Japan and China led a record withdrawl of foreign funds from the United States in August, heightening fears of a fresh slide in the dollar and a spike in US bond yields.With both the IMF and the World Bank talking about dollar devaluation, the trade balance still at a record deficit, housing collapsing, gold heading for a record high, oil closing in on $90, the dollar chart now below 80 for 3 weeks, the Loonie above parity, the Euro at a record high, 2 bucks for a British pound, a demographic avalanche, a spendthrift government, a Treasury Secretary who is trying to figure out a way to keep all this subprime debt off of bank balance sheets, and a Fed Chairman who panics like PFC Hudson in Aliens*, the fact that the dollar will fall quickly and very far from here is obvious.
Data from the US Treasury showed outflows of $163bn (£80bn) from all forms of US investments. "These numbers are absolutely stunning," said Marc Ostwald, an economist at Insinger de Beaufort... "Woe betide US Treasuries if inflation does not remain benign," he said...
Ian Stannard, a Paribas currency analyst, said the data was "extremely negative" for the dollar. "It exceeds the worst fears. It is not just foreigners who are selling US assets. Americans are turning their back as well," he said.
All those things are true, of course, but they are all known. The contrarian in me says that it might just be time for an unexpected monster dollar rally. After all, there is no more profitable time to buy than when everyone else is panic selling.
Then again, contrarians are often too clever by half**.
* "That's it man, game over man, game over! What the %$#^ are we gonna do now? What are we gonna do? I know, let's cut rates."
** The half of their money they don't have any more.