Monday, December 15, 2008

The Greenback and Materials

The UUP which is the etf that tracks the dollar, showed a clear break at $26 last week and I do believe it is going lower still. How could it not when we print and distribute obscene baskets of loot on a daily basis to broken companies that have zero shot of organic growth for decades to come? In any event, a further decline in the dollar should be good for commodities and materials, at least according to the playbook. However, this time could be different as the China economic growth explosion looks like it could become more of an implosion this time around. I'm very bearish on China. The commodity surge that started back in August 2007 was ignited to a significant degree by China and its growth prospects. That dynamic has now been muted if not removed by this deep global recession that we are now in. The text book says weak dollar, buy materials and commodities. I just ask who will be buying the actual commodity?


Anonymous said...

One question that keeps popping into my head when talking about a weak dollar is this:

Even with all of our problems, will the U.S. still be the world's financial refuge of last resort when conditions in the rest of the world deteriorate further?

And if the U.S. remains that refuge, won't the dollar be propped up in spite of the mess we're in?

I just don't see people sending their money to Europe or Asia for safekeeping. The U.S. may be unhealthy, but our cold is their flu, and our flu is their black plague. Or not?

Maybe the dollar's day is past, but I don't see any viable alternative for those seeking safety. The Yen? The British Pound? The Euro?

Where will people go when every government is printing money?

I don't have the answer, of course, but I'm not thoroughly convinced the conventional wisdom of a weaker dollar via printing press will hold true either.

Ragin' Cajun said...

Good point.

RainmanInVegas said...

Agree on the inverse relation between USD and commodities may not be alive anymore.

What other sector do you think may prosper based on low dollar?

Sail Away said...

I definitely agree with you that the dollar is headed downward. The only caveat I would add though is that gap (if it's a real gap) between 25.50 & 26 that happened around the 10th-ish. It seems like gaps are sometimes filled, and the dollar could go back up to fill this gap. What is your opinion on that?

Love the blog by the way!

Urszula said...

I can't recall where I read it (maybe here, on upsidetrader?), but what I read is that China is in the process of increasing its gold reserves from 600 tonnes to 4,000 tonnes. That's food for thought.

upsidetrader said...

i agree about gaps geting filled 100%, the move after will be down though i think

upsidetrader said...

good point and therein lies the rub, interesting to see how it pans out,

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I am a former hedge fund manager, broker and capital markets dude who now trades for his own account. I love what I do. I will try to post some stocks and an occasional chart that looks attractive for entry.I will also try to point out the idiocy of conventional wisdom and the lack of value added by the mainstream financial media. These postings should not be viewed as recommendations.