Safe Havens Misunderstood – Don't Be Fooled

To refer to the U.S Dollar as a “safe haven” makes little sense, even to the  newbie trader/investor who I’m sure by now has at least read / heard something “somewhere” – with respect to USD’s continued depreciation/devaluation and “ever diminishing” buying power.

I don’t have the stat off the top of my head, but remember reading that the U.S Dollar has lost some 93% of its value / buying power over the past….75 – 100 years? As well that the number of “new dollars” created “every year” now surpasses the number of dollars “in existence” over the previous 800 years. That’s what I call devaluation no?

In the current investing environment any “perceived dollar strength” cannot be misunderstood as “actual strength” as…….USD rises when assets priced in USD are sold. Period. End of story.

As stocks (which are priced in U.S Dollars) are sold (by the simple mechanics of markets) a “cash” position is then raised. Investors “seeking safety” aren’t rushing out to “buy dollars”, they are simply selling stocks / assets “priced in dollars” with attempt to “get out-of-the-way” should further downside risk ensue. Do not mistake this ( as the U.S media would have you ) as “dollar strength” or even worse as a “good thing” in that……a move towards USD suggest investors are moving to “cash”.

The general spin in the media these days would have you thinking “hey the Fed is going to continue tapering, stocks haven’t fallen and hey! – Look at the U.S Dollar gaining strength too! Things must really be going well!

This couldn’t be further from the truth.

I had questioned in a previous post – which “safe haven would take the lions share” during the impending correction ( already underway ) and have now seen that indeed “all assets suggested” have begun the slow turn upward. USD as well the Japanese Yen, Gold and even U.S Bonds – all moving higher over the past couple of weeks.

Do you think it’s just by chance?

 

 

17 Responses

  1. Power Corrupts January 19, 2014 / 10:37 am

    Kong! Appreciate your insight as always! Then dollar strength is the other side of price weakness in the assets the FRB is targeting for its hoped for wealth effect. Does the FRB respond with more policy response (cowbell) to attempt to stem said asset deflation? How might markets react to more sauce in the punchbowl? Party on? Or passed out drunk? Or is asset price weakness/dollar strength just corrective – and not destructive to the primary trend, allowing the tapering FRB policy glide path to continue? Will the economic tectonic forces creating these questions resolve themselves in 2014 or will the show go on? Interesting times indeed…

    • Forex Kong January 19, 2014 / 11:14 am

      I’m of the mind set that “when markets finally correct” the Fed will use it as the perfect excuse / set up for further QE so…..

      I think we’ll see a “zig and a zag” taking stocks lower / and USD higher – but then the next dose of QE comes right around the same time Japan hits the button in April.

      I refuse to beleive the U.S economy has improved in any way shape or form, and that “now” is certainly not the time for the U.S to start tapering as the rest of the world hits “print more now”.

      A bumpy ride shaping up for 2014.

      • Power Corrupts January 19, 2014 / 12:32 pm

        My basic investment (not trading) thesis for the last 12 years has been – and remains – that global credit market debt levels can not be sustained by the global economy (and debt levels continue to grow faster than economic activity). Resolution of this situation can be by austerity, default or inflation. The persistence of negative short term real interest rates for the last 5 years in the US reveals the preferred path of policy here.

        • Forex Kong January 19, 2014 / 12:47 pm

          You’ve got it.

          Austerity is out, default a last resort ( or perhaps not – as I’ve got a couple ideas circling there ) so that leaves our ol friend inflation!!

          I guess if the “world’s central banks” continue the coordinated effort to print / devalue “all together” then it’s not so obvious, another reason why I can’t see the Fed ( the master printer of all printers! ) “tapering” and going against the grain.

          “If” the global economy was indeed on the cusp of a massive upswing sure….everyone sees rates going up, and it’s a good thing.

          We are at the top of the economic cycle and now looking at a time of “contraction” in my view.

          Lots of smoke n mirrors out there no doubt.

      • Power Corrupts January 19, 2014 / 1:40 pm

        With all the policy intervention induced cross currents, it is exceedingly difficult to determine where we are in the economic cycle. Smoke and mirrors for sure!

        • Forex Kong January 19, 2014 / 1:47 pm

          It’s interesting that you say…..as yes 100% – these days anyone “looking backward” for an idea of where we are headed is shit out of luck.

          With the unpresedented intervention of central banks it’s damn near IMPOSSIBLE to rely on any traditional method of market evaluation thusly….

          We switch gears to a much shorter term trade horizon, and let these bozos have at it.

  2. schmederling January 19, 2014 / 10:53 am

    Hey Kong – will be interesting to watch….

    Had to bail – on the Aussie position….. sure did bull a U-Turn….. I now have a confirmed Negative Fire on the Daily squeeze in the Aud/USD pair…. we will see of this gets reversed as well or continues lower… least path of resistance appears to be lower…..

