%
- SP500 is some what up, and Ben Bernanke will only act as a savior when congress allows it to be so.
- Some economic numbers a bullish. This does not mean ERCI recession call is a false signal, it just means in may be a recession by a thousand cuts.
Europe mess just wont stop
- Greece and other PIGS nations risk of leaving the euro (see blog posts with Flex Zulauf for more)
- $2.5 trillion Euros of Europe debt to roll over by June 2012. Who is gonna buy that junk.
- European political leadership is by massive committee (19 parliaments), that's fun.
- The EURUSD is heading sub 1.20 early on in 2012.
- The ECB can not (yet) print money a freely as the USA (but they are trying to get there)
Asia, not in the news yet, but could be
- China slow down has legs
- Japan massive public debt could crash if interest rates rise from 0% to 1.5%
So at the moment we have the pendulum swing away from US dollar bears to the bulls. And no one in the US government wants sound money, even though Timothy Geithner said they have a strong dollar policy.
US Treasury Secretary Timothy Geithner vowed Tuesday that the United States would never follow a strategy to weaken the US dollar..."Our policy has been and will always be, as long as I will be in office, that a strong dollar is in the interest of the country," Geithner said at a New York conference organized by the Council of Foreign Relations.
"We will never embrace a strategy to weaken the dollar."
A strong US dollar does not support a RISK ON trade. Hence commodities and stocks will not do well in 2012. Sure there will be great swings, and this will be great for trading, but new highs will be unlikely. Much loved trades like gold (GLD) and the Aussie dollar (FXA) will trade sideways to down, so do not be too keen to jump in, as Elvis has left the building.
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