Dollar Drawback

Dollar Drawback: 2013–2016(?)

“A Practical Approach (to a Major Dollar Shift) – Part IV:  Drawback

3-28-13 – Returning to the discussion on preparing for a significant shift in the US Dollar, it is important to frequently reiterate & clarify what is meant by this and what is expected as a result of this…

First, as I have emphasized repeatedly, this is a cycle study on fundamental events.  As such, a reader should not directly apply this to the current and near-term price action – or technical analysis – of the Dollar Index.

My cycle and technical work has convincingly pointed to a significant advance in the Dollar Index…

In conjunction with this, it is very possible that the impending ‘shift’ could initially be viewed as positive.  Some of the previous events in this ongoing 40-Year Cycle & 25-Year Cycle series – both of which converge in2013/2014, along with many other cycles – were initially deemed positive.  For example…

From a value standpoint, the period of 1812–1814 (which incorporates the early phases of the 40-Year, 25-Year, 50-Year and even 100-Year Cycles that recur in 2013/2014) produced one of the most significant lows in the Dollar.  By some (relative) standards & calculations, the low of 1814 held for over 100 years.  So, it is not inconsistent that the Dollar could see a marked increase in value (now) at the same time a major shift – even if that shift is ultimately a negative – is unfolding.

In some respects, this could be described in analogous terms to an evolving tsunami.  If R.N. Elliott discovered market patterns in the progression and regression of waves and tides, why wouldn’t a tsunami resemble unprecedented turning points in a major trend?

When discussing the coming years, I am referring to a specific part of a tsunami – most commonly known as the drawback.

If ignorant of the progression of a tsunami, the drawback would be the most dangerous and deceptive period – occurring shortly (if not immediately) before the impending deluge.

Nowadays – particularly after events in late-2004 and March 2011 – the masses are a little more educated on how a tsunami unfolds.  But, that was not true a hundred years ago… and is probably still not true (today) in many parts of the world.

Let me give an ancient example…  In 365 AD, one of the most devastating tsunamis hit the Meditteranean as a result of the ’Crete Earthquake’.  It wreaked havoc along the coastlines of many nations, from Libya &Egypt around to Cyprus, Greece & Sicily.  It claimed untold lives in Alexandria, where Ammianus Marcellinus (a Roman historian) recorded his eyewitness account (http://en.wikipedia.org/wiki/365_Crete_earthquake).

He describes how the earth shook and then the sea rapidly receded (drawback) – uncovering sunken objects, leaving fish & sea creatures stuck in the mud.  Unsuspecting hundreds ventured out to gather up objects & fish – an unexpected bounty.  However, the treasure hunting did not last long.  Just as all these innocent & unknowing individuals began to reap their new-found wealth – the sea returned with all its fury… and more.

By Marcellinus’ account, thousands were drowned, ships were sunk and the tsunami overwhelmed the coast – with some ships being deposited on tops of houses and others moved almost two miles inland (these were later encountered by Ammianus).

There are times when this drawback is a relatively lengthy period of time… or at least it seems that way.  Of course, that often reveals the magnitude of the incoming wave.

In related fashion, the US Dollar has been heading lower – for all intents and purposes – since 1901.  (Longer-term models of the US Dollar’s ‘value’ reveal a double-top in 1849–1853 and 1895–1901, with a secondary top set in 1933 – exactly when the Dollar was yanked off the Gold Standard.)  There have been multiple shocks and quakes along the way… each one raising the threat of a tidal wave – that never materialized.

But, what if the biggest quake is still to come? 

What if it occurs in the distance (as many tsunami-causing earthquakes do)? 

And, what if the Dollar suddenly does the opposite of the ‘expected’ and rallies for a period of time (even for a few years)? 

Would this be the time for everyone to run out and hoard some new, ill-gotten gains?

 …Or the time for the knowledgeable few to head for higher ground as quickly as possible???

An account is given of a 10-year old – in December 2004 – vacationing in Thailand with her parents when the Indian Ocean quake hit.  That little girl had recently learned – from her geography teacher in England – how a tsunami evolves, particularly the drawback phase.  As the ocean receded, she explained to her family that a tsunami could be coming and they immediately headed for higher ground, while also warning others along the way.

As a result of her quick actions – and her knowledge of a very unique event – many lives were saved.

But during that period, if you were simply viewing the events (the ocean going one direction while a few dozen people rushed the opposite direction) – would it have seemed logical or sensible?

