Beware the Secular Trend’s Potential Short-term Counter Move

Right now the markets are at extremes.  Essentially all of them.  Current price action across a broad swath of sectors and assets classes strongly reminds me of the end of 2019 and beginning of 2020.

My gut tells me that a fear-event is near.  And my gut is being primarily led by current action in the US dollar.  Short positioning in the buck is extraordinary.

Record Short USD Positioning (Dec. 2020)

Yeah, yeah, macro-top-down, commodity bull, central bank largesse, and all that in regards to the USD but this is egregiously exaggerated.  Not that it can’t get more extreme, but consider the following charts.

Seasonality, courtesy of SentimenTrader, tends to be pretty strong in January for the buck.

USD Seasonality - ST (Dec. 2020)

With currencies, large fast moves in a short period are atypical but we live in a time of atypical.  Pairs always have to be acknowledged and the anti-correlation to the euro is at a bit of an extreme.  In the last decade, every time the Euro to USD line (white-monthly) has approached 2 standard deviations above the 25-month MA, then it’s been go-time for a USD rally (green).

Euro vs USD (Dec. 2020)

Does this mean a reversal is imminent?  Nope.  Does it mean additional portfolio hedging here is warranted?  I’d say it’s a prudent use of capital.

The long-term case for the dollar’s demise is well documented.  Goldbugs have been the longstanding voice of fiat destruction, but more recently, Ray Dalio has picked up the baton.  Sam Zell has now officially thrown his name in the dollar-destruction ring with this recent quip.

The single greatest risk that we are dealing with today is the loss of the U.S. dollar as the reserve currency.  If we keep doing what we are doing right now, I think it is 10 or 15 years away.

These investment legends are right.  The USD will in all probability lose 30% to 40% of its reserve status this decade.  And world markets as well as geopolitics will be volatile as a result.

Why do you think Bitcoin has jumped so hard?  That’s institutional fear of central banking monetary policy, not retail FOMO driving Bitcoin.  It’s palpable, but it’s ahead of itself in the USD and Bitcoin.

Nothing moves in a straight line and short-term counter spikes in any trend are as sure as sunrise.  I’m not implying that a fear-event has to rival Covid’s March spikes or we’re at a long-term top in equities.  Just saying that a short-term move to remove some excess is worth hedging at this point.

Bitcoined to Death

September 2nd, 2017 Update:  Depending on when you read this for the first time, how ignorant do I sound as of today with Bitcoin having doubled from the original publishing date of this article?  Not to mention, all the other ICOs since then that are minting millionaires.  My knowledge and experience say this is one of the ultimate bubbles in history.  My brain and heart tell me to make hay while the sun shines.  My ego just calls me an asshole for continuing to miss out.

Have you had enough of Bitcoin and the awe-inspiring wonder of all things blockchain yet?  The blockchain not only cures cancer and AIDS but can make you fly…like Superman.  That’s the hyperbole surrounding cryptos.

“If only I’d just bought 10 bitcoins in 2009!”  Boo hoo.  So you didn’t get rich on Bitcoin.  You probably didn’t get rich on real estate in 2005 or tech stocks in 1999.  The investment world keeps turning.

Never invested in Bitcoin or Ethereum for that matter.  Maybe that makes my opinion irrelevant.

I have read a lot about cryptocurrencies though, specifically Bitcoin.  I missed that train along with the majority of people in the world.  I just can’t wrap my mind around something that isn’t universally accepted that has to be traded on potentially questionable exchanges where competing investments keep cropping up to defeat and dilute the entire concept of the limited-money.  Maybe I just don’t get it.

I do know that blockchain technology will stand the test of time.  The current crypto brands?  I’m not so sure.

My prediction, some sort of scandal or several will avail themselves quite soon causing a sell-off in Bitcoin.  It doesn’t matter whether it’s serious account-hacking somehow or exchange scams, because this sort of pricing will bring out the most intelligent criminals in the world.  And this latest maniacal move up will be entirely erased.  Hope I’m wrong.  Honestly.

Bitcoin YChart (5-28-2017)

Ever ridden the The Dragster at Cedar Point?  Bitcoin owners may be about to experience their own thrill-ride.

                      The Dragster - Cedar Point

If you haven’t hopped on the crypto-train yet and you feel the need to invest in one of the “currencies” in the current price environment, then by all means, indulge.  But consider having a read of these two articles.  One shares the opinion of an experienced player, the other about just one illicit way in which to have your profits harvested from you.

1. http://themacrotourist.com//macro/my-great-bitcoin-bungle

2. https://www.forbes.com/sites/laurashin/2016/12/20/hackers-have-stolen-millions-of-dollars-in-bitcoin-using-only-phone-numbers/#38bad65438ba

To current owners, I wish you well.