We assume that each hysterical rally is just another doomed short squeeze, since it’s hard to imagine anyone, even Larry Kudlow, buying stocks at these levels because they represent good value. Yesterday’s wilding spree racked up 630 Dow points by mid-morning, measured from the low recorded Sunday night by the electronic futures contract. Sounds pretty impressive, huh?  But as we noted in a bulletin posted midway into yesterday’s session, the rally screamed “fraud” at the top, having failed to create a Hidden Pivot impulse leg on any charts above 15-minute degree.

Yesterday’s commentary explained why an abjectly worthless dollar has been rising steeply in comparison to every major currency except the even more steeply rising yen. The reason is simple enough:  All who owe dollars are being forced to settle up in cash, since it’s gotten much harder to keep rolling the loans. The result is a global short-squeeze on the dollar, and although this should be obvious to anyone who understands how markets work, the concept is not exactly sound bite material for the evening news.

However, we are encouraged to think the true will out nonetheless, since the newsletter world is starting to pick up on it -- most recently, Clive Maund, who writes on gold, silver and oil shares; and Bill Buckler, editor of the Australia-based Privateer. The latter, now squarely in the deflationist camp, explains the dollar’s strength succinctly as follows: “And in the face of all [these bailouts], the US Dollar is soaring?!! It is climbing because the act of deleveraging means that earlier loans have to be paid back. Most of these loans were made in US Dollars. That means that the US Dollar has to be bought before the loan can be repaid. When the global leverage was being piled on, it was the US Dollar which fell as it was being sold to acquire other assets. Now, in a global reverse, it is the US Dollar which is being bought - so it is going up in value while the leverage is brought down as all these earlier loans are being paid off.

“The present upswing in the international value of the US Dollar will last as long as the deleveraging that is taking place around the globe. Once that ebbs away, the loans that have now been repaid will have the effect upon the US credit money system of contracting it even further, aggravating all the second stage effects of a literal credit money deflation. That’s the stage where huge numbers of lenders go broke.”

Just so. We await the day when the redoubtable Floyd Norris breaks this story to readers of the New York Times. But we won’t hold our breath.

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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2008, Rick Ackerman. All Rights Reserved. www.rickackerman.com 

-- Posted Tuesday, 28 October 2008 | Digg This Article