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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: ild who wrote (69497)9/8/2006 11:19:18 AM
From: orkrious  Read Replies (1) of 110194
 
@the dollar -- trotsky, 10:52:47 09/08/06 Fri
with everybody and his auntie short the dollar (look at the CoT reports on the currencies and you'll see), anecdotal as well as positioning sentiment on the dollar almost uniformly bearish, it is little wonder that the dollar is suddenly coming to life.
there is an additional, historic reason to expect dollar strength: the lag between Fed policy and its effect on the dollar. traditionally, rate hiking campaigns are dollar positive with a 6 - 9 month lag. iow, the dollar tends to be strong up to 6-9 months AFTER a rate hike campaign ends. the same goes for rate cutting campaigns in the other direction.
note though that dollar strength against other fiat currencies does NOT necessarily imply gold weakness, beyond the usual short term kneejerk reaction.
on CNBC, Rick Santelli just pronounced that 'it's difficult to imagine strength in gold when the dollar rallies'. however, this is precisely what happened in late '05 for instance. according to Bob Hoye, in a deflationary era one SHOULD expect strength in the dollar to eventually coincide with strength in gold. i originally rejected this idea, but i'm not so sure anymore since the late '05 episode.
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