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The Return to "Normal"
How to make 188% gains as the dollar returns to its "normal" path to destruction
"It's Time For Change: Barack Obama 2008" - Campaign Bumper Sticker
"Meet the new boss, Same as the old boss." - Peter Townsend
I ended my last column with the suggestion that Technical Analysis works because humans tend to walk well-worn paths whenever possible. If you will allow me to pick up where I left off, I will show you how this endless human "do-loop" will affect both gold and the U.S. dollar.
And in exchange for tolerating my little rant, I'll even toss out a tip that could earn you 187% gains.
For all the talk of imagination, hope and change, Washington has clearly demonstrated that it remains a one-trick pony. When confronted by crisis, it always reaches for a singular familiar solution, regardless of how well it worked out the last go-round.
Bound to the Wheel
For a decade now, U.S. blue chips have been oscillating within a massive falling trend. At the bottom of each multi-year downstroke, Washington dumps massive amounts of freshly printed dollars onto the market.
I will grant that the specific methods of this dump may vary a tad from episode to episode, as do the rationales as to why, this time, the story will end differently. But in the end, it all unwinds with soul-numbing regularity.
Each time around the wheel, Washington discovers anew that it is easier to open the dollar tap than to close it off and deny its two constituencies - the electorate and big business - cheap credit's imaginary wealth and profits.
Again and again, inflation slays as each upstroke ends at the top-line of the grand falling trend. The downside is that we pretty much know for a fact how far the market has to run. The upside: The reliability of it all offers up some pretty convenient methods of bringing in some coin.
Why Gold Is Up and the Dollar Down...
As Justice has pointed out in more than one recent column, gold is once again flirting with its all-time high. He did indeed predict this, and suggests that it will go a good bit higher before all is said and done.
We also can see that the dollar is once again resuming its years-long downward march. I have predicted this move, and suggest that it will continue for some time to come.
Justice and I have offered many good reasons for all this. Today, I will only offer one. The wise guys who have been sitting on trillions in investable dollars know exactly what is going on here.
Whereas they were acquiring dollars for their relative superiority against other assets (i.e., they weren't falling as fast as stocks and commodities), now they are finally starting to spend those dollars to acquire both stocks and commodities.
Self-Fulfilling Acceleration
The end result is the usual display of supply and demand's self-fulfilling prophecy: more dollars on the market becomes an ever-accelerating drag on dollars, just as increasing demand for stocks and commodities will inevitably accelerate into a feeding frenzy a few years hence.
Because the wise guys know full well that this whole cycle has little to do with genuine wealth, and will always end the same way, they have taken to buying gold in lockstep with their more ostensibly useful purchases of stocks and commodities.
Why do we do it all again and again? For two reasons: because it is familiar, and because for a relative few, it is the best game in town. Maybe even the best game ever invented.
The Best Rigged Game in Town
Each time around, a few guys fall off. But those who successfully cling to this grand roulette wheel have been getting astoundingly rich. Where once we lauded Wall Street's millionaires as the creators of lasting value, now we see a town full of billionaires (trillionaires?) who do little beside trade in derivatives.
I'm no bomb-throwing radical. Quite frankly, I don't know of a way to dislodge these parasites without doing permanent damage to those of us who strain to support the global edifice. (Although I would certainly throw the floor open to any with some thoughts as to how to do so.)
Instead, I simply point out that, for good or ill, we are certainly returning to "normal." And since we know all too well where "normal" leads, you might care to take yet another page from the wise guys' book and short the dollar soonest.
The Wise Guys' Favorite Play
I've mapped out the probable mid-term path for PowerShares' Dollar Bear Index ETF (UDN: NYSE). The fund is facing moderate resistance at or around $28.23. Once that barrier is breached, the run-up to $30 and beyond will happen relatively quickly.
Simply exchanging dollars for shares of an anti-dollar fund will act as a ready hedge against the coming collapse. Those who wish to speculate a tad should be aware that near-term at-the-money call options against UDN have deltas in excess of 0.90.
This means a contract will gain almost some $90 for every dollar the fund climbs. Considering that many of these contracts only cost $130, you could easily crest 188% gains in very short order.
About the Author Adam Lass
alass@taipanpublishinggroup.com
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