Seven Charts and a Curious Conclusion

I’m confused. “Well”, i hear you say, “there’s a surprise!”

Since Uncle Ben announced it latest round of debt monetization (QE2) the dollar has strengthened against the Yen. Not by much, but it has been consistently in one direction. Obviously this will change now that i’ve mentioned it…

This article has (you guessed it) seven charts of the dollars performance against various currencies. I’ve never been able to get much out of, so called, technical analysis. In fact, it’s usually translated in my head to ‘testicle analysis’ as it seems to be only so much bollocks…

That being said, the following chart of dollar / yen since 1976 indicates to me that there is basically one relentless trend:

If you were going to bet on one thing based on that chart it would probably be that the yen is going to continue to strengthen against the dollar. The last couple of decades of deflation in Japan have provided some respite for the yen, but with the comparison being between a contracting US (with a massively negative trade balance, and a money printing, actively dollar debasing, Fed) and a moderately deflating Japan, it’s obvious that we’d be testing new lows.

All of which makes the following conclusion to the article:

The key take-away: A grossly weaker dollar is not an economically or politically acceptable proposition for the world. And trouble for the world economy represents trouble for the U.S. economy.

So, despite all of the bold projections of a continued rout in the dollar, these seven charts suggest the exact opposite outcome could be around the corner.

Wha?

The missing piece, in what i’ve said above, appears to be the following chart:

which shows the relative values of currencies (against the dollar?) The Yuan is the obvious standout here – over the period of the chart it has risen only modestly, which everything else (of import in the world of currencies) has headed for the roof. This makes chinese export (relatively) more (price) competitive.

The argument is presumably that this collective need for a strong dollar (it is after all the world reserve currency, not just the currency of the US) will override the desire of the US to devalue the dollar, to boost exports. I’d have more sympathy for this argument if the US was an export powerhouse, but that hasn’t been the case since the 50s, and there are only so many wars you can ferment to increase arms sales… and when something like 80% of your manufacturing base is in the “defence sector” that’s a reasonable consideration!

Thus far the collective desire for a strong dollar has not amounted to much, unless one assumes that it has been a case of attempting to ‘talk the dollar up’, an no real action has been taken.

There we are: i’m confused. The dollar is obviously weak and i can see no reason why it should not continue to weaken. However, it’s strengthening, and  people are convinced that this is to be expected.

Don’t know what to think… except that markets can’t be rational if they are based in the complex (and irrational) behaviours of traders following there hunches and muses!

A Little Fun: Redux

Time to face the music.

On Sunday of this week i decided that it’d be fun to make a prediction. In my view it was going to be impossible to sustain the current rally in the US markets. Too much news was obviously negative, and all the attempts to put positive spins on it were getting out of control.

The graph is nowhere near as dramatic as i predicted (or expected) it would be. Still, it was down 5% on the week, the biggest weekly fall for 2 months (back when this rally started in March ’09).

As usual my ability to relate to peoples desire to believe that things are always on the up and up, was my undoing. As far i can tell there is very little reason to optimistic given the fundamentals. No point in going over it all again. I’ll just say that it’s hard to see anything out there in the news that indicates much more than a world economy approaching terminal velocity. That’d be great news if we were talking about an ant falling out of a tree, but it’s not so hot with the full weight of capitalism there to drive us into the ground.

Interesting aside: what on earth is going on with the trading volume spiking at the end of each day? It appears that a lot of parties are closing / taking positions at the end of each day. Perhaps it’s related to trading systems trying to match outstanding orders before the market closes. Should look into it, must be explained somewhere… yes, people closing up positions.

Well, enough of that for a while. No idea what the market will do next week… but i maintain my opinion that we’ve seen the end of this (suckers) rally.