Friday, August 15, 2008

The U.S. multiyear downtrend is over. The process we described as “carving out a bottom” has been completed.

The Dollar Finally Escapes the Bear Den

Recent days have been a watershed, but it has been a long time in the making. The dollar bottomed against the British pound and Canadian dollar (half of the G7 currencies) last November, as the Federal Reserve expanded its lending facilities and these countries prepared to cut rates. The dollar bottomed against the Japanese yen and the Swiss franc in late March, around the time that the Fed made a stand to protect what it perceived to be a potential systemic risk in the demise of Bears Stearns. The dollar recorded its low against the euro in early July, as the U.S. Treasury and Fed made it clear that a failure of government-sponsored agencies

Posted by big chris @ 03:13 AM (1446 views)
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36 thoughts on “The U.S. multiyear downtrend is over. The process we described as “carving out a bottom” has been completed.

  • Every time the dollar rallies we get the same VIs shouting that the $ has (finally) turned the corner, and each time it proves to be wrong. Okay, so the $ has rallied recently, but ask yourself this: what fundamentals have changed? None. Is the credit crunch over? No. Are real IRs negative in the US? Yes. If you want to know why the $ has really rallied, then have a look at this:

    http://goldmoney.com/en/commentary.php

    The answer is that the $ is being supported by short-term central bank intervention. Don’t be fooled by the bear market rally.

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  • sold 2 rent 1 says:

    “The dollar bottomed against the Japanese yen and the Swiss franc in late March, around the time that the Fed made a stand to protect what it perceived to be a potential systemic risk in the demise of Bears Stearns”

    The USD index put in a multi-decade bottom in mid March, around the time of Martin Armstrong’s low on 22 March.

    What does this mean? The EUR will overtake the USD in the race to the bottom
    This does not mean the USD is a safe haven, it means it will only get the silver medal position in who disolves first.
    What should we do? Buy gold.

    Gold stocks for now. Physical gold in 12 months time.

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  • last_days_of_disco says:

    I must say I am thinking of pulling my pension and turning it into gold coins (and pay the tax on the money).

    I just can’t see how all the money I have poured into that will ever be worth anything. They say in my pension fund report that they keep 55% in bonds 45% in equities.

    At least if you have physical gold you can be left with something of value. All this paper, could just turn out to be, well … paper.

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  • sold 2 rent 1 says:

    Gold down to $777 – crikey.

    Remember it is only a real loss if you sell.
    Where it bottoms I do not know?

    The next major upleg in gold does not start until Aug/Sept 2009.
    So we could well see gold bottoming around 700-750 this month and rising to $1000 next spring, then bottoming around 800-850 in 12 months.

    The question is how much would the GBP have fallen against the USD by Sept 2009? It could be down to 1.50.
    So loading up with gold stocks in the next 4 weeks could be very prudent, especially if the oil price carries on falling into next spring.

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  • sold 2 rent 1 says:

    Oil is stil at 113.

    I am still hoping that a fall of oil to $110 will put a base both under gold and oil.
    Next week maybe?

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  • “Gold down to $777 – crikey.

    Remember it is only a real loss if you sell.””

    You’re sounding like an estate agent S2R1.

    I admit I’m no expert, but then I’m not sure the experts are either.

    All I can say is my gut feeling was that Gold was in major bubble territory.

    The thing is, given the site we’re on, investing in Gold isn’t going to change a whole lot with regard to getting a house deposit together. And as far as I can see there is a big downside as has just been proved.

    Now if the economy does turn a corner (and I accept most of us think that won’t be ’til 2011 or so) and your money is tied up in Gold (which incidentally is falling at 8-10 times the speed of houses) you’re not going to get your house.

    I know the downside is inflation, but providing you’ve got it as ‘house money’, I still see Cash as King. Everything else is just too volatile.

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  • @3. last_days_of_disco said… “I must say I am thinking of pulling my pension and turning it into gold coins (and pay the tax on the money)”.

