US Dollar Hits 6-Month High

$700b in mandatory Treasury issuance on deck. The long end is going higher which is going to strangle the USD.

Fred - good point, HOWEVER, considering where we came from and the year long search for yield in 2009 built on fed policies and guarantees, I wonder if the demand for safety will CONSTRAIN yields on the upside as investors lock in gains on the carry trade and look to protect capital?

Recall Lutnicks argument last June:

http://www.urbandigs.com/2009/06/rogers_currency_crisis_ahead.html

"Lutnick believes this to be a 2011 and 2012 problem, causing major problems for banks and the economy - as a result the flight to safety will CONSTRAIN the treasury market from rolling over as the 'fear factor' kicks in again. When Rogers asked why investors would buy trillions of government bonds over the next few years, Lutnick responded...'because you get your money back'"

Dollar still has room to rise

http://www.kathylien.com/site/us-dollar/is-the-dollar-overvalued

Noah - I hear ya and I am definitely not in the USD is doomed camp BUT for it to rally is quite another issue. That fear trade can only so far because as we've seen, fear subsides very quickly. As a data point, again not because I am a gold bug (although I would consider myself a materials bug), gold is sticking around it's November range, whereas the USD/Euro has retraced back to last June's range. Just saying that at some point, all fiat currencies start to look bad....

Fred - Yea as you know, i think gold has something more to it but will be pressured in times where there is a flight to safety, and this round of that flight is extra interesting when taking into account where we just came from in regards to the dollar funded carry trade. In the end, I liked gold because all fiat currencies were being debased and it was confidence in paper money that can be printed and questionable fiscal policies globally that would warrant demand in an alternative form of money; i.e. hard assets and gold. But even those are subject to deleveraging phases and adjustments when the dollars they are priced in rally big time against other major currencies.

I think its healthy for gold. That was one trade I did right, selling around most of my etfs and calls around the 1170 mark, but still holding my JAN 11 calls for GLD, and taken a hit on those gains big time lately. Ill hold that and look to re-enter the positions I sold if we break 970 or so..my thinking is if we do fall below 1000, momentum is likely to push us at least 30-40 bucks lower alone...might be good re-entry point for a trade, but lets see what happens. If fiscal policies show big changes and discipline to go on right track, i might wait longer.

Noah:

Things have been working real well so far. As you know I sold my GLD back in November the day the Dubai news broke. I have been long UUP since September, but a few weeks ago I sold my UUP and moved it into a long EUO position. I have been shorting for the past two weeks, but closing out positions on a daily or bi-daily basis because I don't want to get complacent on the downside.
Right now, the trend is clearly down and the most vulnerable sectors have been commodites, especially oils, base metals and coal. The triple shorts (e.g. FXP, FAZ etc.) are working well also. However, if the down trend continues clearly other sectors will go down as well, and I think that financials, retailers, home builders may be a good place to look, but time will tell.
I will be sticking with this trend until it clearly changes. However, at some point in the future, and I will not be bottom picking but waiting for the trend to clearly change, I think that Germany should definitely benefit from a weaker Euro, and I would be looking to get into that space, but that may be weeks, months, or even a year or more into the future.
Right now, the risk trade appears to be ending, and risk in general is being repriced. In such an environment stocks could really shift hard to the downside. My sense is that we are good down to at least 980 (which is where Julian Roberts said the market is fairly valued), if we break that, then we could go all the way down to 930 and beyond. However, we just have to be nimble and open minded because things can change quickly.
For now I will continue to stay long EUO and continue to short.

MH23 - good to see you again...yea I had some shorts on too: fxp, eev, skf, dxd that I bought in early/mid JAN, in increments. So I liked my entry points and held them even as stocks rallied a bit to recent highs before the fall.

I sold some eev, fxp today 3 hours ago...just some. Didnt have big positions to start, maybe like 40% of what I normally would have on. After the pain taken on these shorts early last year, I didnt want to go all in after a 6 month break of just watching the reflation

Also, etfs will rise a bit more as volatility rises, and that is happening.

This is a clear dollar carry trade unwind! Something I talked about in so much detail since last year. People yelled at me in emails saying why I kept talking about it! Now they see! As a trader, and considering where we came from, when that ship started to turn, I knew it would drag equities/commodities, etc..and it is. and it will be dramatic...if it continues abother 5-10%, trust me, people will start to get shaky and that is when other trading dynamics kick in - desperate selling, margin calls, double downs, momemtum trades, etc! That can exaggerate it even more!

holding the rest of the shorts for a while, as I can see the dollar rising a bit more yet

So what are the implications on real estate (especially Manhattan real estate)?

Why no mention of the other flight to safety trades? Like CHF or JPY?

Noah:

I hear you. I actually sold my entire EUO position on Friday because it had a great run and I did not want to give back any profits in case some new breaks this weekend. Also, I didn't like the market action on Friday and the way stocks popped for no good reason.
That being said, I too am holding some short positions. Depending upon how things develop next week I will either get back into EUO or just try to play Euro weakness dollar strength via certain shorts, or both.

Dollar has been advancing - DX-Y to 90 looks possible.

Bond yields may surprise to the downside - flight to safety trades seem to have further potential.

I'm positioned at 33% long SH, 67% cash, adding new savings to the cash position and sleeping like a baby. I think we have Japanese disease and will have extended equity declines, but I can't put a timeframe on it so I'm avoiding options as well as 2x and 3x leveraged ETFs.

Bullion has been on a decline, and long term charts put silver at about $8/ounce. If I see it go down to $9 or below, I will load up on physical silver.

Love the trader talk - we should do more of this :-)

Thisson:

I agree. Today I bought back some EUO. I didn't get back in at the day's lows, but I got in at a decent level. Anyway you slice it, a bailout of some kind for Greece will not be beneficial for a strong Euro. I will be watching closely and if there is another sharp drop when news comes out, I will buy some more. Long term (say the next 12-24 months) I suspect the dollar will continue to strengthen while the Euro continues to weaken.