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  • dbbailey1 dbbailey1 Jul 17, 2011 3:05 PM Flag

    The Dollar

    I agree on your first point in that we will see the "mother of all risk off trades" in the event that they don't raise the ceiling. The markets will plunge.

    However, if they raise the ceiling like I expect (either a deal or by deferring to the Pres.), I've got a little different take. The Fed doesn't have the juice left to crank up a charge like they used to (QEish) so we are pretty much on our own now. However, the Fed most certainly is still the keeper of the short-term rates and I think that they have told us in clear terms that they are going to maintain a loose monetary policy for the extended future due to the weak jobs profile and the fear of a housing crash. This means that companies will continue to have access to sweet and tasty cheap money, banks can continue playing with the house's money, company earnings will continue to grow even stronger, profits will continue to rise...and the dollar will initially dip then strengthen over the course of the next year boosted by the Euro mess.

    I draw no distinction between Dems or Repubs. Neither party has ever been able to stay within any budget construct. Our political system does not give points for staying within budget...just spending. Also, I'd hate to have any of them (Democrat or Republican that I have ever met so far) as a neighbor.

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    • You have to look at the constituents of the US dollar.

      There's been some discussion on the Euro (makes up about 55%). I think all signs point to deterioration and death by a thousand paper cuts. The union will drag it out with piece meal solutions until they can't band aid it anymore. So slow drift down. dollar positive.

      However, although there will be fleeing from the Euro, recent evidence says the swiss franc has become a major alternative with constant inflows.. Check out the CHF/USD cross. The franc makes up 5% of the dollar index and the franc is exploding upward. negative for the US dollar.

      The Sterling (about 12%) has strenghtened since mid last year and you have to assume a break down of the Euro causes money not headed to the franc to head to the pound. negative for the US dollar.

      The Yen (about 12%) after just having the tsunami figures to have some strength due to having to rebuild infrastructure which should allow it to get our of the rut it's been in for a few decades. negative for the US dollar.

      One canadian dollar now gets you 1.04 US dollars and as a resource economy they say our dollar should remain at our above parity for some time due to our resources and strong banking. It seems as the US banks continue to tank and the daisy chain effects on banks in the euro takes hold, that canadian banks might become even more attractive. Who ever thought regulation up the wazoo would ever come in handy, eh! negative for the US dollar.

      The wildcard is that the chinese have entered the bond market and the last bit of information i read is that uptake of their bonds has been robust. The Yuan (Renmimbi) whatever you want to call it is sure to have more draw power for funds than the US dollar. latest gdp last week was still 7%. Although it isn't part of the US dollar index it is something to offer as an alternative to US dollar inflows. negative for the dollar.

      Asked a friend to look into some beach property for us in Brazil. He said we're too late the house prices are going through the roof because the economy is taking off to the stars. Case in point, when several emerging economies around the world can offer growth rates above 7% to the US 2%, but 1% if bush tax cuts expire, why put money in the US? These economies make it negative for the dollar.

      US jobs aren't coming back. GBP will stay around 2% max. Housing inventory will take years to work off. The banking sector in the US sector has been in steady decline for the last few months recently. check charts of JP, goldman, BofA, citi etc. I can't see anything that would make one secure about putting money in the US.

      However if the US pulls out of afghanistan and iraq, raises taxes, takes an axe to the entitlements programs etc, there may be a chance. The thing is I could go outside and there is a chance of lighting striking me on a cloudless day. All those things seem unlikely to come together for the US. What is sad is canada is tied to the US. Something like 80% of our export is US, so as you go, so should we.

      This is the big macro picture as I see it, but my lady says I'm blind. The US dollar will have brief bounces up, but down is the trend. IMF calls for US dollar to still loose about 30% of its value from here.

      see ya in brazil.

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