A couple of points about why so many people have been bearish and on the wrong side of the long $$ play, for years. First, is the lack of understanding of the mechanics and changing flow of funds in the very different markets eras we old timers have worked in. The strategy and tactics behind that work changes dramatically during the enormous changes that take place from the many decades of an inflationary era, thru decades of a dis-inflationary transition, and finally into a major secular deflation trend.
When the government sells a Treasury Bond, it's selling the dollar forward the face value of that obligation, in dollars. Much like a short sale. When another nation, which bought the bond, sells it, in an environment of fewer and fewer bids, for a variety of reasons (as we've seen in recent years)? The FED buys the bond, and put it's onto it's balance sheet. Or, they encourages an allied fiat currency central bank to buy it thru a currency swap?
In either case, it's essentially covering the short $$ position represented by that bond. As we know, short covering is supportive of a financial instrument whether it's equity, fixed income or, in this case, the US$.
Secondly, in a secular deflation, which we entered in 2008-9, cash becomes more valuable. Just the opposite of during a secular inflation such as the one that ended in 1980. Instead of paying back debt in cheaper dollars as we were able to do until 1980? Individual, corporate and governments have to pay back debt in more expensive dollars.
Hence the incentive to liquidate assets and hold cash becomes more and more desirable as the deflation progresses.
This is a sea change and takes a few years to take hold among investors, as reflected in this LT chart:
Maybe this will be the year that the major top is put in and confirmed with a high volume break below major support. I don't know. Mr Market will make that decision.
In the meantime, completed building & continue to hold a relatively high $$ cash position since early 2012. Only buying I've done is in local oil & gas mineral and surface properties when prices are attractive. When they're not? Just stand aside and sit on the wallet. So far, that LT strategy has worked well.
All FWIW...
Iso |
