Go figure

If you buy into these sorts of contrarian indicators, the new conventional wisdom is that the dollar's downturn is over.

The dollar rose against the euro and pound after Goldman Sachs Group Inc. said the U.S. currency's decline is coming to an end…

Goldman advised investors to sell dollar-denominated gold because of expectations the risk premium on bank credit will ease and the dollar will stabilize.

“We would now use a short exposure in gold, expressed in U.S. dollars, to capitalize on a gradual relaxation of credit concerns in the financial sector over the coming months,'' Goldman analysts led by Jim O'Neill in London wrote in a report yesterday. Selling gold will also provide “an avenue to benefit from the prospect of a stabilization in the dollar.''

And Goldman's not alone.

“There is too much pessimism priced into the U.S.,'' said Jeremy Stretch, a senior market strategist at Rabobank Groep in London. “We're not seeing anything that points to the U.S. heading for a recession. Equities are doing well and that's spurred some renewed appetite for the dollar.''

How all this jibes with the Fed pretty much assuring another rate cut is coming December 11, flooding the market with that much more liquidity, is beyond me.  But there you have it.

The Daily Reckoning