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charleshughsmith

Image | Massive Rally or Crash?
Massive Rally or Crash?
 PREVIEW

Contributing editor Charles Hugh Smith notes that markets are at an important inflection point. The direction things take from here may likely be apparent within the next few days. As I noted in my previous exploration of the U.S. dollar and the technical evidence for a long-term uptrend in the dollar index DXY, global markets…
Massive Rally or Crash?
 PREVIEW

Contributing editor Charles Hugh Smith notes that markets are at an important inflection point. The direction things take from here may likely be apparent within the next few days. As I noted in my previous exploration of the U.S. dollar and the technical evidence for a long-term uptrend in the dollar index DXY, global markets…
Image | The Technical Argument for a Stronger Dollar
The Technical Argument for a Stronger Dollar
 PREVIEW

The Technical Argument for a Stronger Dollar

Tuesday, October 4, 2011

Executive Summary

  • The dangers of depending on correlations
  • The dollar as ‘anti-euro’ argument 
  • Key support levels to watch
  • Cycles analysis of dollar prices
  • Keeping the limits of technical analysis in mind

Part I – Heresy and the U.S. Dollar

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II – The Technical Argument for a Stronger Dollar

In Part I, I raised the potentially heretical possibility (at least to some) that the U.S. dollar, as reflected by the DXY dollar index, might be in a multi-year uptrend, and then endeavored to sort through the psychological underpinnings of resistance to this possibility.

Here in Part II, I will lay out the technical case for the DXY’s possible multiyear advance.

I would like to start by addressing correlations. Given our minds’ predilection for pattern-matching, it’s natural to see correlations between two slices of the market. For example, when the DXY rises, the stock market declines. This correlation invites speculation on reasons that would explain the correlation.

As the saying goes, correlation is not causation, and so while this line of speculation might illuminate some hidden causal dynamic in play, it also offers ample opportunity for distraction and misguided conclusions.

The Technical Argument for a Stronger Dollar
 PREVIEW

The Technical Argument for a Stronger Dollar

Tuesday, October 4, 2011

Executive Summary

  • The dangers of depending on correlations
  • The dollar as ‘anti-euro’ argument 
  • Key support levels to watch
  • Cycles analysis of dollar prices
  • Keeping the limits of technical analysis in mind

Part I – Heresy and the U.S. Dollar

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II – The Technical Argument for a Stronger Dollar

In Part I, I raised the potentially heretical possibility (at least to some) that the U.S. dollar, as reflected by the DXY dollar index, might be in a multi-year uptrend, and then endeavored to sort through the psychological underpinnings of resistance to this possibility.

Here in Part II, I will lay out the technical case for the DXY’s possible multiyear advance.

I would like to start by addressing correlations. Given our minds’ predilection for pattern-matching, it’s natural to see correlations between two slices of the market. For example, when the DXY rises, the stock market declines. This correlation invites speculation on reasons that would explain the correlation.

As the saying goes, correlation is not causation, and so while this line of speculation might illuminate some hidden causal dynamic in play, it also offers ample opportunity for distraction and misguided conclusions.

Image | Heresy and the U.S. Dollar
Heresy and the U.S. Dollar

When confidence in one’s viewpoint is high, it’s wise to seek out contrarian counsel to determine if your convictions are guilty of any blind spots. Since we (and an increasing number of others) foresee a coming currency crisis caused by more central bank money printing, we’ve asked our recently-announced contributing editor Charles Hugh Smith to…
Heresy and the U.S. Dollar

When confidence in one’s viewpoint is high, it’s wise to seek out contrarian counsel to determine if your convictions are guilty of any blind spots. Since we (and an increasing number of others) foresee a coming currency crisis caused by more central bank money printing, we’ve asked our recently-announced contributing editor Charles Hugh Smith to…
Image | Positioning Yourself for the Devolution of the Euro
Positioning Yourself for the Devolution of the Euro
 PREVIEW

Positioning Yourself for the Devolution of the Euro

Tuesday, September 20, 2011

Executive Summary

  • Expect dramatic downward volatility as the crisis worsens this year, forcing new and more dramatic ‘fixes.’
  • What the best options are for capital when seeking to avoid a euro devaluation.
  • An interim period of stabilization is likely, as markets digest the impact of these ‘fixes.’
  • Further downward movement is then anticipated if fundamental issues aren’t addressed (which they likely won’t be).
  • Why timing and vigilance are everything for the attentive investor.