Or could it have subjected them to ridicule or cynicism, as is so often the case when the masses do not understand some event or principle in life?

In many cases, a major quake is preceded by a growing swarm of smaller quakes – often steadily growing in intensity – before the ultimate tectonic shift occurs.  So, there is a progression that can act as a growing chorus of warnings, leading up to the ultimate ‘event’ (Euro-debacle?).

On a longer-term basis, these precursor ‘quakes’ – or ‘shifts’ – have been taking place over a 200+-year period of time.  Each one has steadily chipped away at, or eroded, the foundation of the US Dollar.  It leaves the Dollar – with its remaining semblance of value (though just a pittance compared to what it once was) – in an extremely precarious position.

From the transfer of responsibility – out of elected officials’ Constitutional control into that of a non-government entity ruled by the banks (Federal Reserve) – to the subsequent destabilizing act of removing its link to Gold (and Silver), the last two centuries have seen a steady, deliberate undermining of the Dollar’s integrity & value.

The Dollar – and by extension, the remaining credibility of our nation’s leadership in the world – is now at the point akin to a fighter that has been pummeled for 11 or 12 rounds and is barely standing, wavering & stumbling while not even raising his fists in defense – awaiting a knockout blow.

The steady, 40-Year & 25-Year progression of these destabilizing events has accelerated into 12.5 & 7-Year Cycles, with the recent period of 1999–2012 seeing a steady swarm of precursor ‘quakes’ spread around the globe – hinting at a coming crescendo.

This ’swarm’ has included the growing push to price oil in Euros or a basket of currencies, the 12-year period of Gold-hoarding (attributed to diverse entities from China to Middle East nations to central bankers, etc.), the Dollar Index dropping to new 40+-year lows, the reported meetings of Russia, China, S. American & Middle East nations – with the goal of replacing the Dollar as the world’s reserve currency, and the steady price increase of oil & most other commodities (their rising value partially due to the comparative declining value of the US Dollar).

There is another good reason that the initial action in the Dollar (lasting as little as 1-2 years and potentially as much as 4-5 years) could be bullish.  It is what I refer to as the Rule of Sevenths (it could also be called the83/17 Rule, or in this case – the 17/83 Rule)… and is loosely correlated to the better-known ‘80/20 rule’.  I will go into this next month – and the specific time frames on which it focuses – but for now, let me wrap up the discussion on the Dollar Drawback.

2013 marks the transition (end and beginning) of many cycles.  In almost every one of them (25, 40, 50, 100-Year), the Dollar has been in a major downtrend leading into 2013.  So, it would be common to see a ’head-fake’ for the first 2-5 years of these new cycles before the major downtrend again takes over.

All the while, however, the fundamental events – the seeds for a future shock – will be developing.

This is consistent with technical analysis that deals with the opening of diverse time periods – when a market will give an initial move in one direction, only to spend the remainder of the time period trading in the opposite direction.

When dealing with cycles of this magnitude, it really underscores that ’timing is everything’ when taking a practical approach to preparing for a major Dollar shift…In the future, there should be another ideal time for buying Gold & Silver… but not yet!  There is still more drawback to unfold.  Timing is the key!”

2013 ushers in a more bullish 2–5 year period for the Dollar Index and the second half of a bearish period (from 2011 into 2015) in Gold & Silver.  2013 is actually the second phase of what could ultimately be a 6–8 year advance in the Dollar – beginning in 2008 and extending into 2015/2016… and possibly 2017.  (See Dollar Dichotomy: 2013 for analysis leading into the current time frame… and what it could mean for 2013–2016.)

Simultaneously (and paradoxically), fundamental cycles pinpoint 2013/2014 as the beginning of a potentially-devastating cycle for the US Dollar – as competing nations are expected to increase the pressure on removing or replacing the US Dollar as the world’s reserve currency.  Those fundamental cycles are expected to escalate in 2016/2017 and usher in a volatile period in geopolitical events.

China, Russia & key Middle East nations are expected to undergo dramatic ‘shifts’ leading into 2016/2017 and exacerbate these fundamental cycles.  So, even as the price of the Dollar is (expectedly) heading higher – from 2013 into 2016 or even 2017 – it will be akin to that ‘drawback’ phase of an impending tsunami, when everything looks surprisingly clear… for a brief period of time.

There are corroborating technical (market) cycles coming into play in 2014—2016 that could validate this analysis.  They are discussed separately.