I’m expecting the market to turn weak soon, and the dollar to perhaps strengthen a bit in the early stages, though I think all fiat will eventually reach its intrinsic value.

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You can never go far wrong following Bob Hoye, whose analytical perspective spans centuries rather than the mere weeks, months and years that preoccupy the rest of us. He has oftened mentioned the dynamic of a stengthening “senior currency” during the collapse of credit bubbles, and I doubt this time will be any different. My own forecast for the dollar is a little more bearish than Bob’s, at least over the very near-term, in that it calls for a low at 80.05 in the NYBOT Dollar Index that has yet to be reached. I think a strong dollar thereafter is logical because that will give deflation the power to crush, asphyxiate and disembowel all debtors as a proper deflation should. Meanwhile, you can ignore all the blather about inflation/deflation being an increase/decrease in the money supply, since no one — least of all the inflationists who speak in such useless terms — seems to know any longer what constitutes money, and how momey works.

Regarding deflation, the easiest way to understand why it will continue until the economy is wrecked and everyone is in the poorhouse, is to think of it first of all as an increase in the real burden of debt. That is what is occurring now, and, as I have asserted here numerous times, it is highly doubtful that this crushing trend will reverse in time to bail out tens of millions homeowners who are underwater. In the meantime, as I have suggested above, you can tune out the inflationists, since the only one who has made a plausible case is Peter Schiff. He sees the Fed as eventually monetizing all bonds, not just Treasurys. I think he’ll be right, but, to repeat myself, not before the mortgage bust has played out to its logical, ruinous endgame. The fact that the dollar is already fundamentally worthless must at some point produce inflation. But it will come in due time, its purpose being to wipe out creditors and savers who have survived up to that point. RA

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Hope springs eternal, Jay. Thanks for your technical take. RA

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I tune out H&S patterns because they are everywhere you want to find them, David. However, the Dollar Index (DXY) came down hard again this morning, but without breaching the 83.45. support. The actual low was 83.42 — not quite enough for us to infer serious damage. If the support is breached on a closing basis, though, we could expect the downtrend to continue to at least 80.05. RA

Do we really need to get all the way to 144 or is 140 good enough?

Another boring curious day when BAC has a reported $34 B capital shortfall and goes up, ruddy Art Cashin, wrong for over a fortnight, says grab Dorothy and Toto and head for the storm cellar if Friday Jobs come in worse than ADP. Whatever. The stock market can be rigged by hedge funds, primary dealers and plunge protection teams only so long, maybe until Fall if they’re lucky and rich.
This irrational bear stock market rally confused, defied and mortified most since March lows. That’s the market’s job, to stay ahead of the consensus. (If we do not know who the sucker is, it’s us.)
Dollar debt markets are even more interesting. The conventional wisdom is debts and equities trade inversely, like dollars and inflation hedges, and depression rewards lenders and savers. Maybe once upon a time with the gold/silver dollar standard and savings. (But they left the economic stage decades ago.)
Not now when Fed and Treasury play their government free lunch neoKeynesian academic games and distort markets desperately staying free and profitable. (Live free or die is the motto of markets as well as New Hampshire.)
Google has 346 M hits for Dollar Up and 28 M hits for Dollar Down, so trading the dollar lower has scarcer and maybe richer company.
What makes the dollar tres interesante here on down can be discerned going directly to the Federal Reserve website and reading their fine footnote #4 print.
http://www.federalreserve.gov/econresdata/releases/intlsumm/usresvassets20090131.htm
Last Fall the Fed reported in tiny footnotes they entered into dollar forex swap agreements with other central banks over five times Fed Forex reserves to shore up the dollar. And guess what? Those swaps are unwinding now with lower dollar prices. While the prevailing cover story was the dollar was the best currency of a bad lot, the fact was canny large and commercial forex traders leapt on the opportunity to make money selling the dollar above 88. Check the USD open interest on ICE for their footprints up to twice short the dollar:
http://www.cftc.gov/dea/options/deanybtlof.htm
With bonds and mortgages, we may experience the actual long-term consequences of monetizing debts and anything that moves with neoKeynesian funny money: Not inflation, but quick symptomatic relief followed by death of the market patient. A plot worthy of House.
Contrary to popular expectations, we may not see higher dollars or higher gold, oil, platinum and silver prices until dollar defaults cease, but loss of liquidity by people who no longer trust the markets. After this bear market rally folly, higher prices could be decades off as foreclosures grow. Yes, it’s a curious world they weave, when first some bankers practice to deceive.
Could get rather interesting here on as market interest rates rise to recalibrate the dollar and markets. Where they stop, nobody knows.
The Fed and Treasury are of course between the proverbial rock and hard place. They cannot fix long-term rates forever with usury funny money. They could not even do it more than a day across the maturities. They could especially not fool the long bond, which peaked out December of 2008 after the market crash.
And now, with neoKeynesian academic monetary handiwork the past six months, it may take much higher rates across the yields to do the real work of the Invisible Hand repairing markets. Higher interest rates mean lower prices, hardly an inflationary argument. We still face a shortage of real capital. One of these days after all the King’s horses have left the barn, we may rediscover the Constitutional gold, silver and copper standard the surplus nations are proposing…

Regards*Rich

PS Long-term pictures of $USD tell the tale:
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3251493