Friday, September 26, 2014

King Dollar?

Lately we have seen almost everything go down vs. the US dollar.  Other currencies, gold & other commodities, almost everything investable (except, arguably US Treasuries, which have performed extremely well in recent years much to my surprise).  This almost begs for an examination of US dollar recent performance as well as discussing likely future prospects of the dollar versus other investments.

First I would like to show what has been happening lately with the dollar compared to some of its alternatives, I just use the "US Dollar Index" (I believe it is some 50% composed of the Euro, and almost all of the rest is the Japanese Yen and the UK Pound).

Most of what I present below is from which a free (but limited) service. To my knowledge, stockcharts does not track Bitcoin, so I had to go elsewhere for that chart (see below).

 Here is the US dollar over the past six months, this is a measure of the strength (going up) vs. weakness.  *Click* on any image for a better view!

All three marked indicators show very strong performance by the US$.  7% in a little under three months is a very large move in foreign currency terms.  The dollar has moved up big vs. the Euro (now just under $1.27), and the Japanese Yen (109 Yen to the dollar).  The UK Pound is around $1.626 (it has not fallen as much as the Yen, Euro and Ruble).  The Russian Ruble is near a new low.

  • Sidebar: Speaking of the Russian Ruble and Russia, I will mention that the Ruble is very low as Western sanctions bite, and I wonder (woooh, conspiracy theories!) if the US .gov is working with Saudi Arabia to beat the Russians down "a la Reagan" by cutting Russian hard currency income because of lower prices for their exported oil.  I do not think this the case for lower oil prices, as oil and everything else has been going down lately.  But, I promise that I will get around to looking at a conspiracy theory or two before too long...

Of interest to technical analysts, here is a rather amazing chart, note how the dollar's recent move is very impressive even looking back two years...:

Each of those little red and white bars are what the pros call "candlesticks".  I cannot recall EVER having seen 10 white ones in a row...

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OK, most of the foreign currencies (that would also include the Peruvian Sol for those interested) are down vs. the dollar.  What about gold?  Gold over the last 6 months, note that at that the ticker for gold itself is $GOLD, and may differ slightly in its price movements from the gold ETF (ticker: GLD), the GLD is "paper gold"...

Notice how gold moved almost exactly inversely with the dollar.  US$ up, gold down.  Not pretty for gold owners!  Here is the sad story for the past two years:

Note how gold (priced in dollars) is essentially at a "triple bottom" (for anyone interested in technical trading), this is usually NOT a good sign...

Six month crude oil ("West Texas Intermediate Crude"):

Crude oil is moving very similarly to gold, down!  Note the rather orderly "channel" (gray lines) from about $107 per barrel (late June) to $93 and change now, a decline of about 12%.  Note also the ominous-sounding "Death Cross", this is a pattern where the 50-day moving average (blue curvy line) crosses over (downwards) below the 200-day moving average (red curvy line, less volatile), while at the same time the prices are below both.  I do not have statistics as to whether a Death Cross has any predictive value or not, but the technical traders watch these kinds of patterns closely.

Gasoline prices seem to have edged down just a bit, not much, but a little.  I have not had to pay $70.00 to fill up my SUV in a month or two, smile...  Gasoline prices are "sticky" to the downside, that is, when crude goes up gasoline goes up right away.  But, when crude goes down, there is a lag time..., they do not cut prices as quickly as they raise them, hmm, funny that.

Bitcoin 6 month chart, note eerie similarity to decline (with gold) since early July (source:

Bitcoin has gone down some 30% from its recent (July) peak.  But, Bitcoin is extremely volatile!  Bitcoin topped out at over $1100 last December, when the craze was going full-blast (yes, that was the general time-frame I started learning about and buying BTC...).

6 month cotton price, ugh!  A slowdown in China figures into here too...

That "Death Cross" business (50-day moving average (blue) crossing below 200-day (red) with prices even lower about July 9) looks like it predicted lower prices.  Cotton, like many commodities, has its own price dynamics and is influenced by weather (for example) in cotton-producing areas.  (Gold is not really influenced by weather, strikes, etc.)  But, China is importing much less cotton currently.

I had to take a "screen shot" of this next chart, it is an index of food and beverage prices of the last few months and is only through August.  But the general trend is clear, DOWN!  I know nothing about this particular index, but it would appear that in the aggregate, wholesale commodity food prices are down about 7% (again, April - August).


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STOCKS have been somewhat positively correlated with the dollar.  Although last week was down and volatile in the stock market, stock prices have been surprisingly weakly correlated with the dollar, stocks in general ARE up (and near all-time highs), but the price action only somewhat similarly matches the dollar movements.  It is possible that foreigners are buying dollars more aggressively than buying US stocks, but that is just a speculative thought on my part.  Because the correlation is somewhat weak, I do not put the chart in here, but you can look at it (the S&P 500, the most important stock index for the pros) here:

Normally (but things have not been "normal" since at least 2007...), the US$ and the longer-dated US Treasury bonds move together (positive correlation).  But they have not, the 10-Year Treasury price chart appears to have very little correlation with anything!  See for yourself if you don't believe me:

I can offer no explanation for this -- the Treasuries not being strongly correlated with the US dollar.  QE (or at least the "Taper") is slowly ending, which MAYBE would push prices down some, but that MIGHT be balanced by foreign (or other) demand for a "safe haven" investment.

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Bottom Line:

The US dollar has indeed been King Dollar recently.  Nothing else seems to match it, nor do I have a ready explanation based on price movements (at least the ones above).

Will this continue?  Is the US$ really the King?

Or is it just the "cleanest dirty shirt in the closet"?

Hmm, we will have to wait and see.  Because I do not know.  But, something seems very wrong with this latest King Dollar...

How do we deal with this?  If ("a big if") this trend continues (and it might, deflation -- at least short-term -- is a threat), one way is to have plenty of CA$H.  Dollar goes up, the value of cash does too.  But it is safer ONLY if you have at least some of it outside of the banks!


  1. "Cleanest shirt in a dirty closet."
    The dollar may be strong against Gold and stocks, and yen and Pound Sterling. But it is definitely weak against gallon, the kilowatt, and pound of ground round.

  2. the contrary...those who know gold are not worried at all. The slide in gold's price is expected and actually, very welcomed. it is music to our ears, if you know what I mean...

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  4. From my experience the best Bitcoin exchange service is Coinbase.


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