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DXY and the Dollar Milkshake ScenarioBrent Johnson of Santiago Capital has a very insightful theory on how the dollar will collapse and ultimately dump into the dirt as it dies along with most fiat currencies. There are a lot of ins and outs and one summary was given by the "Market Sniper" Francis Hunt when he interviewed Mr. Johnson and he summarized the theory as fiat as collapsing in a series of concentric dominoes with USD in the middle. As outlying fiats currencies collapse they will be sold as people flee to stores of value and that will include USD, which will be the last fiat to fall against fiat alternatives.
Mr. Hunt does a good job of creating jargon and one I find particular useful is scenario-cast. There is perpetual balance of tensions between buyers and sellers that snap into impulses and break outs in the market and you have to have decision trees. The linked idea below shows a scenario where I think that fiat just drops straight down and the dollar milkshake be damned. I posted this idea two weeks ago and is a secondary alternative as I think the monthly bollinger band will hold here. My majority probability senario is that DXY will furst surge to the weekly baseline, then the monthly baseline, then the upper edges of both bollingerbands.
Back to DXY and Dollar Milkshake... There is this weird condition that no matter which way DXY goes, so long as it is impulsive, the result is the same.
DXY Impulses down: Everyone with Dollars (United States and major trade partners in the eurodollar system) goes into fiat Alternatives to preserve their buying power
DXY Impulses Up: Everyone without Dollars goes into fiat alternatives as their local currencies get ravaged. (This is Dollar Milkshake Complaint)
DXY is Impulsively Erratic: Fewer things will drive people into anti-fiats like the dollar whipsawing up and down as everyone gets shaken out into anti-fiats (so long as DXY impulses upward very soon this is Dollar Milkshake Compliant)
DXY trends sideways: A stable dollar kills antifiats due to the trust in the fiat system. People don't need to hedge against dollar strength. This is the least Dollar Milkshake complaint scenario.
Now let me be clear: I don't know of anyone that thinks the dollar will be stable. The endless quantitative easing implies the dollar falls against assets denominated in dollars. The Dollar Milk Shake Theory implies that first the dollar will appreciate against all non-usd fiats. Here is my current dollar milkshake scenario
If for some reason the bollinger band fail to hold the world has a 2008 scenario. I don't think that is the case because the current situation doesn't have the massive bearish flagpole setup that 2008 did.
The main thought or take away for this post is that is DXY could pamp up and we should expect a quick and sharp correction over the next couple of weeks in most equities and anti-fiats. Nothing to serious, especially compared to earlier this year,
