Thursday, May 24, 2007

Kuwait Abandons Dollar Peg. Is This A Sign From The Currency Goddess?

Could this be a sign of a long term dollar bottoming process? We are at very long term and very strong support for the dollar composite and Kuwait capitulates by abandoning their dollar peg. Not the most brilliant move of all time. Of course, pegging in the first place wasn't so brilliant either. Looks a little like the stock market participants who held through the entire post 2000 correction only to dump stocks faster than you can say "uncle" in late 2002 as the market reversed and a new bull market began.

Kuwait blames the falling dollar for higher inflation. Please spare me your incompetence. You created your own inflation by printing money to peg your currency. Just like those central planning communist dummies over in China I have written about time and again. Speak of which, the Chinese just announced an increased trading band of the Yuan against the dollar for similar reasons. Global dollar sentiment is so bearish I could feast off of it for a millennia.

Dollar analysis isn't something I focus on but I am reasonably confident a top in global equities will coincide with a bottom in the US dollar. "Roar!", said the dollar bear. Let me preface this by stating unless there is some exogenous event like the US government deciding to devalue the currency for trade reasons. Yet, any thoughts of such an action have completely vanished now that Paulson is at Treasury and the Democrats control Congress. (No, that is not a political statement but a sociological one. I have enough venom for all snakes.) But, dollar strategy by US government officials seems more of hope and wish than strong dollar policy. That too will change. Half of the world governments have an active policy of trashing their own currencies just to shovel more junk in the American trunk. Yet whenever the dollar weakens, the "end of America" bozos claim an end to all thinks dollar. This is the reason why dollar bears and bears on the US are always wrong in the final analysis. They are binary thinkers. The world is not binary. It is analog. And, just like in my prior world, analog circuit designers were the rock stars. The geniuses. Digital or binary designers are bozos. I was a bozo. The great analog computer designers and circuit designers are likely comparable to Newton and Einstein in creative intellect. That is also why the holy grail of computing is a pipe dream and instead we plod along using these ungodly crude computing devices of today. Where was I going with this? Oh, dollar bears don't get it. Yes I rant.

If you are an equity market bull, you had better pray for continued inflation and a weak dollar because inflation is the only thing holding up global assets and your portfolio. Isn't it funny how people all cheer that inflation appears to have been beaten with the recent readings? Group think of the herd. Programmed by social factors to respond without thinking. At this point, as odd as it sounds, the best case outcome likely means we should wish for inflation. Err, but then the ridiculous Fed model I wrote about a week ago would eventually tell them to dump equities. Hmm.....It's fourth down and I think I'll punt because the game plan is too unclear.

I've said before that currency dynamics are hard to predict because of the many variables driving the markets but if I were a currency trader, I surely wouldn't be taking any long term positions against the dollar here. Macro factors have historically pointed to a higher probability of a stabilizing, if not strengthening dollar. Sorry for all of you dollar bears who wish doom on the dollar and the US in your emotionally unwell schadenfreude. You don't get it. No, I don't mean you don't get to see an even weaker dollar by saying "don't get it". I mean you don't get it....in the head. I'd recommend a trip to the doctor if you need to feel better.

Again, I'm not the dollar Buddha but it seems awfully clear to me. Time will tell who gets it and if America is comparatively going to hell in a hand basket and communists will rule the world. Gawd, that is a hilarious notion.
posted by TimingLogic at 9:55 AM

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