    I’d be interested to know how you propose to do this as you would have absoltuely no chance of doing this with an occupational pension whilst personal pensions are governed by strict Inland Revenue (HMRC) rules – the maximum tax free cash generally available from a personal pension is 25% of the fund value with balance being used to purchase an income in retirement (typically via annuity) – there are odd exceptions to this ie old style executive pension plans where funding was for max tax free cash.

    Interested if you could expand upon your idea and the mechanics of it.

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  • I see this as a buying opportunity for gold and will be getting some more as this rally in the dollar is boll*cks IMHO. There’s circumstantial evidence that China has been buying US treasuries to get oil contracts in Iraq – only a theory, but there is absolutely no rational reason for the dollar’s gains, and will probably take a hammering in a couple of months time. Having said that though, with another war starting against Russia (and potentially Iran), then this could generate a lot of business for Bush Co.!
    @3 LastDays – personnally I think that would be a very prudent move. Pensions are going to get creamed, period, and that’s why I don’t have one.

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  • @LastDays – actually as per str2007, I wouldn’t put all of your pension money into gold, but maybe 20% and stay liquid with the rest – which is my strategy.
    legal notice – I am not offering any advice here and am not licensed to give financial advise either. I have no VI in gold either other than as a last resort should financial Armageddon actually come to fruition!

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  • For those of us who have invested in gold, the moral of the story is to always diversify your assets!

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  • str 2007,

    If you look at the cyclical patterns of gold, August is always a major low point.

    US Money Supply growth is in a multi decade high here.
    Look at the graphs

    In money supply real terms gold will need to hit $4,500-$5,000 to match its 1980 high.
    It is growing at 18pc a year. That’s a doubling rate of 4 years
    So in 2012, gold will need to hit $9,000-10,000 an ounce to match its 1980 high

    Gold is only 3 times its multi-decade low in 2001
    Oil reached 12 times its mult-decade low before the bubble burst



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  • Long term

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  • str 2007 – “Cash is King”

    !!! officially it is eroding at 5% per year, unofficially more like 15%. Since GBP is correcting possibly down to $1.50 this will accelerate. BoE has to slash rates because we are in recession. So cash is ok, but not King, maybe Queen or Jack.

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  • Regarding pensions,

    I have stopped paying into mine.
    I have switched the funds to cash for what its worth (no gold fund availbale)

    IHMO, no pension fund will ever pay out after summer of 2011, so take it early if you can, else mentally write it off.

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  • “”In money supply real terms gold will need to hit $4,500-$5,000 to match its 1980 high””

    But no-one is prepared to buy the stuff at over $1000oz, there is only so much you can do with it.

    If one was to use their savings to buy a house (with mortgage or not) then you can (and need) to live in a house.

    For Gold to do what you say, inflation will have long ago disolved your mortgage and if you didn’t have one then you’re not effected anyway.

    The main point being that we’re discussing what to do with aour savings before we buy our houses and at present I see the majority of investments as just too volatile.

    As for August being a low in Gold, you’re right now, but be honest it’s in the absolute opposite direction to what you were saying ($1500oz by end June). And I don’t remember you’re advise back then being sell in July again as August will be a low.

    Point is it’s very tricky to get all this right with so many other influences. And unlike houses prices fall very very fast. You could go on holiday and come back to see a 25% fall.

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  • I hear what your saying Mountain Goat

    But as I point out Cash in the currency you’re going to buy you’re house in makes it safe.

    You could speculate on other currencies, but again what if that’s wrong and it goes the other way – you loose.

    If I hold sterling and plan to live in the uk, then I can’t loose too much as long as house prices are falling.

    Only hind sight will tell us what was King. It may turn out to have been a thumping big mortgage if inflation really takes off.

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  • str 2007,

    “inflation will have long ago disolved your mortgage”
    Remember it is wage inflation that disolves your mortgage, and we are not seeing wages keeping up with prices (15pc).

