The Last Great Dollar Crisis

The more the U.S. becomes financially overextended, the more it is at the mercy of seemingly insignificant financial events.

U.S. President Barack Obama made news in China last month when he announced the need to tackle the U.S. deficit to avoid a “double-dip recession.” The statement triggered speculation that America’s chief creditor admonished the President to get his fiscal house in order.

A Huge Trap Is Being Set By A Vigorous Super Bear

After feasting and gorging himself on rookie investors who participated in the previous 1966-1982 Super Bull market investors between October of 2008 and March of 2009, the Super Bear went into hibernation. Rested and full of vigor, he is getting ready to re-emerge from his den and will soon be feasting on the spoils from a magnificent trap that he has set to snare more rookies.

The bait in the bear’s trap consists of a U.S. Dollar, which has been steadily declining against the Euro. Its steady decline is enticing those analysts and investors, who lack bear market experience, to get fully invested in U.S. stocks on the theory that a lower Dollar is good for the export of U.S. goods and services and therefore good for publicly traded U.S. companies.

Over the last few months the relationship between the U.S. stock market and the U.S. dollar has been totally inverse. The lower the dollar the higher the stock market. Thus, the bear has been luring inexperienced analysts and investors deeper and deeper into his trap. His mission is to get as many investors as possible fully invested and than he will spring the trap door which will make it very difficult for investors to liquidate their holdings.

The signs that a trap is being set and that an ensuing crash will eventually occur are as follows:

* US. Treasury Bills are now yielding 0.03%. That is 3/100 of one percent! The yield indicates that T-Bills are not being bought for yield. My sources tell me that the demand for them and the resulting low yields are being driven by large sovereign (non U.S.) funds who believe the Euro is overvalued versus the dollar. The easiest way for them to bet BIG against the Euro is not by playing or shorting it in foreign currency markets. Its by deploying billions in to T-Bills. The gigantic market for U.S. treasuries enables them to park their money and patiently wait for the price break of the Euro against the Dollar. When that happens they will make billions.

* The break in the Euro versus the Dollar will occur. Its only a question of what the conversion price will be and when that will happen. The already high and steadily increasing Euro will choke off economic activity at a time when unemployment rates for some of Europe’s largest countries such as Spain and Italy are still higher than the U.S.’.

* The break in the Euro will cause convulsions in the U.S. and Asian stock markets because China’s currency is pegged to the Dollar. Share prices will drop swiftly and significantly. Earnings estimates will immediately be ratcheted downward. Many of those non-savvy and inexperienced investors who are unaware of the dance that is going on with the Euro and the U.S. Stock market will elect to ride out the storm. They are the ones who will find themselves ensnared in the Bear’s trap and they will suffer heavy losses.

If my sources are right the scariest part about the billions of U.S. T-Bills, which are being bought by foreign investors is that they either could know of a potential future adverse geopolitical event. Think about it. The Dollar would rally significantly, Gold would skyrocket and the U.S. and Chinese stock markets would collapse. Under this scenario those who are buying all those T-Bills are taking zero risk and are in the position to heep huge rewards. It’s the bears’ game to lose.

- GOC

Related Posts:

• Hard to disagree with any of these points about the coming double dip recession.
• China Is Pushing Back.
• News from the UK 03/11/2010. Banks are preparing for a double dip recession.
• GDP is not a good indicator of economic health; We are heading to a CRASH.
• The Crash of 2010: The Greatest Depression is Coming!

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