By Nicholas Santiago on October 5th, 2010 1:42pm Eastern Time
When you hear about the catalyst for the late August rally you hear about quantitative easing 2, by the Fed, a strong China economy, emerging markets, positive U.S. economic data, the upcoming election in the U.S., and positive corporate earnings and guidance. However, rarely will you hear about the decline in the U.S. Dollar Index. Since June 7th, 2010 the U.S. Dollar Index has declined by over 10.0 percent. Just over the past couple of days I have heard the media finally talk about the sharp move lower in the U.S. greenback. Notice that you have not heard about the $13.5 trillion U.S. debt that is growing larger by the minute.
Many traders and investors are asking how low can the U.S. Dollar Index actually go? In November, 2009 the U.S. Dollar index traded as low as $74.17. Therefore, there is certainly plenty of room to go lower before reaching that support level. In March, 2008 the U.S. Dollar Index traded as low as $70.70. If the U.S. Dollar Index were to ever trade down to that level we could only imagine what the price of gold would be.
The Treasury and the Federal Reserve are obviously aiming to inflate the stock market back to health at the cost of the U.S. Dollar. The problem is that the world which has been lending the United States a massive amount of money to keep the country functioning will eventually stop buying the U.S. Debt. Just last week China said that the debt of the United States is now a major problem and the weak U.S. Dollar will not be tolerated. Currently at this time all of these markets depend on each other. China depends on the U.S. consumer. Therefore, they keep buying the U.S. debt so that they will have someone to sell their goods to. Eventually, this game of hot potato will end and it will most likely be ugly for everyone involved.
Investors must also ask themselves what is going to happen in Europe? Ireland seems to have more problems than ever and this comes after a $1 trillion ECB bailout. This is certainly not a positive for the global economy. Spain, Portugal, Italy, Greece, and others are all in the same boat. Regardless of how we put this story together the end result will be ugly. Therefore, enjoy the asset bubble on the back of shrinking purchasing power in the U.S. Dollar. In my humble opinion you can only rob from Peter to pay Paul for only so long.
Nicholas Santiago
Chief Market Strategist
www.InTheMoneyStocks.com
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(This article was published on 10.01.2010 on this very blog. The same story repeats itself today like a lesson in history. Learn what moves the markets and profit from it!)
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