    “As for August being a low in Gold, you’re right now, but be honest it’s in the absolute opposite direction to what you were saying ($1500oz by end June). And I don’t remember you’re advise back then being sell in July again as August will be a low.”

    I was wrong because the “fifth night” bubble was in oil and not gold.
    I am on a learning curve here too.

    I now understand that it is the sixth night (Nov 2009-Nov 2010) that maps to the previous sixth night (1972-1992) that will be the bubble in gold.
    It is just short of the mid-point of this sixth night that will be the peak (spring 2010) – maps to the last mid-point (just short of it anyway) of 1980

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  • Anyone for $720 gold support?
    It was the PHASE 2, UPLEG 1 high set in May 2006.

    If oil hits $110 and gold $720 at the same time next week then I am a buyer.

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  • S2R1

    I guess time will tell on that one, you could be right. Still think houses are the best bet long term as if things get that bad some toe rag will have knicked you’re laptop and all evidence of you’re Gold ownership (that would be a bummer wouldn’t it).

    Better get on with some work now or I won’t have any money for houses or Gold !

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  • @sold 2 rent 1

    “I was wrong because the “fifth night” bubble was in oil and not gold.
    I am on a learning curve here too.”

    S2R1, it seems fairly clear that you have no more idea of what will happen to gold than the rest of us. The problems facing us now are bad but arguably not as bad as those seen in, say, WWII or the last big depression.

    “IHMO, no pension fund will ever pay out after summer of 2011, so take it early if you can, else mentally write it off.”

    I might yet buy some gold as a hedge but if I do it will be a gamble because I believe that life is likely to go on after summer 2011.

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  • “Many of the shakier speculators and investors have probably baled out in the last few days,” writes Wolfgang Wrzesniok-Rossbach in the latest Precious Metals Weekly for Heraeus, the German refining group. [They] will probably not be seen in the market for sometime to come.”

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  • I also not going to cash in any pensions yet. So long as the companies can survive the recession then the stock markets will recover and stocks even keep their value. Stocks are after all a protection against inflation because they represent a real asset. Governments are all going to try inflate their way out of this mess we are in. If they fail we get complete breakdown of the financial system and Armageddon. But that is not something I worry about because I probably won’t survive if that happens. Only worth worrying about situations you can control.

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  • MG,

    “If they fail we get complete breakdown of the financial system and Armageddon. But that is not something I worry about because I probably won’t survive if that happens. Only worth worrying about situations you can control.”

    I truly believe the path to “global enlightenment” in 2011 as defined by Calleman’s evolutionary model involves staring into the abyss first.
    Just remember this fact when you are at the lowest of the low in 3 years time and you might just survive.

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  • S2R1, keep the faith.. you are right.. I’m moving with business friends into an idea as we speak! You are closer to the answer than you think. The business developments are in 3 area’s, obviously I won’t discuss this, but I believe you have been onto something for a long time.

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  • Good to see that after complaining that so many people profited from the economy on the up, the first reaction from HPC posters is to……..profit on the down.
    Whether a stare into the abyss happens or not, greed isn’t going away by the looks of it.

    Sorry to say, S2R1, your change of consciousness aint going to happen, in my opinion. From reading this site (and others) over the last year, it doesn’t matter whether you believe in the Mayan/Calleman model, laugh at it, are undecided or simply don’t care, whether your consciousness is ‘changed’ or not, whether you live in the East or West, are right-brain dominant or left. The depressing reality is that none of these things change people’s tendency to look after number 1, profit personally from any crisis and screw everyone else.

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  • Shipbuilder

    I don’t think it’s a case of greed so much as self protection (in my case anyway).

    I don’t consider owning a family house with a small mortgage greedy.

    And let’s not forget that in it’s simplest form we’re all going to need a pension pot of at least £300k in todays money assuming your accomodation is bought and paid for. (Double that if you’re still renting). (figures based on 5% return and using up the capital in your latter years).

    S2R1 maybe onto something but I can’t help feeling his Gold Ramping gets in the way.

