Time for a Dollar Bounce
by ilene - July 16th, 2010 8:56 pm
Time for a Dollar Bounce
Courtesy of Mish
The time for a dollar bounce is at hand. One reason I make that statement is the single best contrarian indicator on the US dollar has spoken.
Please consider Dollar Rout by Peter Schiff, July 15, 2010.
Peter Schiff has proven to be a huge contrarian indicator on commodities, on China, on foreign investments, and on the US dollar. I suspect this video will be no different.
In the video, Schiff makes a case that it was impossible to see these bounces coming. I disagree and have called for several of them.
Political Alignment vs. Investment Decisions
Politically I align with Peter Schiff. The financial sector bailouts were obscene, as are all of the stimulus efforts. There will be hell to pay for both.
However, investment-wise I cannot and do not agree with Schiff. His hyperinflationary rants are simply unfounded. The reason he cannot see the forest for the trees is he fails to consider the role of credit in a fiat-based credit world.
Credit dwarfs money supply. Much of that credit cannot and will not be paid back. Schiff got that part correct, in spades, predicting as many others did a collapse in housing. His mistake was in assuming the dollar would crash with it.
Think about that for a second. If the dollar crashed to zero, the number of dollars it would take to buy a house would be infinite. There has never been a hyperinflation in history where home prices crashed and barring some war-zone anomaly, I doubt it ever happens.
If hyperinflation was in the cards, the correct response would be to buy as much real estate as possible given real estate only requires 5% down. That amount of margin is hard to come by in any other play except derivatives.
Are we "Trending Towards Deflation" or in It?
For a recap on the inflation-deflation debate, please see Are we "Trending Towards Deflation" or in It?
One of us took into consideration the role of credit, one of us didn’t.
Technical Euro Bounce
The reason for the recent bounce in the Euro is without a doubt a pledge by European governments to adhere to various austerity measures. Another reason is purely technical.
The Euro plunged nonstop, nearly straight down from 1.50 to 1.18. For currencies that is an enormous move in a short period…