USD index tested the uptrend line at the 76 mark & rebounded yesterday. This rebound could carry the index to its 50-day SMA line at 80.66 (denoted as 'A'), which would be comparable to the rebound of June-July 2009 (denoted as 'A"'). After this potential rebound, I believe the USD would continue to drift lower as a death cross has been sighted (with its 50-day SMA line crossed below its 200-day SMA line). The entire downtrend for USD might last for many months (denoted as 'X') which is comparable to the preceding downtrend from March to December 2009 (denoted as 'X"').
Chart 1: USD's daily chart as at October 19, 2010 (Source: Stockcharts.com)
The weakness in the USD has been a boon to many risk assets, such as emerging markets equities & commodities. A new round of Quantitative Easing (known as QE2) by the US Fed has been openly discussed that it may have achieved half its objectives even before it was rolled out. Whatever the impact of QE2, investors have voted by moving their funds into other assets- especially gold. In time of crisis or period of hyper-inflation, people can only count in one currency that can retain its value. That's safe haven currency is gold.
Chart 2: Gold's daily chart as at October 19, 2010 (Source: Stockcharts.com)
Today, as we celebrate our success in investing in equities & properties, let's not forget that this success is due partly to the sharp drop in the value of our currencies- be it RM or USD. Below I have appended the charts of crude oil, CRB, S&P500 and SSEC as priced in gold. Notice how CRB, S&P500 and SSEC are revisiting its crisis low!
Chart 3: WTIC:GOLD & CRB:GOLD's daily chart as at October 19, 2010 (Source: Stockcharts.com)
Chart 4: S&P500:GOLD & SSEC:GOLD's daily chart as at October 19, 2010 (Source: Stockcharts.com)
The continuous, aggressive creation of more money & credit may one day save us from the next Great Depression but at what cost. Every central banker in the developed countries is working overtime to unleash some inflation in order to beat off the specter of deflation. After all, no one wants a Japanese lost decade. If we are not careful, we may get something equally bad- a German Hyperinflation. These are dangerous times, indeed!
7 comments:
Hi Alex,
Do you think glove come with strong USD ?
Regards
Hello Alex,
Just was curious about how the USD falling value will impact our stock market and how much?
Hi Alex
Do u follow any other sdk stocks other than coastal? pls comment on their prospects. Thanks
Hi Cheer
The rebound in USD is one of the possible reason for a rebound in rubber glove stocks. The other factor could be a report that these companies have raised their selling prices ( here ). The second reason is quite lame given that the cost of production has gone up very significant & a price hike is only to be expected. How much of the cost increase has been passed on in the price hike is the big question. With competitive pressure (arising from over-capacity), the producers would find it very hard to completely pass on the cost increase.
Hi ThomasKG
Check out my earlier post ( here ).
Hi nightradersdk
I don't know many listed companies from Sandakan. Except for Kretam & Tekala which I was involved in auditing in my younger days, I am not familiar with the bosses of any of these companies, including Coastal. I cannot comment on other companies without going in-depth into their accounts and I would only do it when I like the stocks. So far, I like only Coastal.
Hi Alex,
What do you think of MahSing?
regards
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