Part I – The Fatal Flaws in the Eurozone and What They Mean for You

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II – Positioning Yourself for the Devolution of the Euro

One of the clichés of investing is, “There is no bad investment; there is only bad timing.” While we all know there are indeed bad investments, the point about timing is still valid: In certain situations, timing is the difference between a good and bad investment.

The European crisis may well be just such a situation. Until the structural imbalances are truly resolved and not simply papered over for purposes of perception management, then investments denominated in euros will remain at risk.

If the systemic flaws are not resolved, a risky investment (i.e., assets held in euros) could become a disastrous one. If the imbalances are eventually addressed on a structural level, assets denominated in euros or the follow-on currencies may become relatively attractive.

For investors, the key characteristic of the Eurozone crisis is its unpredictability. Anyone claiming there is “zero probability” of a Eurozone breakup is indulging in false precision. Nobody knows what will happen, as the E.U. and the euro are unique experiments without easy historical precedents. All that can be said with any certainty is that toothless reforms, empty compromises, and ballooning bailouts cannot fix structural flaws, and those are essentially all that’s been offered to date.

Despite the unpredictability of the Eurozone’s debt and currency crises, we can sketch out one potential timeline which would suggest an evolving, flexible investment strategy.

Positioning Yourself for the Devolution of the Euro
 PREVIEW

Positioning Yourself for the Devolution of the Euro

Tuesday, September 20, 2011

Executive Summary

  • Expect dramatic downward volatility as the crisis worsens this year, forcing new and more dramatic ‘fixes.’
  • What the best options are for capital when seeking to avoid a euro devaluation.
  • An interim period of stabilization is likely, as markets digest the impact of these ‘fixes.’
  • Further downward movement is then anticipated if fundamental issues aren’t addressed (which they likely won’t be).
  • Why timing and vigilance are everything for the attentive investor.

Part I – The Fatal Flaws in the Eurozone and What They Mean for You

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II – Positioning Yourself for the Devolution of the Euro

One of the clichés of investing is, “There is no bad investment; there is only bad timing.” While we all know there are indeed bad investments, the point about timing is still valid: In certain situations, timing is the difference between a good and bad investment.

The European crisis may well be just such a situation. Until the structural imbalances are truly resolved and not simply papered over for purposes of perception management, then investments denominated in euros will remain at risk.

If the systemic flaws are not resolved, a risky investment (i.e., assets held in euros) could become a disastrous one. If the imbalances are eventually addressed on a structural level, assets denominated in euros or the follow-on currencies may become relatively attractive.

For investors, the key characteristic of the Eurozone crisis is its unpredictability. Anyone claiming there is “zero probability” of a Eurozone breakup is indulging in false precision. Nobody knows what will happen, as the E.U. and the euro are unique experiments without easy historical precedents. All that can be said with any certainty is that toothless reforms, empty compromises, and ballooning bailouts cannot fix structural flaws, and those are essentially all that’s been offered to date.

Despite the unpredictability of the Eurozone’s debt and currency crises, we can sketch out one potential timeline which would suggest an evolving, flexible investment strategy.

Image | The Fatal Flaws in the Eurozone and What They Mean for You
The Fatal Flaws in the Eurozone and What They Mean for You

[Today’s post marks the debut of our first new contributing editor, Charles Hugh Smith, as part of our recently-announced increased content initiative for the site. Our intent is to provide more frequent, more timely, and more in-depth analysis from both Chris and notable minds that we and our readership respect.  — Adam] Europe’s fiscal and debt crises have…
The Fatal Flaws in the Eurozone and What They Mean for You

[Today’s post marks the debut of our first new contributing editor, Charles Hugh Smith, as part of our recently-announced increased content initiative for the site. Our intent is to provide more frequent, more timely, and more in-depth analysis from both Chris and notable minds that we and our readership respect.  — Adam] Europe’s fiscal and debt crises have…
Image | Guest Post: The Two Keys to Understanding China’s Housing Bubble
Guest Post: The Two Keys to Understanding China’s Housing Bubble
 PREVIEW
by Charles Hugh Smith

This post is one in a series from respected guest commentators while Chris is on vacation with his family & working on his new book. Chris returns next week; enjoy the fresh perspective in the meantime.

