Monday, May 17, 2010

US Dollar Collapse: Potential Reversal GDX, HUI, XAU, FXI, TNR.v, CZX.v, GRC.to, GBN.v, EPZ.v, ASM.v, CUU.v, CPG.v, RM.v, LMR.v, GDX, GDL, SLV

Corporate default was exchanged on sovereign one, all bailouts were not more than transferring obligations from failed banks and other Corporations to the public finance. Bonuses were left with bankers, losses were privatised with public. Now we have on outskirts of Europe with less than 4% of EU GDP fireworks which suppose to end Euro legacy in wain. Do not rush to trash the Euro yet. Sovereign default is very different from corporate one. If the debt is issued in local currency it could be always printed more in order to repay it. U.S. Corp. is living in this space for years, UK is there and Europe will have to decide and move in support of Greece to prevent the run on the bank and collapse of the following PIIGS members.



The real drama is here above, It is Long Treasuries daily chart and it looks nervous, nobody even talks here about cuts, fiscal discipline and austerity measures. Once Europe is engaged in QE and ECB starts buying sovereign bonds from banks, attention will come back home. Recent spike in prices can be very short lived in a big picture frame.



Nothing is for certain in these days, but that candle on the chart above can mean reversal and that Green Buck Party is over. Less bad in the end is still bad. Market is ready to forget the Greece and remember California. With all investment banks discounting euro and providing parity forecast, counter rally can be very sharp. Euro below 1.2 means Europe disintegration, there are means to prevent it and intervention is already in the cards.



On the weekly chart US Dollar looks tired as well and with intervention in Japan and Europe reversal can easily tip the scales - remember in the end it is game to debase all FIAT currencies.
"It was second Deflationary Test with sudden drop in liquidity this time driven by sovereign debt crisis. Call it Run On The Bank among Big Guys. Fifteen minutes made no mistake about the state of the market and economy in deflationary environment - we have seen the future and it is ugly. Deflation spiral means death of financial market by thousand cuts - financial system is insolvent and the only way to run it is to keep liquidity high enough that nobody is testing it to deliver. QE will provide flood of money, debt will be rolled over and by destroying the value of FIAT currencies Debt will be Inflated out in the end. This time it is different - it is not only our theory, but confirmed market action. This time the most important here is that Gold was at almost all time high at the moment of test, Gold was moving up against all currencies and this time in a sharp contrast to the events of 2008 it was sharply up and over 1200 on the day of Market Crash. This new round of QE (when Europe has not even started!) will be going already from this very high base in Gold value and rising Inflation in Commodity and Growth driven economies. We will not go into the debt issue today in details and will only point out that it is a notch under 13 Trillion and in dangerously close proximity to 100% of GDP of U.S.
After pictures from Greece we do not think that anybody will go there in U.S. Corp. Deflation will be prevented by any means, it is easy and price to pay is not so obvious. Newly printed US Dollars are "free", but price to drop them is not: you need Oil to keep you helicopters flying and here will be our first conundrum: At what point price of Oil becomes prohibitive to use Helicopters by Ben Bernanke in his open market operations?"
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