Long-term U.S. dollar cycles looks ominous, reports Jeff Greenblatt.
The stock market has bounced and looks like it could hold these lows based on the Gann master timing seasonal change point discussed last week. A major reason it held is the politicos got their act together and came through with the stimulus package. There are a lot of financial people who are bitterly opposed to this bill simply because of the helicopter money aspect of it.
I’m in agreement with them, to a degree. Two people bitterly opposed to the stimulus are Peter Schiff and David Stockman. (It would be appropriate to mention that they had similar reaction to the various QEs following 2008 credit crisis). I’ve seen their videos; Stockman denies we could even be in a 1930s style depression. He can say what he wants, but when we see companies like Cheesecake Factory (CAKE) tell the world they won’t be paying the rent in April, that looks like an impending depression to me. I can only imagine this is the exact type of headline those folks saw in the 1930s.
From a pure economic point of view, these individuals are right. Exploding the money supply in this fashion is insane. Unfortunately, those who look at finance without taking into consideration the human toll are making a fatal mistake. Life has a way of getting in the way. So, I’m here to tell you if they tell tens of millions of people to stay home when half the country lives paycheck to paycheck, it’s a recipe for disaster. When people have nothing to lose, they will lose it, okay? It’s already manifesting in Italy.
So, let me put it to you this way. It’s pathetic the Federal Reserve and now the Treasury had to bail out the country for the second time in 12 years. But if they didn’t do it, the implications will be worse, much worse and I think most reasonable people get that. With that being said, I also believe we are headed for a hyperinflationary depression and I’m going to show you why.
First, there are still talking heads on television suggesting the public buy stocks. I suppose that’s how money managers collect their fees. Unless you are a trader with the ability to zig and zag in and out of positions, you should not be long. The market is not likely to come back. The market craves certainty, with the wild card being the end of the virus. How can we possibly know when that will be? The business media says if investors are in it for the long term, now is the time to buy because this is a generational low. Let me remind you that when a low forms, the buying pressure that comes in is smart money bears covering their positions. Go look at any end of a bear market, there is usually a period of weeks to months of consolidation before real buying comes into the market. Right now, there has likely been lots of short covering.
So, let’s talk about why the stock market is not likely to recover into a new bull. First of all, the four-year cycle suggests a hard-low coming in 2022. Putting all that aside, let’s turn our attention to the U.S. dollar. In case you’ve noticed, it got crushed last week. By Monday it was bouncing only because it hit a near term 61% retracement (see chart below). Like other charts, the U.S. Dollar Index also turned right there on Gann seasonal window. So that carries a lot of weight.
I went to work to see if there was something more to it. What I found was downright sobering. In fact, its likely one of the most sobering charts I’ve seen in all the years I’ve been doing this work. We’ve heard the dollar rallied recently because there was still a flight to safety against other currencies. Then it got crushed as we got to the other side of the seasonal change point. But I found a very long-term reading, a 144-month high from the low during the last financial crisis. That’s not 144 weeks, its months.
The last time I saw a reading like this it was corn in 2012. There was a terrible drought that year so prices spiked at the latter end of a bull move. The likelihood that corn would lose more than 60% of its value in the next couple of years at that time didn’t seem probable, but that’s exactly what happened (see chart below).
Could the greenback drop more than 60% in the next couple of years? If it follows the same path as corn, it will. But let’s just say conditions are more favorable for a drop in the Greenback right now then in 2012 with corn. What happens in hyperinflationary depressions is many prices go through the roof due to the erosion of real value in the currency. The only thing that doesn’t keep pace are wages because lots of folks are going to be out of work.
As the Fed and Treasury nationalizes just about everything except Cheesecake Factory there is no longer any need for a paper and ink printing press. All they have to do is hit a button on the keyboard. Think about something very seriously. By now, you’ve heard they are discouraging cash money as the virus could live on it. They are discouraging cash, lets be clear about that. If they are trying to reduce the amount of cash out there, what do you think they are going to do with gold? You don’t think they would confiscate it? There is already a shortage as those hold futures contracts to expiration, roughly 10% is being delivered due to virus and other logistics concerns.
Don’t think this is possible? Let’s hope not but we are in an unprecedented situation due to the worldwide economic shut down while there is already precedent under President Roosevelt. Here’s the good news. The politicos are unlikely to do this anytime soon and certainly not in an election year. If Trump wins, he won’t be faced with another election. If Biden wins, he’s a likely one term President anyway.
There’s no rule that says the greenback must follow the path of the corn chart, but it could. Can you imagine an economy several years down the road where the U.S. dollar trades near 40? Let’s not do the Weimar model where the entire life savings of a family couldn’t even buy an egg. Let’s say a Big Mac costs $20. Let’s say a family paying $,1000 in rent would suddenly have to shell out $2,500. Then consider we’ve seen the last of Cheesecake Factory. It’s time to start thinking outside the box because nobody even considered this could happen, but it has.
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