U.S. Dollar Rally Is Doomed

Source: Michael J. Ballanger for Streetwise Reports 05/14/2018

Precious metals expert Michael Ballanger discusses movements in the U.S. dollar.

There was an article written a few days back where the author vehemently denied that the U.S. dollar could go any lower and where the phrases “face-ripping,” “face ripper,” and “rip your face off” (as well as derivatives thereof) were mentioned no fewer than nine times in a fifteen-paragraph article. The reasons given were all highly subjective and based in Modern Portfolio Theory, but what was concluded is that, once again, the U.S. dollar remains the “least smelly shirt in the laundry hamper” with aromas emitted by the euro, yen, pound and yuan all significantly more pungent than the Yankee greenback. I whole-heartedly disagree and it has nothing to do with anything taught in the CFA course or at the Rotman School of Business but rather in The Academy of Common Sense and The Ballanger Institute for Non-BS Learning.

Before I proceed, I am growing increasingly tired of the dominance of the machines over market trends with particular reference to “correlations.” Back in the 1980s, the there was a brilliant arbitrageur named Ivan Boesky who specialized in the art and science of risk arbitrage. He was a master of identifying market inefficiencies and capitalizing on them by simultaneously buying and selling items such as corn against wheat, copper against silver, and 10-year bonds against 2-year bonds, always mindful of the significance of the rate of risk-free return. This was long before terms like “alpha” and “beta” and “theta” became favorite cocktail hour buzzwords and used in everyday colloquialisms such as “Excellent alpha, dude!” and “Skin me some beta, bro!” Interestingly, Ivan Boesky was crushing the competition on Wall Street back in 1978 until he was mysteriously arrested a few years later for insider trading and sent to jail. He was replaced by a certain Mike Milliken who was also mysteriously sent to jail for insider trading, which totalled over $6 billion in fines and penalties. The non-bank wizards were all trotted out and summarily shot and were mysteriously replaced by JP Morgan, Goldman Sacks, Citi, Lehman Bros. and Merrill Lynch (to name just a few) who collectively vaporized the financial system and miraculously avoided the slammer. Go figure.

Returning now to the topic of the U.S. dollar (having wandered off in a sexagenarian fade-out), I ask you to look at the chart posted below.

Three times in the past three years has the RSI (relative strength index) for the USD moved above 70. In late 2015, the USD traded up to 100.50 with RSI briefly above 70; it then reversed and went directly to 92. (It did not pass GO and it did not collect $200.) Immediately following the U.S. elections in November, the Trump victory set off such a sublime celebration of U.S. dollar supremacy that it screamed from 97 to 104 where there were two brief interludes above RSI 70 but with the first price peak at around 99 but the second one at 103. (RSI is not always perfect.) It then proceeded to mimic the 2018 playoffs for the two Toronto teams (Maple Leafs and Raptors) and crashed to 91. The bounce to 95 late last year (2017) was anemic after which the market sank to new lows below 90 recently before the current “face-rip” began taking the RSI ONCE AGAIN back above 70 and which as of tonight resides at 76.31 but which will most certainly be higher tomorrow when John Murphy’s charts are updated. This is the fourth time since late 2015 that RSI is bellowing a “SELL SIGNAL,” so why is it again that “EM swap rates” or a “3% 10-year yield” is going to create a panic OUT OF “all other fiat currencies” and INTO the one with the greatest debt threat on the planet?

The entire Western system of banking was totally flawed until around 1990 after which the Americans took the Chinese leaders under their wing and explained so very carefully how the aspirational mechanics of American capitalism work. They explained in meticulous detail how they use MONEY to influence votes and how VOTES can influence money not unlike the symbiosis of moss and lichens or Lewis and Clark. There is no better analysis than in George Orwell’s brilliant novel “Animal Farm” where a cruel despotic farmer is overpowered by the animals he has been abusing whereby it is agreed that they shall now run the farm and divide all spoils equally. Over time, without the protections put in place by any sort of constitution, one group of animals, most aptly being the pigs, decide that they are going to take control of the farm and within weeks, conditions have returned to the same horrific nightmare of overwork and starvation that existed before the farmer was deposed. That in my view is the continuous revolving door called “party politics” where bank-controlled candidates are lured into power on the promise of “hope and change” but wind up being transformed into the same hideous creatures that preceded them. Whether it is a Democrat or Republican, Tory or Labour, Liberal or Conservative, once elected to power they ALL feed at the same trough of avarice, corruption and influence-peddling.

The predominant theme for all of the gold bears in the past five trading sessions was their unanimous conviction that the American greenback was about to embark upon a “face-ripping rally” that would “rip the faces off” those positioned in trades intended to benefit from a declining buck (like commodities including the PMs). This “face-ripping” rally, like the one that arrived just after the Donald was elected, was borne out of a sub-30 RSI reading and unanimous negativity from the resource players (and everyone else). The rally off the April lows is about 5.5%, which compares to the post-2016-election rally of 8.84% but the major difference is that the index is 9.7% lower today …read more

From:: The Gold Report