The Ultimate Fear Indicator?

Usually when people are talking about safe asset, people refer to cash.

For most investors, cash is the last resort to safety.

DXY is an index of USD against 12 major currencies in the world.

It should be the most accurate indicator of fear, at least the past two years. When people are buying USD (the safest currency in the world), there should be some incidents going on to make investors nervous enough to convert investments to cash especially USD.

Here is the ultimate fear indicator:

First I did some benchmarks to past events to check the accuracy. This US suprime loan bubble was the best example. They all started when the (A) US SEC started make the credit rating transparent as they suspected that invetment banks were hiding something. (B) The transparent new rating did catch a big thief, Lehman Brothers. But USD starts to fall after that as foreign investors were leaving US. Then the matter was not all addressed by sending Lehman Brothers to take all the bullets. The real fear set in as investors know that it was just the beginning of the problem and starts converting all investments to safe cash (USD). Eventually USD was overbought and US Fed was announcing that they were printing a lots of money. USD started to plummet as printing money was just hurting the value of USD. Unfortunately, even selling USD won't help diminish the fear when (C) Citigroup, BAC and AIG were hinting that they might have some big issues. Even with the sharp dipped USD, investors were still cashing out which contributed to the new height of USD. It was the king of the fear type of situation. (D) In March 2009, Citigroup, BAC and AIG all received financial aids from the US government when respective company's shares were being converted to USD from the government. USD was starting to fall slowly ever since as people felt safe to invest again by using their USD to buy assets, stocks, etc.

In Jan 2010, US unemployment rate started to recover from the alarming uptrend. USD was in demand again as people needed to buy USD to purchase US assets. USD received warm welcome but demand was suddenly diminished as the US unemployment stays at 10% instead of going down.

A week ago, US President declared war on US banking system which sent fear throughout the world as this could indicate a major shift in the banking system. People start cashing out again until today. The spike indicates fear again. Cash is the only safe haven.

Enough for the history of the US subprime fairy tale, what's next?

By looking at the past trend and history, fear is rising at a alarming rate. Investors may keep converting investments into USD until the US President is clear of what the change to the US banking system is all about and the US unemployment rate starts to fall again. But falling unemployment rate can send the USD up again. That's the time I will use the word "decoupling" when USD no longer indicates fear. USD will go back to the supply-and-demand good old day where USD is just one of the many currencies.