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  • S2R1, I don’t believe what you purport is down to greed, I believe your purpose has merely been to educate & forewarn, which is or has been beneficial, the information and knowledge you have provided is both logical and feasible. My clients have benefited, and so will you. Gold is the true winner, because of the impending financial meltdown, in my opinion is around the corner, the Dollar is & will be the last last bubble, and Gold as always will be King! Goldsmith, Goldstein, Goldberg, Goldmann, etc, etc.

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  • My post wasn’t directed at those wanting to buy a house at a decent price or bolster their pension – I’m not saying either of those things are greedy. My point was that posters on here spent plenty of time berating the morals and ethics of those profiting from the economic boom, yet many seem only too happy to seek to profit from the bust.
    Most interestingly, those who claim to have had achieved a change of mind/changed their moral outlook/seen the world for what it really is etc. are doing EXACTLY the same thing.

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  • The thing is, we all know of people that have actually changed their view of the world. They are people generally sneered at as ‘hippies’. These are people that are genuinely sickened by our society, have seen where it is going (the ‘abyss’) for years and genuinely live apart from it.
    I know personally of people who have grown their own food, built their own house (or boat), welded, wired and joined their own water wells, solar panels, and wind turbines. People with no address, no bank account and zero interaction with the state – far from even caring about money, they don’t even use it. Sustainable community and co-creation is a daily existence for them.
    My point is these people have enacted a genuine ‘change of consciousness’. Does anyone really believe this is the way things are going?

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  • @shipbuilder

    “I know personally of people who have grown their own food, built their own house (or boat), welded, wired and joined their own water wells, solar panels, and wind turbines. People with no address, no bank account and zero interaction with the state – far from even caring about money, they don’t even use it. Sustainable community and co-creation is a daily existence for them.”

    In which part of the world do these people live? If they own property in the UK, they will have to pay council tax yet you say they have built their own house and have no address? Presumably, they do not bother with gas, electricity, internet, telephone, health services, police assistance and whatever else I’ve overlooked. Good luck to them but that’s not really going to scale up in the UK is it?

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  • sold 2 rent 1 says:

    shipbuilder,

    “My point is these people have enacted a genuine ‘change of consciousness’. Does anyone really believe this is the way things are going?”
    A few hippies in rural areas can do this on a small scale.
    But for the masses who live in overpopulated cities, this is not achievable without thinking completely “out of the box”

    Stevie Dee,

    I can guess those areas.
    Have you read “Beyond Neanderthal” by Brian Bloom?
    He would be right up your street.

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  • sold 2 rent 1 @ 4 said…

    “Gold down to $777 – crikey. Remember it is only a real loss if you sell. Where it bottoms I do not know? ”

    But only a couple of weeks ago it was going to go up to astronomical (comical) amounts!

    So, how much gold ‘equity’ have you lost S2R1 ?

    Gold has the potential to fall EVEN further than the housing market !

    How many people have you been persuading to by gold ? Hilarious – guess your group of friends are going to after you once they lose their shirts mate !

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  • Quiet guy – if you live on a boat, you have no address – no council tax. As for electricity etc., as I mentioned these people are completely self-sustaining. It is possible with work and imagination.
    You confirmed my point, in fact – these people represent an actual ‘change in consciousness’ (as opposed to blogging on the internet and buying gold), but it’s not for everyone and is unlikely to happen.

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  • S2R1 – you missed my point, again.
    Deeds, not words – these people represent a REAL change in consciousness in the direction you indicate. So, will everyone start living in an ethical and sustainable way? No, in my opinion.
    Do you actually believe what you say? Blogging and buying gold are not the actions of a man who can see the abyss.
    You are the one claiming to have changed, yet there is no evidence that you have changed, so why should I believe you?

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  • nopensionnohouse says:

    “Gold down to $777 – crikey.

    Remember it is only a real loss if you sell.””

    Don’t worry S2R1, you always have your unconscious enlightenment to fall back on.

    I sold my holdings at the peak. Not bad for one of the unenlightened sheeple eh?

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