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Why Is The US Dollar Getting So Strong?



October 26, 2008 – Comments (10)

I have not understood at all how the US dollar has gotten so strong when everything they've done in fact means you should be dumping the currency, but with so many places doing the same things, then stay the course relative to each other.

Yves has a post that makes a lot of sense to me as to why the US dollar is rallying.  The unwinding is causing the need for US dollars to pay those margin calls and the likes as leverage unwinds.

The other thing is the currency crisis that is emerging yet I haven't seen much written on it.  The post is truly worth a read.  Apparently the US and Japan sat out the emerging market credit boom, which has reversed with the Japan carry trade reversing and some of these countries have seen already crushing debt rise by 40%.  This is going to hurt Europe big time.

I don't like gold stocks.  Everytime I look them I find nothing but a disaster in them, but gold bullion is quite different.  The flight to US dollars has created a buying opportunity for gold.  At some point there has to be a much stronger consideration of the amount of debt the US has, and the staggering rate of growth of debt in the past few weeks.  I think that has to cause a currency reversal of sorts and gold is a good hedge against that.

10 Comments – Post Your Own

#1) On October 26, 2008 at 1:52 PM, dwot (29.45) wrote:

Oops, I forgot the link, the currency crisis.

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#2) On October 26, 2008 at 2:09 PM, LordZ wrote:

Just spending a month overseas, its no wonder the US dollar is rallying against foreign currencies, from what i've seen, as messed up as it is in the good ole USA, things are more screwed up out of the USA, the only thing they have right in Europe is higher interest rates.


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#3) On October 26, 2008 at 2:12 PM, MarketBottom (28.54) wrote:

US has loaned to Asia and borrowed from Asia. Europe loans are mainly to emerging East Europe formerly Soviet bloc and South American countries that now are faltering. These loans are dollar denominated and with currency markets in those countries collapsing European Banks are insolvent.

Gold may return to around 500 before reversing.

Historic deflation followed by possible hyperinflationl

As bad as things are and will get the dollar is still considered a safe haven in times of extreme turmoil.

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#4) On October 26, 2008 at 3:30 PM, dwot (29.45) wrote:

marketbottom, yup, there may still be downside to gold, as in anything.  Right now in Canadian gold is $939 and I am not interested in it at that price.  My price for entry in Canadian dollars is about $800.

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#5) On October 26, 2008 at 3:44 PM, MarketBottom (28.54) wrote:


Markets have again opened badly in the Gulf and in Israel, looks to be a continuation of last week, miners will follow the broader market, and unless you are wealthy, how could you own gold, as one would need to take possession of it.  Nobody is thinking inflation at the moment; it is impossible to hide in this environment. Contrary to popular wisdom, losing less is now not as important as capital preservation.

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#6) On October 26, 2008 at 3:47 PM, lquadland10 (< 20) wrote:

Or yet another whacked out though. If oil reaches 50.00 a barrel then the world has no choice to dump the us dollar. The powers don't have to wait for Palin to get elected and discover oil in anwar all the powers have to do is sell some gold bullion and presto deflation. Manipulate some currency and voila low oil. That makes the dollar rise and just like the preacher and rogers and shift said they will sell the dollar and so will the opec nations. Then what do you think will happen. If the powers can't do it one way they will do it another. ( The art of war is a good book.)

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#7) On October 26, 2008 at 3:57 PM, Harold71 (< 20) wrote:

Gold closed this past week with new record highs against the Australian dollar, Canadian dollar, Indian rupee, South African rand and British pound.

dwot, would you be buying real gold coins or an ETF?  I like that you're interested in gold.  You're conservative, and if conservatives are still interested, I think there's decent upside ahead.

Purchasing physical gold in the US has just recently become like silver has been for months -- a growing "premium" is attached to the spot price.  That's what happens when major dealers are out of stock I guess.

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#8) On October 26, 2008 at 4:53 PM, dwot (29.45) wrote:

marketbottom, if gold reaches $800 Canadian I reserve the right to reassess what is happening in the world, and how much to get.  But, I also want cash free for when I think it a good time to get back into housing.

Right now some areas might still go lower, but prices aren't mortgage everything about your future in some places now.  

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#9) On October 26, 2008 at 6:37 PM, LordZ wrote:

LORDZ Is spending what money he has on strong brandy and cheap bracelets and indian smokes.

If I should stop breathing, please do not try and recesitate me :-P


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#10) On October 27, 2008 at 1:30 AM, MikeMark (28.60) wrote:

USD is the place to be! Cash gets very strong until all the deleveraging and unwinding is complete. My guess is 6 - 24 months. I wish I had facts to base that upon, but I don't. After that, I don't believe that housing will be the place to put your money, unless you are in an area that you can identify, with certainty, a need for more housing.

I'd look to starting a local business that satisfies a local (or wide area) need. That's the kind of thing that has to happen to get economies rolling again. 

I'll know an economy is returning to growth when I can identify a unified people that have a common vision. Name one that has that and it may be a good place to own some currency.

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