US bond Market & The Dollar

US Bonds and the Markets

The reflation argument is somewhat suspect as almost everything is due to supply-side issues. In fact, if supplies could find their way to the market, the outlook would be vastly different. What you have is a readjustment situation in play. Trillions of dollars have been added to the money supply, and many of these assets/stocks, etc took a beating while this was going on. If they were reflating, then they would be surging to new highs, but they are not; in most cases, they are just bottoming out. Here are some examples, the airline sector, segments of the travel sector like cruise ships and online booking sites, etc.

Next, the US bond markets are letting out some steam. Everything that goes up must come down before it goes up again. The only thing that has never experienced a significant correction is stupidity. Like oxygen, the supply of stupidity seems to be endless. Notice also that in many parts of the country, the masses are running to buy houses and overpaying even though in light of current conditions, they should be pushing for the best deal. FOMO (fear of missing out) is giving them the courage to do what only retards do best; leap and then look. Based on the long-term pattern in the US bond market, inflation could be a short-lived phenomenon.

Other factors to consider

Another thing to keep in mind is interest rates are so low that even if they were to move to the 3% range, it would be nothing to worry about, for then money from all over the world would pour into the United States and drive rates lower. Despite all the noise the loudmouth hard money crowd makes, the US dollar is the number one sought-after currency, and the US still offers the highest interest rates in the developed world. A Bond market correction will push rates higher, which will attract more foreign capital, which will propel the dollar higher.

If the reflation argument had any value, then Gold should already be trading north of $2400, and that is without factoring in all the new money that was added since the COVID-19 pandemic. So there goes the BS reflation argument. Unlike toilet paper which is good for one swipe, at least this (reflation) argument is dead on arrival, at least for now.

USD is close to putting in a Multi-Month Bottom

The dollar is putting in a long-term explosive pattern, and the pattern is dangerously close to completing. A bullish crossover on the MACDs will be the first sign that the dollar has put in a long-term bottom. The current pattern is so bullish that the dollar’s odds of surpassing its old highs is over 82%. One could even possibly argue that the dollar could trade (all the way) to the 120 range. From a business perspective, especially from an AI-related angle, the US will cement its lead over the rest of the World. This development on its own would not be enough to build a robust bullish case for the US dollar. However, the US also has the World’s most powerful army. The dollar also just happens to be the World’s reserve currency. These three factors indicate that the dollar will remain the World’s reserve currency for a long time.

Interest in the dollar is already rising. When other nations are forced one by one to embrace negative rates, demand for the dollar will soar to the next galaxy. However, this development is still in progress, so we won’t focus too much on it now.