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"In a nutshell, I would have to state that I like commodities over long term Treasury yields and equities, and the key driver will be the falling US Dollar Index."
In this article, by PIMCO's Curtis Mewbourne, entitled, "Emerging Markets in the New Normal", he discusses the longer term headwinds facing the US Dollar. In particular, he states:
"And while we have not yet reached the point where a new global reserve currency will arise, we are clearly seeing a loss of status for the U.S. dollar as a store of value even in the absence of a single viable alternative. In combination with other factors, that likely means a continuing devaluing of the U.S. dollars versus other currencies, especially the EM currencies. Accordingly investors should consider whether it makes sense to take advantage of any periods of U.S. dollar strength to diversify their currency exposure."
Once again, I believe the Dollar Index will be the key asset to watch. In particular, a weekly close greater than 79.46 on the Dollar Index (symbol: $DXY) would be reason enough to re-consider this position. On the other hand, a weekly close below 78.23 could possibly lead to an accelerated move lower as those "fishing" for a bottom get out of their long positions.
Lastly, as promised, sometime in the future, I will provide you with insight -from a technical or price perspective - as to why I like commodities over equities and Treasury yields.
Thanks to the ZeroHedge blog for bringing this commentary to my attention.
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8 comments:
TT,
I like a good conspiracy theory as much as the next guy, so that is why it's about time I made a contribution.
The administration wants the USD lower, maybe in an orderly fashion, but they don't want to see it higher from here. Buffet, PImco are working with them to soften the market up.
PM (pazzomundo.blogspot.com)
TT
"The administration wants the USD lower, maybe in an orderly fashion, but they don't want to see it higher from here. Buffet, PImco are working with them to soften the market up."
Maybe the administration wants a weak dollar, but the question is not what the administration wants but what the administration CAN. Weakening the USD has very bad consequences in practice: for decades now we buy cheap products from the chinese and commodities from certain countries like Australia, Saudi Arabia, etc. We pay them in USD then we devalue it; those countries won't accept that anymore and at a moment they will say stop; if the administration still continues to ignore their warning, there will be panic and it will be ugly, the things can get out of control quite easily; so those thinking the administration or PIMCO can do whatever they can are simply wrong and sound silly imo.
Guy,
Because we talk about the sentiment here mainly on equities, I invite you to watch this video with Bob Prechter on the dollar; I'm not an EW guy, but EWI team is using sentiment a lot in their forecasts; and as they measure it for the USD using DSI, they see 3% bulls only on the USD; imo, it's quit difficult for the USD to accelerate to the downside given that 97% of traders are bearish or neutral.
(you have 4 videos there, I'm refering to the first one)
http://futronomics.blogspot.com/2009/08/sobering-words-from-bob-prechter.html
Dacian
I saw those videos already and I was wondering what sentiment measure they were using. My other impression about sentiment at 3% bullish or 97% bearish is very similar to the situation we have had in equities for the past several months; sentiment analysis is not working well --we have lots of bulls but markets still moving higher; as I have pointed out with equities, this does happen about 10 to 15% of the signals - you are uncomfortably wrong.
So back to the USD; technically -that is, based upon price movements- a close below 3 pivots is bearish. NOthing else is considered. Of course, it is bearish until it isn't and in this post, I provide information on where I would step aside.
Remember, it is all about looking for the low risk, high yield trade, which is not the same as looking for the trade that works 100% of the time. Despite Precther's sentiment picture, this Dollar trade would be high yield, controlled risk.
"... is very similar to the situation we have had in equities for the past several months; sentiment analysis is not working well --we have lots of bulls but markets still moving higher; as I have pointed out with equities, this does happen about 10 to 15% of the signals"
Oh yeah, he might be wrong; I just wanted to point towards a "sentiment view" on the USD. Fundamentally, a deleveraging economy and debt payement should be supportive for paper currencies (the FED is printing but the credit contraction and consumer retrenching is much more important than FED's printing); regarding the USD, remember the index is calculated relative to other currencies. While I have no experience with FOREX markets, all central banks are printing like crazy; so while fundamentally there is nothing nice about the USD, there is nothing good with the euro, the yen or the pound either (this is just to offer a picture from my fundamental understanding of things)
And btw, EWI uses what's called Daily Sentiment Index or DSI (I can't remember who's building that sentiment tracker)
A last question from me regarding the $. How if the $ already had its secular bear? I mean this thing is losing purchasing power for so long now (decades)
Have a look at this video, Hugh Hendry asks the same question.
http://www.fundmymutualfund.com/2009/06/hugh-hendry-print-more-money-to-avoid.html
"...a weekly close greater than 79.46 on the Dollar Index (symbol: $DXY) would be reason enough to re-consider this position. On the other hand, a weekly close below 78.23 could possibly lead to an accelerated move lower"
Today is the day my friends!
Guy, how if we close above 78.23 but still below 79.46? Will that tell you something? Imo, it's neutral and shows the market doesn't know what to do about this thing (yet).
few posts ago you had a question" who is left to buy? Well, today you got your answer
Dacian
See newest article regarding points pertaining to Dollar
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