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Why to Be Long the US Dollar, Short Silver

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Forget gloom and doom -- look to historic charts for a better perspective on where US markets are going.

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Perspective is everything.

You sniff around today and the vast majority of investors, traders, S&P analysts, Republican's and Democrat's alike, all see the US through the very pessimistic lens of a diminishing republic on the cusp of insolvency. Some even go further out on the continuum of curmudgeondry -- I suppose at this point in the cycle, fear pays better than logic (media speaking). However, if you want real alpha (the preferable meta-alternative to seeking alpha), consider going against the conventional wisdom. Realize that the US is not insolvent today and is arguably headed towards confronting some of the greater fiscal issues that have haunted us for far too long. The general public's perspective is always in the rear view mirror of the market. That's why, as I follow the market, I steer clear of the 24-hour, 12-hour, and 4-hour news cycles. I am far too impatient to read about yesterday's news described as if held relevance today, moreover -- tomorrow.

"The United States will always do the right thing -- when all other possibilities have been exhausted." -- Winston Churchill

The market knows this. The US dollar knows this. The media will eventually catch up with its tail.

For all the dollar bears that are waiting on pins and needles for the bottom to fall out, or for America to enter into a hyper-inflationary tailspin, I present the historic chart of the American currency, post the Nixon Shock in '71.



Where's the doom and gloom?

I see a rather normalized trending currency, reflecting moderate fiat debasement, within a technical framework remarkably similar to late 1980 early 1981.

And low and behold, silver has very much been acting within the technical part as it did in 1980.

In 1980, it was the Hunt Brothers cornering the silver market. Today, it's more or less the sentiment of irrationality that is expressed on places like Zero Hedge and through maverick traders like Eric Sprott.



This is why I've entered a position that is long the US dollar and short silver. It's not a daytrade, it's a thesis position (I can just feel traders cringe). Similar to John Paulson's trade on housing or Buffet's bet on the dollar -- with the caveat that I am expecting a resolution in the market within the short to intermediate time frames. I can only use the previous price history and technical analysis as a reference guide for entering the trade. Realistically speaking, there is a very low probability of picking the absolute top in the silver market. For this reason, I'm willing to trade the position's intrinsic value for time.

Time is the great revelator.

I approach a position in ZSL as an option trade on the silver market, without the serious risk of time decay you are exposed to with conventional options. I do realize that even these trading vehicles have their own inherent component of time decay. However, over the time frames I've described, it's the best fit for me.

For further rationale as to why I have chosen this position, see:


Editor's Note: This article originally appeared on Market Anthropolgy.

Positions in dollar, silver

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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