'HEAD FOR THE HILLS... THE DOLLAR IS BREAKING OUT!!!' will blare the blow horns. Do you know the implications of this??? DO you?!? 'Deflationary depression... see we told you'.Well, hold on just a minute. There may be another interpretation amidst the uproar. That interpretation would be NFTRH's 'Scenario #2' where we would actually become much less bullish the dollar upon an upside break out of this incomplete ascending triangle. Here is the breakdown, again for your review. Check the weekly chart and have a look at 'C'. That could about do it for any USD bullishness for a good, long while. Scenario #2 is not yet definitive, but it is stepping forward.
If the dollar does continue with the daily breakout shown in this chart, with bearish divergence, stock markets in the tank, and frightened investors wondering just how bad it can get, the deflationary depression angle should get a lot of air play. I believe this would be the 'gateway' to the next round of inflation, AKA the FINAL deflation impulse. This is the working theme.
Now, in our financial markets, long micro-managed by people in high places, a new strain of moral hazard has been created whereby, with each panic and each reaction to panic, moral hazard replicates itself, builds another layer and renders itself all but impervious to plain old inflationary policy. This is moral hazard on steroids and it is being applied 24/7 as official policy.
So... the next inflation cycle is not going to be very normal. You know, normal as in the kind of cycle where oil goes to 140 and the majority of people believe the official reasoning that it is the doing of speculators or the market tout of the dreaded peak oil. This, as with the previous inflation cycle, will be monetary. The difference is that this time, more people will understand it for what it is. Which of course means gold will move first and it will move most.
What is likely to come from the inflation cycle currently being promoted is the dollar's eventual decline in the FOREX casino and some really funky stuff going on in the US Treasury market. Make or break time is upcoming and due to wrong perceptions, most people will end up as the always necessary counter-party. It is just the way it works.
Let the blow horns sound.
