After seeing today's smack-down selling and follow through (the US Dollar Index is getting hammered, trading down a full -1.5% to $79.36!), I am comfortable stating as plain fact that the US Dollar has moved into pending crisis mode.
Pending Crisis? What's that? It's something that you need to address, acutely, before it becomes an outright disaster. Don't start managing risk after things crash - start addressing the probability of a crisis when it starts to threaten to move into the heart of the bell curve.
Three weeks ago, before the USD broke my long term TREND line of $81.54, I was comfortable being long the REFLATION trade ("Breaking The Buck" is a call I have been making for 6 months). Three weeks ago I considered a US currency crisis "tail risk" (i.e. a 3% or less chance of happening). Today, I think there is at least a 33% chance. That's way too high for me.
If you take a long term view of the US Dollar's history and go back to the date that matters most (1971, when Nixon abandoned the gold standard and started what would be limitless global credit creation using a US Dollar peg), there has only been 1 other time when the US Dollar Index sustainably broke the $80 level - that other time was Q407' to Q208'. What happened to the US stock market after that breakdown is now history.
I don't get paid to pander to the US government's position on this. Politicians and bankers get paid as debt obligations deflate. At this stage of the game, everyone is getting paid here via the REFLATION trade other than the real creditors of the US Financial System that matter: the Chinese government and American savers.
Breaking The Buck pays people like it should via REFLATION. Crashing it will have many unintended consequences. It will be global this time, indeed.
Be careful out there,
Keith R. McCullough
Chief Executive Officer