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Time to Worry About the Dropping Dollar


Not to mention pay attention to gold longs, and hope the next three weeks fly by.

Here are few thoughts on the top of my mind as I saddle up for another Tuesday struggl:.

1. I keep reading commentary dismissing the importance of the ongoing drop in the dollar. The general argument is "the dollar has been dropping for 40 years, why should we worry now?"

The reason we should freak now, not just worry, is because for the last 40, 30, 20, and even 10 years, our public debt -- using whatever ratio you please -- was basically manageable. Now, using whatever ratio you please, our deficit/debt is totally out of hand.

Professor Mauldin's latest letter has plenty of gory details on the subject. Without getting into the deflation/hyper-inflation debate, or at least the timing of it, the inescapable fact is that if the dollar keeps falling, interest rates will rise, which means our debt service will rise, which means more borrowing or worse -- monetization, and higher interest rates and, so on and so on.

If interest rates are kept artificially low, we'll either fail a Treasury auction, and then rates will jump, or we'll get devaluation-driven hyper-inflation, which can emerge with or without slack in the economy. Which brings me to my second rant:

2. Agree or disagree with the above, the price of gold seems to be buying into the above dynamic on a global level: Countries have shifted from using the flexibility of fiat currencies to smooth the ups and downs of normal economic/business cycles, to abusing fiat currencies along the lines of John Law's Mississippi experiment.

If anyone thinks that the consequences would be any different this time because today's financial puppeteers are more sophisticated and/or advanced (whatever that means), I have a number of bridges for sale.

3. As is always the case from an investment standpoint, timing is of the essence. So for the here and now, gold longs should pay attention to contemporaneous TD Sell Setup and Sell Countdown signals on the daily chart of the Gold Index (Bloomberg "GOLDS").

Not to mention that gold speculators are as long as they have been in the last 10 years, while the "Commercials" (generally considered the "smart money") are conspicuously light.

I know that Commitment of Traders data have lost some of the predictive value of late, but the readings are eye-openers.

4. Using technical indicators of any kind to time a turn in the current bull rampage, or to spot short candidates, has been as proficient as the Washington Redskins' offense ... and defense ... and special teams.

So in an act of near desperation, I scoured for stocks that not even insiders could love any more, and came up with a rather eclectic list of names that have been dumped by those arguably in-the-know over the last month. In no particular order they are:

5. Finally, of late I've forced myself to ignore the fundamentals of companies.

First, the more I look at recent financial statements, the more irreconcilable they appear to reality.

Second, even if I could draw some reliable conclusions from the data, the underlying stocks are being moved by anything but the fundamentals. In my humble opinion, this will make the next three weeks of earnings reports even less pleasant than usual. Johnny be nimble, Johnny be quick.

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