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Dollar Torn Apart By Bears

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Speculative bets against greenback highest since July 2008.

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Anti-dollar sentiment is again running rampant: Please consider this article, from the Financial Times, which discusses how speculative bets against the dollar have risen to their highest level since the onset of the financial crisis. Positioning data from the Chicago Mercantile Exchange, often used as a proxy for hedge-fund activity, showed that in the week ending May 19, bets against the dollar -- short positions -- versus the euro, exceeded bets on dollar strength by 12,250 contracts.

This net short position was the highest level since the week of July 15, when the dollar hit a record low of $1.6038 against the euro.

Ashraf Laidi at CMC Markets said considering that long positions in the euro and yen against the dollar were still about 11 times lower than their record highs, speculators had plenty of upside against the dollar in terms of quantity as well as price.

Dollar Bears with an Ugly American Accent

Professor James Kostohryz offered his thoughts on the dollar on Monday. It's well worth another look. (All emphases in following passage mine.)

"One of the things that has always puzzled me is how it is that perma-bears that are forever predicting the demise of the US Dollar never speak about any other problem other than the ones in the US. It's as if the US were the only country that had any problems.

"Truth be told, my long experience with these folks has been that the vast majority of them simply don't know much of anything about foreign countries, and even less about foreign currencies and interest rates.

"The fact is that economic fundamentals in the US, and the fundamentals of the US financial system in particular, are much better on average than in the vast majority of other industrialized countries. Inexplicably, although the value of the dollar is measured against other currencies, the bears never even seem to fathom this.

"Next time you run across one of these dollar Cassandras, please ask them to tell you the names of the currencies that the Dollar's going to decline against, and to please speak to you in detail about the relative fundamentals of these nations. Ask them about sovereign debt ratios. Ask them about external debt ratios. Ask them about bank capitalization ratios. My experience has been that when you pose this question to the perma-bears, it usually elicits a long pause and empty stare.

"For example, none of the Dollar bears that were getting all lathered up last week about how rising Treasury yields were signaling the Demise of America appeared to have any clue that rates were rising all over the world.

"Indeed, yields on many equivalent European bonds, including the Bunds, rose by even greater amounts.
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