Wednesday, May 8, 2013

MORE MARTIN ARMSTRONG BLOG POSTS TODAY


Dollar – Trade – Reserves

1900$X-M 1931 Sovereign Debt
QUESTION: In your most recent post you mention dollar demand off setting Fed Printing. But fairly often we hear about new international trade agreements that have excluded the dollar. How does this figure into the equation of dollar demand?
ANSWER: Trade agreements are actually irrelevant. That is separate and distinct from reserves and the huge amount of dollar loans. Regardless of whatever you agree to may payments in, you still have to park money in reserves. That right now is becoming the dollar ONLY because the rest of the world is imploding. I can agree to sell you gold and settle in yen. The issue becomes – what do I do with the yen? The Euro could not displace the dollar as the reserve currency for its failure to create a single debt. That would be as if you used every state bonds in the US as international reserves. Boy would that be nuts! So the chaos in Europe is corralling the reserves at the central banks into the dollar no matter who much the do not like that. This is why they are diversifying into equity. They have NOchoice!!!! It is not being “bullish” to make a profit, albeit they do not want to take a loss.
China is trying to strike trade agreements in the yuan. But they still have to park what they get in dollars. Do you really think they will hold Argentine currency? They dropped their Euros to under 7%.
This is not a positive forecast. It is the forecast from hell. We also go into the eye of crisis. This one is a Sovereign Debt Crisis and as that happens, it will drive the dollar higher and create massive losses.
I understand people hate the dollar. That is the VERY reason the dollar will rally. Everyone and their adopted twice removed brother is short the dollar. It is the biggest short position in history!!!! EVER!!!!! A dollar rally will turn the world upside down and cause the greatest amount of confusion and PAIN!!!!!! This is not bullish the dollar for positive reasons. It is the outstanding shorts that create the rally least expected.
bunny
Between 1980 and 1985 the dollar rallied and kept going like the Energizer Bunny to all time highs and the NUMBER ONE belief was the dollar would collapse because of its debt the same as it is right now. The more bearish the dollar became, the more it rallied. The national debt was $907.7 billion and at the dollar high it was $2.1 trillion. So there too, the supply more than doubled yet the dollar rallied. $3 trillion expansion to $17 trillion is only an expansion of 17% – far less than the rally between 1980-1985. As the chaos increases forcing more and more capital into dollars, the supply is not enough to replace the entire world.
The majority MUST always be wrong. Right now, tons of debt was sold like the Mortgage securities in 2007 on the pretense of how much you would save in interest. A rise in interest rates now will send the dollar soaring. Beware the short dollar. For now, the most pain is to wipe out the short dollar positions. So you have to go up before you crash and burn as was the case in 1931.

Phase Transition In the Dow?

No we are not in the final stages of a phase transition. We are still inside the normal channel. To create the phase transition, you have to break through the top of the channel and then really run crazy. In gold, we reached $400 in early December 1979 and then rallied to $875 by January 21st. The Nikkei phase transition was 13 months with the market rising from 28046 in October 1988 to 38957 by December 1989. A Phase Transition is near a doubling in price. That on the Dow would be close to the 30,000 level. That is not a forecast, just an observation.

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