I have ABSOLUTELY no frame of reference for this stuff. Does Rawles have a point? OR is it just the ramblings of a mad-man?
*****
I'm often asked about my mentions of the US Dollar Index in SurvivalBlog, and about the Dollar Index ticker link at my Investing Recommendations page. This foreign exchange (FOREX) market index is often mentioned by its shorthand names ("USDX", "DX", or less commonly, "USDI"). It measures the value of the U.S. Dollar (USD) relative to several of our country's major trading partners. Although the mix has changed over the years, presently the index gauges the value of the U.S. Dollar versus six currencies: the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and the Swiss Franc. The USDX was started in 1973 with a base value of 100, and has been calculated versus this base ever since. So a value of 110 would mean that the U.S. Dollar experienced a 10% relative value increase, over the life of the Index.
When I last checked, the USDX was down to 73.896, and that is a troubling number. You see, the high water mark for the USDX was 164.7 in February of 1985 and the all-time low was 70.7 in March, 2008, during the worst of the global credit crisis. It is noteworthy that the value of the Dollar probably would have fallen even lower in 2008, were not for the fact that the Euro was having serious problems of its own. Most of the lows in 2008 were around 72, and that is the number to watch for. A break below 72 would signal a major loss in confidence in the US Dollar, and possibly precipitate a full-blown Dollar Panic. Unlike 2008, we can expect no "Dollar Rally" if the USDX again drops below 72. This time there won't be a "bounce" because there is no longer much of a floor beneath the U.S. Dollar. Currency traders now perceive the U.S. Dollar for what is truly is: kindling. Unless monetization of the Dollar ("Quantitative Easing") ends soon, there is a strong likelihood of mass inflation in the U.S. and a rout of the Dollar in the FOREX markets.
Don't under-estimate the influence of the FOREX markets. They are the world's most traded markets, with more than $3.2 trillion in currencies traded each day. Clearly, the FOREX markets are seeing some tidal shifts in currency pair trading. For example, just a few years ago the Australian Dollar was jokingly nicknamed "The Australian Peso", but just recently (April 25th), it hit a 29 year intra-day high of USD $1.0777. Meanwhile, the Swiss Franc has advanced to USD 0.88576 and the Canadian Dollar is relatively strong, at USD 1.04873. You can track daily currency exchange rate moves at Oanda.com.
An aside: Some journalists refer to FOREX as a singular: "The FOREX market". But since they are actually multiple markets that are being traded 24 hours a day, five days a week, in multiple venues, rather than at one central clearing house. So, properly, the FOREX should properly be described as plural, namely "The FOREX markets".
Regardless of your interest in stocks, bonds, the credit market, or the precious metals market, you should watch US Dollar Index. It is not just something of interest to travelers or to currency speculators. Rather, it is an important barometer for the U.S. Dollar. As I've mentioned before, it is likely that the U.S. Dollar will lose its reserve currency status soon. And when it does, be ready for substantially higher interest rates, a huge loss in the Dollar's buying power abroad, and mass inflation, at home.
I once again urge SurvivalBlog readers to get out of US Dollars and into precious metals and other useful tangibles. Presently, silver and common caliber ammunition are my two favorite tangibles.
72
Moderator: Global Moderator
72
"Now remember, when things look bad and it looks like you're not gonna make it, then you gotta get mean. I mean plumb, mad-dog mean. 'Cause if you lose your head and you give up then you neither live nor win. That's just the way it is. "
Re: 72
Not that I have an answer for your OP, Coffee, but articles like Rawles are the reason I appreciate the PP. I can actually read stuff like this, and whether I have reason to believe it or not, I can still sleep soundly at night, at least as far as money is concerned.
I remember last year (actually, for many years, as I recall) various and sundry newsletter operators predicted that by now we in the USA would be eating dandelions and poke sallet from the backyard while guarding our gold and silver hoards with loaded AR-15s and Kalashnikovs. All because their interpretations of their own technicals indicated the Dow would be 6000 and S&P 500 would crash below 400, the bond markets would crash, treasuries would crash, and hyperinflation would make a slab of bacon cost $3,000 a pound.
They were all wrong, but when they quote indexes as if they were prophetic scriptures, they can sound so convincing. Not that they will always be wrong. You just can't predict when they're right.
I remember last year (actually, for many years, as I recall) various and sundry newsletter operators predicted that by now we in the USA would be eating dandelions and poke sallet from the backyard while guarding our gold and silver hoards with loaded AR-15s and Kalashnikovs. All because their interpretations of their own technicals indicated the Dow would be 6000 and S&P 500 would crash below 400, the bond markets would crash, treasuries would crash, and hyperinflation would make a slab of bacon cost $3,000 a pound.
They were all wrong, but when they quote indexes as if they were prophetic scriptures, they can sound so convincing. Not that they will always be wrong. You just can't predict when they're right.
Re: 72
He's kind of right, but it's all these "ifs" (above) that are exactly the reason the dollar has yet to tank. What's going to replace it?Coffee wrote: It is noteworthy that the value of the Dollar probably would have fallen even lower in 2008, were not for the fact that the Euro was having serious problems of its own.
The fact that average guys like you and me are even discussing a potential collapse is probably more or less a sign that the dollar has hit a bottom for the time being, and I'd bet on a reasonably decent dollar market, at least for the next 4 or 5 years.
"All men's miseries derive from not being able to sit in a quiet room alone."
Pascal
Pascal
Re: 72
The biggest problem I have about articles like this is the context. The USD index is simply a comparison of how strong the dollar is to other fiat currencies, or peers. No currency on the planet is convertible into anything tangible at the moment. The true measure of a currency is how much actual "stuff" you can buy with it. How much gold, oil, wheat, copper, etc can I buy? That's the true measure.
For instance, the USD could absolutely crater relative to precious metals and commodities while remaining absolutely constant at 73 because every other fiat currency in the world is pursuing identical policies. In my view watching the USD index is worthless unless it is viewed in the context of how much stuff a dollar buys vs how much stuff another currency buys. It says more about relative standard of living and trade advantage than anything else.
When the Plaza Accord was reached in 1985, the USD Index was at 165. By 1987 it was 50% less, at 85. There was no rioting in the streets. By some respects, it set the stage for 12 more years of economic growth in the U.S. Don't worry about the USD Index. Worry about how much stuff you can buy for a dollar.
For instance, the USD could absolutely crater relative to precious metals and commodities while remaining absolutely constant at 73 because every other fiat currency in the world is pursuing identical policies. In my view watching the USD index is worthless unless it is viewed in the context of how much stuff a dollar buys vs how much stuff another currency buys. It says more about relative standard of living and trade advantage than anything else.
When the Plaza Accord was reached in 1985, the USD Index was at 165. By 1987 it was 50% less, at 85. There was no rioting in the streets. By some respects, it set the stage for 12 more years of economic growth in the U.S. Don't worry about the USD Index. Worry about how much stuff you can buy for a dollar.