2021: The Tragic Year

1931 was the tragic year because everyone thought the depression was over, but it was getting ready to enter its collapse phase. Similarly, the global economy isn't out of the woods yet. New lockdowns could permacripple growth for years as millions must retrain for new jobs or "retire early" at age forty. Massive credit bubbles around the world are still in place. Japan tried doing stimulus in the 1990s, China in 2008, the U.S. in 2009, 2020, it has never delivered sustained growth. Economic growth keeps slowing. Interest rates keep going lower. The assumption behind inflation trades is "something different" (mostly political) will happen now. Maybe it will, and maybe it won't. Either way, 2021 probably will be tragic in some understanding of the word. My expectation is 2021 will be much worse than 2020. It will be like March 2020 in financial markets, but won't stop if the dollar breaks. If the dollar declines, at least foreign markets, commodities and crypto will catch a bid.

Here's the DXY in the prior bear market 18 years ago. The purple line is the 6-year moving average. DXY fell for 6 months after breaking that line, from mid-December 2002 to mid-June 2003. It then rallied about 9 percent over two months.

Here is the DXY now. It broke the same moving average on July 21, almost 6 months ago. A two-monht 9 percent rally would take it above the blue horizontal I have drawn, to near 98.

However, a rally of this magnitude would also take DXY above its 6-year moving average, something that didn't happen in either of the two previous dollar bear markets. The DXY has only fallen about 7 percent this time, rather than more than 12 percent last time it broke the 6-year MA.

Implications

A break below 88.50 is the bear market signal. Go "all in" on DXY short and all related trades, not necessarily at that moment, but as a structural orientation over the next couple of years.

"Bear market is still on": as the dollar decline from the 6-year MA was smaller, so the rebound will be smaller. DXY won't bounce enough to be meaningful for the dollar, but the very overextended moves in solar, pot, crypto, Tesla etc. will be hit hard in the coming correction. DXY will not retake the 6-year MA.

Bear market is still on, but everyone is about to get wrecked: DXY rallies back to resistance at 98. Everything inflation related gets taken to the woodshed in a massive correction. It could, as in February 2018, trigger a volatility event or similar blowup because of unforeseen risk because a move of this magnitude in DXY will put the dollar bear market in question.

Dollar bear, stock market bull holocaust: DXY hasn't hit its cycle peak yet. The 2020 decline in the dollar is an unprecedented (in the past 50 years of floating dollar) bear trap. Retaking the 6-year MA signals the bull market is still on. This time really is different. DXY is headed for 120+