"Another example is that the perma-bears that are forever talking about Dollar Debasement, seem to think that monetary stimulus only happens in the USA. They seem blissfully unaware of central bank stimulus measures in other nations that have been just as expansionary or even more so than the policies of the US Fed.

"Folks who emit opinions on the US Dollar need to spend as much, or even more, time analyzing and explicating economic and financial conditions outside of the US as they do handwringing about the demise of the USA."

The US dollar retested a bottom in July 2008. Anti-dollar sentiment was rampant. Here's the chart.


Click to enlarge

Carry Trade Is Back

One thing is certain. The carry trade is back (borrowing money in one currency to invest in another currency with higher interest rates, or in foreign stocks or commodities). It remains to be seen how carried away speculators get with these positions, but I can guarantee they'll have to be unwound at some point.

In the meantime, I caution everyone not to make bets on the basis of Commitment of Traders reports on sentiment. The COT reports are not a timing device.

Moreover, please note that I'm not a huge dollar bull. I was at the lows, and to be honest, quite some time before that. However, since the top (when dollar bulls came out of the woodwork), I called for a trading range. Now we're well within that trading range and there's plenty of room for the dollar to go either way.

Fundamentally, it's hard to like the dollar here. However, it's not easy to like the euro here, either. And the fundamentals of the British pound are even worse than the dollar, in my estimation.

As noted in US Manufacturing Contracts Sixteenth Consecutive Month; China Expands Third Month, China passed a $586 billion stimulus package. For the size of China's economy, $586 billion is quite massive. That stimulus went directly into production. And if the global economy doesn't pick up to support Chinese exports, China may easily overheat.

Those who think the RMB (yuan) is going to replace the US dollar as the next world's reserve currency are in complete fantasyland. I doubt there even is a next reserve currency.

Hell's bells, the RMB doesn't even float yet.