The Mainstream Media in the U.S. has presented two basic approaches to understanding China’s real estate bubble:

  1. There is no bubble in Chinese real estate, as demand for housing is so vast that it will soak up all the tens of millions of flats that have been built in the past decade.
  2. It is a bubble, and it’s fueled by the same dynamic as the bubble that expanded and popped in the U.S. and elsewhere: easy credit and speculative lending encouraged by government policy.

Approach Number 1 has little to support it.  Recent on-the-ground surveys found that half of the flats in Beijing and Shanghai are empty (or the occupants prefer living in the dark, night after night), while reports based on utility accounts found that there are roughly 65 million vacant apartments in China—the bulk of which are presumably held for investment.

Approach Number 2 has some merit, but it misses the key drivers in the Chinese housing bubble, and thus it is ultimately misleading.

Guest Post: The Two Keys to Understanding China’s Housing Bubble
 PREVIEW
by Charles Hugh Smith

This post is one in a series from respected guest commentators while Chris is on vacation with his family & working on his new book. Chris returns next week; enjoy the fresh perspective in the meantime.

The Mainstream Media in the U.S. has presented two basic approaches to understanding China’s real estate bubble:

  1. There is no bubble in Chinese real estate, as demand for housing is so vast that it will soak up all the tens of millions of flats that have been built in the past decade.
  2. It is a bubble, and it’s fueled by the same dynamic as the bubble that expanded and popped in the U.S. and elsewhere: easy credit and speculative lending encouraged by government policy.

Approach Number 1 has little to support it.  Recent on-the-ground surveys found that half of the flats in Beijing and Shanghai are empty (or the occupants prefer living in the dark, night after night), while reports based on utility accounts found that there are roughly 65 million vacant apartments in China—the bulk of which are presumably held for investment.

Approach Number 2 has some merit, but it misses the key drivers in the Chinese housing bubble, and thus it is ultimately misleading.

Image | Guest Post: When Economic Recessions Become “Social Recessions”
Guest Post: When Economic Recessions Become “Social Recessions”
 PREVIEW
by Charles Hugh Smith

This post is one in a series from respected guest commentators while Chris is at work on his new book. Please welcome them to the PeakProsperity.com community and enjoy the fresh perspective.

At some point, economic recessions trigger social recessions.  Individual expectations and behaviors slowly gather the momentum to change cultural values, social relations, and the way entire generations think about key issues such as opportunity, security, prosperity, government, family, and the relative importance of money in life.

Those of us who know people who experienced the Great Depression have some glimmerings of how social recessions change people’s attitudes and values.  Two examples come to mind:  My grandmother had small savings accounts in multiple banks; clearly, she didn’t trust the idea of having one’s nest egg in one bank.  And my uncle said that just having a job with a steady paycheck after World War II seemed like heaven.  (He’d served in the 8th Air Force in Europe, surviving a 50% casualty rate for B-17 crews.)

But we don’t need to turn back the clock 65 years to view a social recession; there is a real-time one playing out in the world’s second largest economy:  Japan.

Guest Post: When Economic Recessions Become “Social Recessions”
 PREVIEW
by Charles Hugh Smith

This post is one in a series from respected guest commentators while Chris is at work on his new book. Please welcome them to the PeakProsperity.com community and enjoy the fresh perspective.

At some point, economic recessions trigger social recessions.  Individual expectations and behaviors slowly gather the momentum to change cultural values, social relations, and the way entire generations think about key issues such as opportunity, security, prosperity, government, family, and the relative importance of money in life.

Those of us who know people who experienced the Great Depression have some glimmerings of how social recessions change people’s attitudes and values.  Two examples come to mind:  My grandmother had small savings accounts in multiple banks; clearly, she didn’t trust the idea of having one’s nest egg in one bank.  And my uncle said that just having a job with a steady paycheck after World War II seemed like heaven.  (He’d served in the 8th Air Force in Europe, surviving a 50% casualty rate for B-17 crews.)

But we don’t need to turn back the clock 65 years to view a social recession; there is a real-time one playing out in the world’s second largest economy:  Japan.

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