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Strategies & Market Trends : The coming US dollar crisis
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To: Wyätt Gwyön who wrote (13521)10/26/2008 9:49:13 AM
From: carranza23 Recommendations  Read Replies (1) of 71407
 
The strength in the JPY and the clownie can be easily explained: The obvious unwind of the Yen carry trade and the high demand for the USD as deleveraging takes place. Dollar-denominated debts have to be paid in dollars. Deleveraging has caused fire sale prices in all paper assets as the Yen goes home and dollars are bought to pay debts are paid in USDs. The sale has included paper gold. [Hat tip to Privateer].

Both phenomenons will end sooner or later. The trenchant question is what happens when the sale has ended and there is no more deleveraging taking place. The even more trenchant question is determining what to look for as a sign of the end of deleveraging.

One hint, IMO, will be a strenghtening of the price of gold. This may have happened Friday but it must last a few days, perhaps even more, before it is a real signal.

One thing that's going to happen, absolutely, positively and without a doubt, is that the dollar will plunge as deleveraging ends and the demand for it as a means of paying off debt ends. We may see some strength in the stock markets at that point because I think we'll see a lot of foreign buying. American corporations will be seen as cheap.

I wish I was confident enough to suggest a a time frame for all this. About all I can say is that the first sign will be the end of the disparity between paper and physical gold.
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