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Tuesday, October 28, 2008

USD strength is an opportunity!

Confused Capitalist JW has a post today about how to make money in the moment. I agree with him totally. The current rush to USD assets is actually an opportunity to convert USD liquidity into other currency assets, particularly CNY (Chinese Yuan). If you see the behavior of Chinese markets vis-a-vis global markets you will see some strains of this actually happening. 

Under the hood of these flows, however you will see the reason why the systemic destruction of capital will be cyclical in nature. The cycle is similar to Roger's adoption curve in marketing. Small, smart money managers are "early adopters", big money is fast follower, everyone else follows big money (and that changes the equations - validating the theory - to an extent). The individual investors are typically the laggards - if they follow this they loose money. If they stay put they might make some actually.

The entire cyclical movement of money also lends credit to rising oil and gold price theories. So I will watch these commodities closely. Further the mechanics of this wind-down will be cyclical - with different wave-length. I guess this means its time for traders to earn their money. Welcome to the rough ride roller-coaster!