I think we need to focus on what is happening to the dollar. The intermediate cycle is now 63 weeks long. Clearly that isn’t normal. I’ve maintained for several years that the end game was going to play out in the currency markets. There has to be consequences to printing trillions and trillions of currency units, and leaving interest rates at 0 for 8 years. I don’t think the consequences are going to be deflation. I think the end game will be inflation, just like it was in the 70’s, and just like it was in 2007 and 2008.
It’s taken a while to manifest as other countries have jumped into the game and turned on their printing presses as well, so the collapse in the currency I’ve been looking for has taken quite a while to unfold. The first leg down ended in 2008.
The dollar rally out of the 2014 3 YCL has fooled everyone into thinking the dollar is strong and the euro is going to collapse. So everyone is now on the wrong side of the market. That’s pretty much how every bear market starts with everyone on the wrong side of the boat.
In 2000 everyone thought tech stocks would continue to rise to the moon.
In 2006 everyone was convinced that we were running out of available land, and that real estate prices would continue to rise indefinitely.
In 2008 it was peak oil and calls for $250.
Now in 2017 it’s the notion that the dollar is the prettiest pig in the pen. I’m going to go on record and say the dollar is not the prettiest pig. On the contrary I think the currency crisis I’ve been expecting is going to manifest first in the dollar. And as it does we are going to experience an inflationary shock. First in stocks, and maybe real estate, and later in the commodity markets.
When the dollar failed to rally and instead sliced right through the 38% Fib this week that was a warning bell that something is wrong. The theory now is that the 200 week moving average will turn price back up. But I’m starting to wonder if it will. During the last two bear markets the 200 offered no support at all, and price sliced through those levels like a hot knife through butter.
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