A US Dollar crash is looming. Analysts are of the opinion that the Dollar is headed towards a historic crash. US Dollar (USD) is already down by one third against most of the major currencies. Many analysts consider USD to be strongly bearish.
What can cause this USD crash. Warren Buffet gave a hint of this when he said that the frentic spending that is going on coupled with massive money creation will cause the USD to face a crash of historic proportions. This crash may even be more severe than what happened in 1970s. Now in 1970s too, USD had crashed due to the massive inflation caused by the government overspending during the Vietnam War. This time too, the US government is taking refuge by printing massive amounts of greenbacks to bailout bankrupt banks and insurance companies. This massive money creation is eventually going to make inflation uncontrollable for many years to come. Inflation could not be controlled during the 1970s decade. It was only controlled when Paul Volckar became the FED Chairman. He increased the interest rates so high that the economy went into recession. But it also ended the inflationary cycle. This time, the FED Chairman wants to save the financial system and ward off recession by increasing the money supply. Eventually, he will have to deal with high inflation later on. He knows it. The market knows it. This makes the market nervous and is putting a lot of pressure on USD.
There is a danger that the US Treasury Bonds will sharply fall in value driving the long term interest rates high and delaying the US economic recovery with it. The long term interest rates are still low. So, if this does happen, there will be come time lag before the medium and long term interest rates start rising.
As said before, the major cause of the US Bond market crash can be heavy borrowing by the US Treasury. This heavy borrowing can be due to huge bailouts dished out to big banks, corporations and insurance companies. To attract more borrowers, FED will have to increase the interest rates. But right now, the economy needs low interest rates to start the economic recovery process. This makes borrowing difficult and if the foreign lenders stop lending, the bond market can collapse.
In the same vein, pressure is mounting on the British Pound (GBP) as the British economy is still struggling hard to come out of recession. GBP is steadily losing value against other major currencies. GBP did show a retracement sometimes back when the British government tried hard to stimulate the economy. But this retracement was short lived.
USD and GBP in the downtrend with the bond market crash likely meaning market timers getting ready for action to make their killings in the market. This is what Market Timing is all about. Watching the different markets. Timining your trades with the start of a new trend in the market and riding it till the end for maximum profits.
Now, riding the trend at the right time is what market timing is all about. Many investors and traders keep on waiting. They join the trend when it is already underway losing major part of the profit. The days of the buy and hold investing are over. 21st century will belong to the market timers!
Mr. Ahmad Hassam has done Masters from Harvard. Get these 3 FREE Investing Report, The Ultimate Investing Test, The Best Investing Lessons and A Hedge Fund Manager’s Best Advice & discover a Stock Trading Course that can make you rich in 2010. Get these FREE Forex Scalping Cheatsheets!
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