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Five Things: The Dollar is Doomed

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I know this because I have read it everywhere over the past few weeks.

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But let's get back to the dollar, after all, that's what everyone is concerned about these days.

The fundamental reasons for why the dollar is doomed are well known by virtually everyone, and that's why for the most part I totally ignore them and focus on the technicals. Technically, the dollar is approaching a major bottom. This is probably because deflationary pressures, debt revulsion and balance sheet repair are going to intensify, but no one really knows that for sure.

The Dollar, Technically

The dollar is very near bottoming, just as gold is very near topping, but this is a longer-term process, not an event. Looking at the dollar on multiple time frames, we should have a TD Sequential buy signal record on the daily chart this week. However, I expect that move to be somewhat muted and short-lived because there remains unfinished business on longer-term time frames that require lower prices first.

The monthly and quarterly charts are the time frames I am most focused on. As you can see in the two charts below, we are very near TD Sequential buy signals that are long-term in nature. When these record, I believe it will mark a major exhaustion point for the US Dollar. However, as the charts below show, this will require an important leg down.

USD Index, quarterly

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The level required for a quarterly TD Sequential Countdown buy signal is 76.695 on a quarterly basis.

USD Index, monthly
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The level required for a TD Sequential Countdown buy signal is 72.509 on a monthly basis.

Looking at these longer-term time frames, it is clear to me that within the next six months we have a high probability of seeing the trend toward a lower dollar and higher gold exhausted. Over a similar time frame, we have the possibility that stocks reach new lows and also mark an important bottom.

It is very interesting to see these things begin to come together. One scenario the majority of people would find unimaginable is for stocks and the dollar to bottom together and rally concurrently. Something to keep in mind. But the more probable scenario is an intensifying period of deflation.

How to Handle the Point of Recognition

If the deflationary thesis is correct, the point of recognition will result in the simultaneous decline of virtually all financial assets. Under those circumstances, shopping for bargains among the rubble will the last thing anyone wants to do. It will simply be accepted that buying financial assets is "a sucker's game" and a "losing proposition."

This point of recognition is a difficult concept to grasp, especially given the length and magnitude of the secular bull market in social mood and, consequently, financial assets, that brought us to this point.

Bear markets exist to "re-adjust" and re-price inflated assets. The conventional wisdom, that there is always something to buy in a bear market and sell in a bull market, is grounded in a nugget of truth: manias typically conclude with one asset extremely overvalued at the expense of another asset that is extremely undervalued. But this present mania has created the overvaluation of all financial assets.

So what is left that is undervalued? Intangible assets; relationships, time, quietude, reflection - objects/ideas that are difficult to define and whose value deflated in the mania of accumulation of all manner of consumables and financial assets.

The takeaway is not that consumption is dead. That's a severe overstatement, which is fine when selling macro-economic pop finance books. But consumption as a signifier is certainly in trouble, and not only because social mood is trending in a new direction but because that negative trend itself entails a new form of signifying that will displace the primacy of currency and accumulation.

The Death of Literature

To go hand-in-hand with this social mood shift, I ran across two essays today decrying the death of literature and language in the long form. The first, "Jame Joyce Does Not Exist," considers whether a classic like James Joyce's Ulysses would ever have seen the light of day from a modern publisher.

"So, then, it becomes confusing to me, in this reckoning, when I think of how most any of these books, if approached today, would not exist. I can't think of most any publisher, even the major and innovative independents, that would release Ulysses again right now, if instead of an accepted masterpiece, it were a third book by some Irish guy who had published a collection of short fiction and a weird novella."


The second, "How Twilight Killed "The Wasteland" from Examiner.com, takes apart a piece from Lev Grossman in the Wall Street Journal, "Good Books Don't Have to Be Hard."

"Relax. Grossman's thinking is reductive, cowardly, but mostly just silly."

We could do to relax just a bit. That goes for all of us, including macro theorists and novelists. The reason the topic of literature is important to me is that it is one of the older forms of cultural expression and intimately - less a pun than a fact - bound up with social mood.

We've just experienced a multi-decade wave of increasing risk appetites, which trends toward high-frequency in all things; music, art, fashion, sports, literature, media. With high-frequency comes time compression and reduced attention spans.

In some respects, Twitter is the culmination of the social mood trend in media toward high-frequency, reduction and compression. It's difficult to stand back from Twitter, view it side-by-side with a novel like Ulysses and conclude things are going to work out very well for the budding James Joyce. But it will.

As part of this major Socionomic shift, we'll see a dramatic mean reversion against high-frequency and compression in communication. It's already well underway in some areas (see: the slow food movement).

The irony of Twitter is that it actually services this trend - toward more thoughtful, longer media - by magnifying the absence of thoughtfulness and length in every 140 character post. Every immediate thought fired out there reveals depth and personal intimacy by virtue of their absence, an absence that is screaming for attention.

No positions in stocks mentioned.

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