Saturday, May 29, 2010

Economic Breakdown

In USD: Shape of things to Come I posted the following:

At the time, I pointed out that the US Dollar has been in a raging bull market for almost two years, a belief shared by, well, no one!

So equating that EW fractal forecast to today, here we sit, on the naked edge of the most ominous economic disaster in human history:

Those who understand this blog know that our dollar's unprecedented, years-long bull market, against all other major currencies, has nothing to do with US economic strength. Rather it has everything to do with US economic weakness. There is no "flight to safety." There never is. What there IS is a collapse in lending from US consumer credit exhaustion, and that has drying up the US dollar supply since late 2007. The collapse of US cash supply is what spikes the value of surviving dollars.

Less bank-printed cash sloshing around to compete for assets, means prices will continue to fall, and the fractal indicates a massive spike in $ value looms in our immediate future. That means falling prices denominated in dollars and an acute spike in bank failures. Less US cash in circulation also means each surviving dollar will buy more foreign currency, sending the Euro and EU into a graveyard spin from which it will never recover (not in our lifetimes, nor our children).

The purple arrows, above, show a rough fractal equivalency. Will the EU collapse very soon? Yes. Is it the fault of the EU? Absolutely. They are fully linked to US economic activity due to a stagnant, predominantly socialist economy. But as the world tumbles into the abyss, it is important to understand that the economic driver of the EU's demise is a lack of US bank-printing/lending, eradicating US and thus world-wide liquidity.

Hold on. Sell assets for dollars while you still can (especially unload precious metals). Avoid large banks, especially Bank of America. Hoard US cash and treasuries.

If EVER there was an appropriate time to unleash the fury of Cashzilla, that time is now:



  1. Now that's the FDR I've been missing these last few months. On your advice: check, check and check.

  2. FDR,

    In your scenario, what is the ultimate outcome of the market indices?

    I am particularly interested in whether you think all commodities will follow the decline of gold and other PMs, or if you believe that there will be an decoupling of energy commodities or agricultural from PMs.

    What if the rest of the world were to find safe haven in gold and yuan rather than USD?

  3. I luv your posts. Welcome back!

    Thank You

  4. FDR- being long gold has been a great play for me. I still have a big long position there and technically it appears to be in a large cup and handle, looking for a major breakout. Do you suggest selling some here? It is hard to sell because it never gives me another good entry point and i don't want my position to get smaller as it goes my way. I use a trailing stop thus far and will probably just play it out until the trend changes. As far as equities, the earnings have been very strong and the high beta names are still providing great returns in this fiat currency crash. I think we have a very explosive rally coming with everyone so bearish out there. i think a move to 1300 on the S&P would swing everyone extremely bullish again and provide a good shorting opportunity. We see deflation in the real world across a variety of products but with no return on cash outside of cheaper prices won't equities continue to outperform. I like to follow the elliot wave patterns but the selloff seems very corrective. i know a lot of counts have impulsive waves down but pulling it back a bit it seems like a large 3 wave down which is corrective in nature. The banks definitely appear insolvent under the surface but there profits in this environment are too much to pass up. With money practically free these days and the US recovering faster than anyone thought possible, I see a huge corporate hiring binge soon as they cannot keep up with current demand with such low staffing on the employment front. The consumer seems to have deleveraged quite a bit and seems ready to buy buy buy. I have talked to a lot of people in the retail sector and they say that there business is back to where it was before the recession. I know that this could roll over again on them but what do you think the catalyst will be to cause such a rollover. I don't see a surprise on the horizon, which probably means there is one coming. What do you think that surprise will be? Thank you and good to have you back.

  5. The fury of Cashzilla, perfecto....

    Koi Garden Guy

  6. Won't the fed just print more money to offset the deflation? Bernanke is an inflationist isn't he?

  7. "Won't the fed just print more money to offset the deflation? Bernanke is an inflationist isn't he?"

    We don't print our currency. Our dollars are borrowed with interest from the Federal Reserve. You can no more borrow your way out of this hole than you could take your own credit cards, get a million dollar cash advance on them, and then say that you're rich.

  8. "Less US cash in circulation also means each surviving dollar will buy more foreign currency, sending the Euro and EU into a graveyard spin"


    Deflation & Exchange Rates:

    "In general and theoretically, deflation in a global economy has no affect on exchange rates."

    these statements seem contradictory; why are they not?

  9. FDR,

    Do you think the Fed's "currency swaps" mitigates the above?


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