The US reported that unemployment dropped to 10% in November; the market reaction to this has been swift and adverse to those betting against the US dollar – as of this writing, the Euro is down 1.7% and Gold is down 4.0%.
If it takes just one report to get the market jittery on their ultra-bearish stance against the US currency (and by definition this means pro-Gold), I wonder what will happen when any other “good for USA” news comes through the pipeline – there must be a huge amount of traders out there that are going to get caught in the wrong position and start scrambling for the exits.
This is probably just a shot across the bow for these people – I wonder what will happen when there is a direct hit.
This might not be the smartest move, but I have bought a chunk of US dollars for Canadian dollars at 1.0525 (0.9501 is the reciprocal). It has increased my US currency exposure from 25% to 28%. While this is not a huge shift, I am getting somewhat concerned that the carry trade (i.e. investors selling T-bills, selling the US currency for other currency and then basically getting an interest-free loan) is so baked into the current market price that any perturbation that will emerge in the market will cause a huge cover. One perturbation that we saw was back in the July 2008 to March 2009 financial crisis where investors wanted the safety and security of cold, hard US cash.
While I do not think such an outcome is likely, I do think that the current perception that US money is toilet paper is not quite warranted – to reinforce this idea, go to a Walmart Supercenter and see how far your money goes.