Has The Sunday Times Called The Bottom In The Dollar?
Back in the October 2005 Newsletter we suggested that the Sunday Times Money section (which deals with Personal Finance) is one of the best contrary indicators around. And it's simple to follow.
Basically when this part of the Paper carries a big flashy headline of a market that's already been rising/falling for several months it has a very strong track record in signalling a top or bottom either for the whole move or at least a short term top/bottom.
This Sunday (3 Dec 2006) the headline screamed 'Profit from the Tumbling Dollar' which was a massive warning sign. Then add to the mix that practically every newspaper had Dollar bearish articles promoting the fact that the currency had pretty much only one way to go - down, and it's not surprising that so far this week the Dollar has rallied and will likely continue to rally for the next few weeks as well, maybe even the next few months.
Don't discount the Sunday Times Money section because it has been spot on in signalling tops and bottoms for markets over the last 3 years.
Expect More Dollar Strength - Fed Governor Bernanke & Treasury Secretary Paulson Travel To China In A Week
Anyone who thinks the markets aren't stage managed to a certain degree is not living in the real world. There is literally too much money, ego, reputation and political stakes involved for the Global markets not to be massaged when they can.
The 'management' can come in many forms, outright intervention used to be the favourite but it's been surpassed over the last few years by the use of 'words'. Have you noticed in the US for example how the regional Fed Governors are always speaking randomly trying to influence trillion Dollar markets by just opening their mouths? Give them credit though because it's been a pretty effective strategy so far.
Of course though, nobody is bigger than the collective power of a market so the massaging only works when prices and market participants are relatively docile. In times of outright panic there's little anyone can do (apart from pull the plug on the machines) to control prices.
To the Chinese face is everything, many would rather have their left arm cut off rather than lose face. As the Chinese are such dominant holders of US Dollars they'd lose an incredible amount of face if the Dollar was at 7 or 8 year lows when Fed Governor Bernanke and Treasury Sec. Paulson lead a high ranking US trade delegation to China on 12-16 December.
So if you are bearish on the Dollar, last weekend's negative newspaper articles (in particular the Sunday Times Money Section) combined with the US visit to China in about a week's time from now means that selling it short here (or holding on to short positions) is most probably a license to lose money. Better to wait until the dust settles and look at it again in the new year.
Where Is The Dollar Heading Longer Term
One of the problems about short term trading is that you have to do so much more onerous work. So whereas a long term trader can look at the bigger picture, try and jump on the mega trend in force and just sit there, a short term trader has to do so much more dangerous work always trying to get in and out at the optimum times.
This is the case right now with the Dollar, there's no doubt in our minds that it's going significantly lower over the coming years but who knows what's going to happen over the next several months? With everyone so bearish right now there's even the possibility that it might rally 10%.
But what nobody can argue with is the fact that the US debt out of control. Many are suggesting that the only way to reduce it is to inflate it away and let the Dollar slide - but in a managed way. One of the best strategies to try and profit from this is to either sell rallies in the Dollar or buy dips in Gold which is what we've been trying to do over the last few years.
On one hand however buying dips in Gold stocks is an easy strategy to follow because you don't have to get involved in the markets on a daily basis, in fact we often only check our stock prices at the end of the month caring little about what happens today or tomorrow. But on the other hand this strategy is often tough to follow and implement because you have to endure some nasty price retracements, anything up to 50% or more with some of your stock holdings.
Still, in our view you cannot have it both ways, ie attempt to try and ride the ultra long term trends AND sell out on the peaks, looking to repurchase the stock when prices decline. Yes, some people do have the skills to do this but very few.
Gold & Stockmarkets - An Update
Nothing really to add to last month's article. Still think there could be a blow-out rally in the stockmarkets over the next few weeks. As for Gold we wouldn't be surprised if Gold continues to remain under short term pressure leading up to the US delegations visit to China.
The US wants the Chinese and the world to know that it still can wield it's power over the financial markets so hitting Gold is another way to keep everyone on their toes and promote their message.
