It's pretty tough to find investors who are bullish on the US dollar these days. Judging from our dollar sentiment survey results last week, it seems like most dollar bulls probably read this blog!
When I consider:
- Not a day goes by without an investment newsletter popping into my email Inbox that highlights the dollar's pending demise.
- There are YouTube videos circling the internet, with guys breaking stuff in their garages while lamenting the dollar's loss of purchasing value since the gold standard was removed.
- Even Barron's is piling on, saying The Greenback Is Broken.
The dollar may very well be broken, but I can't see this decline lasting much longer with sentiment as negative as it is. Bearishness on the buck probably hasn't been this low since the last time it bottomed - which was even below current levels, by the way.
How is this possible? How could a currency as sick as the dollar rally?
It's not without historical precedent - take Japan's Central Bank, where the old joke is that they are so incompetent they couldn't even destroy their own currency.
Is it possible our Fed is just as incompetent? I wouldn't bet against it.
We're in a period of debt deflation that could be around for some time. It's unlikely that the Fed will be able to "print" enough money to create inflation this period is over.
Because with a credit based economy that peaked around $52 trillion in 2007, printing a few hundred billion here and there doesn't really "move the needle" when credit is getting wiped out at a much faster rate.
Finally, it's interest to note that on Friday, the dollar was up sharply while all major indices were also up big. That strikes me as a pretty bullish move, because the dollar had previously been getting killed everytime stocks were up.
Bottom line: Just because many pundits and experts believe the dollar SHOULD fall, doesn't mean it will. And my bet is that, at least for the next few months, the exact opposite will happen - because markets usually move in directions that frustrate the highest number of investors.