Friday, December 4, 2009

USD: Shape of things to Come


Same chart three times, scaled to illustrate an EW fractal overlay:

Posted by fdralloveragain at 10:20 PM

10 comments:

  1. KPRDecember 5, 2009 at 5:48 AM

    Hi FD,

    Started reading your blog less than a month.Very nice.Question!From the above chart,Are we expecting the USD will get strength (At least Temporary).Could you plese explain...

    Thx
    KPR

    ReplyDelete
  2. AnonymousDecember 5, 2009 at 8:24 AM

    Is there a simple explanation to how you determine the size of coming fractal?

    ReplyDelete
  3. fdralloveragainDecember 5, 2009 at 8:57 AM

    "Is there a simple explanation to how you determine the size of coming fractal?"

    There are two starting points to do so.

    One is R.N.Elliott's observation that common Fibonacci's often apply. There are guidelines in his book.

    Two is to scale the fractal so it looks self-siilar to what has already developed. I scaled the large one until its starting W1-2 matched the size of the larger degree W1-2.

    Neither method is more than an estimate of scale. As the next leg develops, the information contained within it will also help determine it's future form.

    Nature scales and twists fractals in tricky ways that almost always makes sense AFTER you see them. But a basic understanding of the EW-explained branch points and self-similarity is an invaluable insight.

    ReplyDelete
  4. fdralloveragainDecember 5, 2009 at 9:09 AM

    "Started reading your blog less than a month.Very nice.Question!From the above chart,Are we expecting the USD will get strength (At least Temporary).Could you plese explain..."

    The USD has been gaining strength for about 21 months. To understand what is happening, you'll have to read the blog more in-depth.

    Throughout the ages, there have been numerous examples of flourishing populations that quickly found themselves in peril of extinction. Some died; others survived.

    In either case, imagine how easy it would have been to collect a few specimens when the population was plentiful, and how valuable that collection would become after the sharp reduction.

    That is the USD.

    ReplyDelete
  5. AnonymousDecember 6, 2009 at 1:54 PM

    that small chart with the red '1' looks strikingly similar to the larger chart with the red '1'. both have a single A down move while the shaded green area has 2 similar depth plunges.

    "Same chart three times" is honest at least.

    ReplyDelete
  6. AnonymousDecember 7, 2009 at 12:25 AM

    Hi FDR,

    I can't get my mind around this. I've read every word on your blog. I hear your warning about a future strong dollar. Isn't it possible however dthat the dollar might become as rare as Confederate States Dollars, or Soviet Rubles?

    ReplyDelete
  7. fdralloveragainDecember 7, 2009 at 1:02 AM

    "I can't get my mind around this. I've read every word on your blog. I hear your warning about a future strong dollar. Isn't it possible however dthat the dollar might become as rare as Confederate States Dollars, or Soviet Rubles?"
    =====

    By rare, do you mean currencies that no longer trade? If a currency stops trading, it isn't rarity that makes it worthless, it is abundance relative to demand. Since there is little demand (beyond a few collectors and whatnot) the supply is overwhelming.

    If there were, say, 100,000 collectors of confederate cash and only 10 bills remaining, they might trade a lot higher than face value.

    Point being, worthless currencies suffer from abundance relative to demand, not rarity.

    Dollar rarity is exactly what will make it intensely stronger. Rarity, plus huge demand since they'll almost certainly still be traded.

    Think of it like the game Monopoly, if you dump double the cash on all players, prices will simply double, values won't change (property A will still trade for property B, and rent for the same ratio of cash to value).

    Now you have a weak monopoly dollar. Too plentiful. It takes a lot of cash to buy something.

    That's the same effect banks have when they print dollars like crazy because there is genuine credit available. They dump unbacked paper monopoly money into the system. Dollars become abundant, prices rise, dollar strength falls.

    Once credit is exhausted and the $ supply has already been bloated, it contracts. Now you are pulling currency out of the monopoly game. Again, values won't change, but all prices will fall.

    Falling prices = a strengthening monopoly dollar. It takes fewer strong dollars to buy Park Place.

    Rare $'s = strong dollar = low prices.

    Plentiful $'s = weak dollar = high prices.

    Note: foreign exchange rates have nothing at all to do with dollar strength. Zero. Unless you can guaranty that the foreign currency pool is of a perfectly fixed quantity, and their assets are too, which is never the case.

    ReplyDelete
  8. AnonymousDecember 7, 2009 at 5:04 PM

    Are there any scenarios you can envision where the dollar will not strengthen? Such as selling treasuries denominated in foreign currencies, or devaluing the dollar as they did in N. Korea. Not quite sure how the latter would work, but people are now worried about it.

    Thanks,

    ReplyDelete
  9. fdralloveragainDecember 7, 2009 at 8:06 PM

    "Are there any scenarios you can envision where the dollar will not strengthen? Such as selling treasuries denominated in foreign currencies, or devaluing the dollar as they did in N. Korea. Not quite sure how the latter would work, but people are now worried about it."

    Not only is my answer no, I don't think there is even a "they."

    "They" think there is a "they," but "they" are puppet masters with no strings.

    To the great delight of the puppet masters, the puppet chooses to dance during inflation. During deflation, he gets up and walks away.

    The bottom line is the borrower, not the lender. Two things cause the puppet to lose interest in the puppet master:

    (1) is no genuine credit left; the puppet is tapped out or jobless.
    (2) is no desire to borrow/leverage into a deteriorating economy.

    Puppets aren't stupid. As I said in Aug 2007, Bernanke's helicopter model is almost childishly naive. It is laughable for, again, at least two reasons:

    (1) Bernanke clearly doesn't understand the banking business, banks cannot give away cash (drop from a heli). There is a special name for that in the banking business: losing money. Attempting to flood the market with cash is no different, not one bit, than the CEO (czar?) of GM saying his new strategy is to drop free cars on people. His stock would go to zero. Oh wait, it is zero.

    (2) The Helicopter Theory assumes infinite stupidity. It assumes people will actually WANT to apply leverage (borrow) at the beginning of a big giant depression. You know, so they can lose even more money.

    Once again, the real live market proves the puppet to be smarter than the master.

    ReplyDelete
  10. AnonymousDecember 8, 2009 at 12:26 PM

    Hi FDR,

    Let me understand if I have this rightly. Bear with me, as I'm struggling to escape a Weimar mindset. The more debt a country takes on, the more deflationary the environment, because the money plus interest must be paid back-- every dollar is debt money-- backed by an IOU denominated in dollars, so the conclusion of deflation is mathematically inescapable.

    So the dollar carry-trade is irrelevant. The Fed buying so called 'toxic' assets is irrelevant, states nearing bankruptcy is irrelevant. A dollar crisis which some pundits are warning about is really a debt crisis, which is what deflation is all about.

    With your graph showing a parabolic rise in the dollar, that rise would not be the same for all free-floating currencies... correct?

    Thanks FDR. It seems everything I thought I knew about money, currency, and economics is all wrong.

    ReplyDelete

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