    One as to wonder if the recent strength in Gold will support another U-Turn….. we will know very soon….. sideline for no on currencies with continued long positions in PM’s only …..

    Nice call Cheers Schmed,

    • Forex Kong January 19, 2014 / 11:17 am

      Short AUD was my largest win in previous days, and the action looks ugly.

      I don’t see any real support levels for a waaaaaaays down there so….I’m going to keep on it until I get caught pushing to hard.

      • schmederling January 19, 2014 / 12:07 pm

        Yeah I know… was a great call…. let’s see how this goes with gold’s expected move…… I think something is coming & will start tonight….. could AUD continue falling sure can….. can pull a U-Turn as well…. either way nice call buddy…… If I had looked ay my scalping tech it posted a sell on the daily on Jan 14th…. pretty close to when you took on the position I believe…LOL ahh well…. again great call…

        Cheers Schmed,

  3. schmederling January 19, 2014 / 11:59 am

    I have Silver ready to blast-off here…… very will could take off @ Asian open today & into London….. I also think we could very well see a large short-covering rally come Tuesday NY open once they boys return…… should be very interesting….. as I already have a positive fire in SLV on Jan 16th….. Spot & Futures are very close here….. could be an interesting open for PM’s IMO…

    I think Silver will be on a rocket ship …. Diggers will trail & Gold…

    Cheers Schmed,

    • Forex Kong January 19, 2014 / 12:18 pm

      We are already in Exk as well several other miners on watch.

      I had also suggested some days ago that the correlation between gold and aud really isnt there these days as the factors affecting each are very different.

      Eyes wide open this week as well.

      • schmederling January 19, 2014 / 12:39 pm

        ok sounds good – should be a great week!!!

  4. Rob January 19, 2014 / 1:50 pm

    This is a neat site with some good trades. I swing trade and have made good money these last few weeks on USD longs, Yen Longs, and AUD shorts, not to mention current positions running + Kiwi shorts + potential of CAD rallying a bit this week…etc…

    But I have to pick Kong’s brain…

    USD not a safe haven? Question, and please excuse my ignorance, but isn’t the USD still the world reserve currency as the debt markets are the most liquid/bond market massive? Next in line being the yen for safe haven flows? If I am mistaken, please enlighten me : )

    I think Eurozone is a mess, China is slowing, and the UK’s recent data has been inflated on credit/housing…I think the USD should appreciate this year as the economy there seems to be outpacing the world. Where else is there growth? China, no doubt, but there situation is what the Communist Ruling party says it is lol.

    Thanks and Cheers Kong

    • Forex Kong January 19, 2014 / 2:12 pm

      Hi Rob.

      Great trading man…I’m glad to hear you’ve been doing well.

      You bet USD is most certainly the “current” world’s reserve and yes “obviously” takes flows as other assets denominated in USD are sold…..an incredible privelege for the U.S but unfortunately one that is currently being “so abusued”.

      We don’t see it in a day to day sense but….the fact is – the rest of the planet has had enough of the U.S abuse of it’s reserve status, and is making considerable effort to “insulate itself” from further devaluation. USD will rise but ( in my view ) only as a product of these market mechanics and NOT because anyone in their right mind is outright “buying USD”.

      with some 85% of global forex transaction “still” involving USD ( as being the worlds reserve we have to appreciate how many countries “Must” hold USD as a means to buy commods ) the ship can’t turn on a dime. It’s a cruise liner – not a speedboat.

      Don’t be fooled. The macro vision has USD going to zero…while the shorter term zigs n zags may very well suggest USD strength.

      In my view IT’S BY DEFAULT as that USD is “still” the reserve, and as risk comes off…assets denominated in USD are sold…and cash is raised.

      Nothing more.

      EU is a disaster, China looking to slow moving forward and a complete and total joke of recovery in the U.S

      No one “wants” to buy U.S dollars….its “relative strength” is a mere by product of simple market mechanics…

      As I see it anyway…..

      Great stuff Rob….you’ve obviously got your head screwed on right – you can take my crap with a grain of salt, and even better a nice shot of Tequila.

      • Rob January 19, 2014 / 2:36 pm

        Thanks for responding so quickly. Let’s see how the markets shape up in the coming weeks, months etc…I like swing trading daily charts although I think trying to formulate a big picture of how economies are doing is important.

        Last question for you then sir, do you think CAD looks a bit toppy at these levels? I mean it has sold off so hard so quickly, furthermore, most of the charts to me suggest CAD is a bit “overcooked” in the short term. To me a bounce is in order, but what say you?

        Thanks and take care.

        • Forex Kong January 19, 2014 / 2:47 pm

          Great question again Rob….

          Damn that loonie! I love the loonie longer term but man! – Getting smashed!

          Definately “toppy” but……as risk sells off the commod currencies can really take you for a loop.

          I’m sitting out on CAD til I see significant reversal.

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