Deflation, Step one and the Short Dollar Trap
We have been looking at this functional evolvement which we will give special report status in the coming weeks. The short and sweet comment is that Greek austerity is the launch point for world wide deflation. The US Republican congress will push a timid second step as the negotiations continue towards U.S. austerity measures. And thirdly, Bernanke will be thwarted by public opinion at any attempt on a QE3.
Stocks are having a short term bounce on the Greek vote and will probably provide a test of the 50 day moving average at 1317 on the S&P.
What this means is that the public measure of inflation, Gold, which bottomed out in 2001 , is the market to watch here as it begins to start failure steps lower.
The dollar will be the bigger macro story. A global deflation will make the dollar the place to be over the next seven years. When one looks at the dollar chart it is evident that the double bottom established in the period between April 2008 and November 2009 looms as the big measuring level. Bernanke’s QE2 started the dollar trap on September 3, 2010 and the trade under the April 2008-November 2009 double bottom is a huge short dollar trap, a huge trap that has everyone a believer, just look on the internet, there are few if any analysts bullish on the dollar other than short term bounce players.