David Rosenberg notes the incredible lop sided trading environment. The dollar short/long equities trade has become the no-brainer trade and is beginning to appear crowded. David notes:
Looking at the latest Commitment of Traders (COT) report, we can see some pretty interesting (and potentially disturbing) trends taking place (data for November 3rd):
Who knows how long the short dollars/long equities trade can go on, but I know when a trade is this crowded it’s generally best to step to the side and let the speculators have their fun. These sorts of lop-sided trading environments rarely end well.
Gotta squeeze them long…….If the dollar slides any further, I sure wonder what the Chinese will do…just a threat will pop that thing up so quick
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This can’t go on forever. Ben has created an environment that punishes the prudent and rewards the speculative. This is exactly what got us into this mess in the first place. When will we ever learn?
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TPC Reply:November 10th, 2009 at 8:24 AM
What’s the saying about a nation that treats its elderly poorly?
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Divided States of America Reply:November 10th, 2009 at 9:29 AM
I agree 100%. The people who are being prudent (and rightfully so) and not participating in this fake rally will be punished when hyperinflation does set in. That includes me. That is why everyone is trying to capitalize and get on this train while they can and build up a their wealth reserve in preparation of a dire future. The Fed is basically saying ‘Here is free money, get it while you can, and if you got the balls. You will need it in the upcoming apocalypse.’ Of course, this is widening the disparity between the elite and the rest of the population. There is no outcome to resolve this once the masses decide they have had enough of this transfer of wealth. Violence will be the only option at that point.
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I can’t figure out what will cause the short squeeze. What level of crowdedness will cause someone to take the other end of this trade. The blessing of the Fed has proven enough to scare anyone off from trying to reverse this weak dollar/emerging market-commodity-high beta pump that has been going on since March.
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TPC Reply:November 10th, 2009 at 8:22 AM
That is my primary problem with the short squeeze thesis. The fundamentals don’t justify an extended dollar rally. Unless we get some serious jaw boning from foreign governments….It’s not hard to imagine a scenario where the Fed keeps rates at 0 for 2010, we pass stim pack 2 in Q1 or Q2, unemployment stays near 10%, equities rally another 20%, oil hits $100+, the dollar falls another 5-10% and it all unravels into the back half of next year when China & Japan finally say “enough with your debt”.
Interest rates spike, the dollar crumbles and then we have a real mess on our hands….
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VCC Reply:November 10th, 2009 at 9:17 AM
You’re right about fundamentals not justifying the short squeeze, but if there is another leg down in equities, investors will flock to the safest investment possible. There’s no chance the US defaults or prints their way to hyperinflation. Remember, the dollar is the worst currency out there, except for all the others.
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Octopus Reply:November 10th, 2009 at 8:41 AM
I agree. Also I have the feeling that the “political alarm level” on EurUsd rate is higher than current 1.50, may be nearer the all time highs.
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SpiderTrader Reply:November 10th, 2009 at 9:02 AM
What can they do besides run their mouths? They tried that a few weeks back and look where it got them. No where.
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“What happens if/when the U.S. dollar ever undergoes a countertrend rally? ”
We’ll never know until we get a small test to see the market reaction. Sometimes these signals are not definitve (ie the markets shift significantly within a few months)(e.g. spring 2006 yen) but does indicate the amount of leverage in the system, other times, the signals are very clear (Jul08, financials and oil).
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Interesting times. After having listened to your Richard Koo piece the other day I am convinced that we will simply keep dumping stimulus money into the economy. That is clearly their plan. That means rates stay low and stimulus 2 is right around the corner. This means the dollar is done for. Stocks rise (for now) and when the economy is still weak in the second half of next year there will be some kind of revolt against the reckless spending. The kicker is this:
Do we get a massive and potentially highly profitable bubble leading up to this? OR do we meander sideways before it all comes crashing down as the great Keynesian science experiment fails?
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TPC Reply:November 10th, 2009 at 8:45 AM
Great thoughts Spider. I think you’re dead on. The government and the Fed have made it very clear that the dollar is not their priority.
Is Julian Robertson right? Are we going to see an eventual revolt against the US dollar and our debts? We can’t afford to keep up these policies for another couple of years….
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SpiderTrader Reply:November 10th, 2009 at 8:53 AM
Raw materials are the play. I would not be a buyer here, but on any weakness.
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Dollar tried to rally this morning, but got kicked right back down the stairs. It’s getting to the point where you have to wonder what kind of idiot would buy dollars?
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jrsun Reply:November 10th, 2009 at 10:05 AM
maybe just short-term play. Marc Faber has been expecting a dollar rally from here
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Everyone keeps talking about stimulus 2.0 but wouldn’t that have to be approved by congress and the senate? One would have to think that would be political suicide for the democrats going into mid term elections. Unless there is another major crash I just don’t see that happening. Why wouldn’t they just keep on with the QE which requires no vote and most people are even aware of?
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SpiderTrader Reply:November 10th, 2009 at 8:55 AM
The market will mysteriously fall 15% in the beginning of 2010. With unemployment at 10% the Congress will push thru another pork filled stimulus plan as they warn of impending economic collapse.
How crazy does that sound? Yeah, not at all.
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