US Dollar

The US dollar index blasted higher on Sunday night, and the action since then gives us an upside target of 77.340.  As the attached chart shows, the dollar's quick gains surpassed numerous external prior highs, but follow-through to the "D" target will be needed to take the index past the prominent 76.870 high of last Wednesday.  Should that occur, the dollar's chart will look a lot less dire than it did at the end of the week.  The futures contract has a small $5 tick-value, allowing traders to calibrate risk very precisely.  Dollar skeptics can short the 77.340 "D" target with a stop no lower than 77.355.  (Posted by Doug "harry" McLagan)

[Addendum: I misread the date on Lira's piece -- his blog is not one of my regular stops on the Web --  and it turns out that it was written a year ago in August, not last month as erroneously noted. As readers may have surmised, however, that does not weaken or change my argument.  Nor would I claim that it weakens his, notwithstanding the fact that a prediction he made  more than a year has not panned out.  There is a lot of ruin in a global financial system, and although it sometimes seems as though ours may be no more than days from collapse, we all know how even terminal economic dysfunction, like lung cancer, can persist without producing the expected result. RA] With deflation tightening its choke-hold on the global economy, we thought we’d drop in on our supposed nemesis, Gonzalo Lira, to see how he has been coping in these very un-hyperinflationary times.  To his credit, the erstwhile arch-inflationist, bending to reality, has acknowledged forthrightly that deflation rules the economic and financial worlds right now. “Yields are  low, unemployment up, CPI numbers are down (and under some metrics, negative) – in short, everything screams ‘deflation.’ ” He wrote those words a month ago in an essay entitled How Hyperinflation Will Happen, and although we are obliged to point out certain dangers in relying too heavily on the scenario he describes, readers should trust, as we do, that he has gotten the big picture right.  He asserts, for one, that economic recovery is no longer remotely possible for the U.S.  We agree. Nor, as he makes clear, is it a case of double-dipping into recession, as most economists and the mainstream media would have it;  as Lira flatly states, we never emerged from the first recession. The inevitable result, he says – and again we concur -- is that an epic financial panic centered

From our globetrotting friend Jonathan Auerbach, here's an excerpt from Auerbach & Grayson's latest report: "The resounding reversal in the primary trend of the US Dollar is the cornerstone of a bearish litany of technical evidence which resonates with the ominous plangency of 2008, and strongly reinforces our longstanding belief that significant downside remains for risky assets. Importantly, the resurgence of the US Dollar is not simply a function of the Euro’s failings, but rather a global phenomenon which should provide another significant headwind for equities and dollar denominated commodities if historical economic relationships hold. Finally, our analysis of many of the major macro proxies for risk, including Copper, China (H-shares), and the Australian Dollar, suggests that the selling may just be getting started."   For the full report, click here.

Our elected leaders need only look at the chart below to see how the budget stalemate will turn out.  Gold has been rising at an exceedingly steep pitch since early July, implying that whatever deal emerges from the sausage factory on Capitol Hill, it will not much affect the ongoing destruction of the dollar that began in earnest in 1913 with the creation of the Federal Reserve System. The Fed, as we know, was charged with conducting monetary policy and supervising the banking system. However, events of the last few years have allowed the central bank’s directors to expand its mandate to….as Buzz Lightyear would put it, infinity and beyond. The dire implications of this for the U.S. dollar have not been lost on bullion investors and traders, even if conventional thinking would deign to suggest that precious-metal prices have come too far, too fast. But compared to what? Over the last decade, bullion has outperformed just about every asset class you can name. The fact that it is now moving away from the pack of investment also-rans suggests not that buyers have run amok, but that the destruction of the dollar has entered a new and perhaps cataclysmic phase. What will replace the dollar when it utterly fails, as it must? Although gold may not pass political muster right now as America’s and the world’s next choice for money, no one can be certain that it won’t be drafted into the role.  After all, how many tried and true alternatives are there? In the meantime, we think the bull market has barely gotten started and that penny stocks that have languished for years will trade at ten or perhaps even a hundred times their current values before the bull has run its course. We’re so confident about this that

During the Oscar telecast one year, Johnny Carson wisecracked that if a terrorist were to blow up the auditorium and kill everyone in the audience, it would be the worst thing ever to happen to showbiz but the best thing to happen to Pia Zadora's never-quite-airborne career as a singer and actress.  And so it is with the Pia Zadora of the currency world, the U.S. dollar. It is buoyant tonight as the muckety-mucks of eurobanking prepare to meet on the developing crisis in...Italy!  What with Greece garnering most of the headlines recently, we'd almost forgotten that what remains of the Roman Empire is in equally deplorable financial shape. The euroministers have roundly denied that an emergency meeting scheduled for this morning has anything to do with Italy's worsening situation, but that's the same as spelling out "Crisis in Rome!" on a marquee. A Forbidden Question And speaking of Europe's debt problems, in the latest issue of The Privateer, editor Bill Buckler asks a forbidden question that puts things in lucid perspective:  "How can [Greece,] a nation of 11 million people expect to pay off a government debt amounting to 475 billion euros? We have read variations on this question many times in the mainstream financial media," Buckler notes, but "we have yet to read this question: 'How can a nation of 310 million people expect to pay off a (funded) government debt amounting to U.S. $14.5 TRILLION?'  If you do the arithmetic, you will see the ratio of debt to population is slightly lower in Greece than it is in the U.S."

Gold and Silver are down sharply Sunday night on word of bin Laden's death, and so I've furnished benchmarks for each that can help us judge the severity of the selloff.  I've also identified the conditions necessary to signal a possible bullish reversal in the US dollar, but so far tonight there is not sufficient strength in it to account fully for bullion's weakness. Because the selloff in precious metals has occurred in response to the happy news concerning bin Laden, nervous bullion bulls should be asking themselves, "Will this really change anything?"  More likely is that it will ultimately heighten global terror and fear, and thus the demand for precious metals, since the upcoming week will undoubtedly be the busiest time for recruiting that al Qaeda has enjoyed since 9/11.  Under the circumstances, it is difficult for an adult to watch collegiate revelers outside the White House gates tonight without feeling a deep sense of foreboding. They evidently think that the jihadists' so-far decades-long war on civilization is just another Texas vs. Oklahoma scrimmage.

Take a gander at the chart accompanying today's DXY tout if you want to see how nasty it could get for the US dollar before it finds a support capable of arresting the long-term bear, at least for a while.

Using information disseminated in the chat room, we took a casual swing at Hecla yesterday that was based on a minor impulse leg and a strong tout from our friend Phil Calderone. I will formalize the effort to get long in this stock if an exceptional opportunity arises, but at this moment I do not share Phil's sense of urgency. A print at 5.62 would change that, but we can let it happen first before we act. For those eager to imbibe more risk, the stock is working on a bullish impulse leg on the hourly chart that bids fair to deliver 5.47. (A=5.10, on June 7; B=5.39, C=5.18)  The entry signal was tripped ay 5.25, but the stock would need to push above the 5.33 midpoint to become a more enticing bet. Entry at that point would presumably be via camouflage, but you may need to hunker down on the 3-minute chart to find it.

Check out today's tout and chart for the Dollar Index, since it's possible to infer the greenback is developing thrust for a mini-moon shot into the low 90s.