Dollar Downdraft
Stocks moved all around today, and ended up about where they started. Bonds did the same.
The real news is the Dollar Downdraft. The Euro hit a new high of over $1.51. Where could the dollar go from here? My opinion is that it will only go down over the long run. (There will always be corrections.) The fundamentals have not changed – we still have money creation out of control and huge trade and fiscal deficits. There COULD be one more reason to sell the dollar. The Dollar could become a “carry trade” currency. Previously, it was the Yen, but the Yen became too volatile to make it a fun, riskless game. If the Dollar becomes a carry trade currency (one that someone SELLS to purchase another currency – and gains on the interest margin), then the dollar will continue sinking into the sunset – and faster than anyone can predict today.
Gold hit a NEW HIGH again today. It was $964/ounce during the day’s trading.
The message that the dollar and gold markets are screaming at you right now is “Watch out for future inflation!!!!!”
In the news today….
One of things moving the markets around today was a speech by the Fed Chief, Bernanke. He said the economy is worse than in the past, and it will “be sluggish in the future.” This was a sure sign that he will be dropping the Fed Funds rate in the March Federal Reserve Meeting. How much, you ask???? The market has priced in a 50/50 chance of it being a 0.50% or 0.75% drop in interest rate. The market has also priced in the chance that an additional 0.50 or 0.25% rate drop in June. Are you enjoying the cheap money yet?
Fannie Mae declared a $3.6B loss today for the 4th Quarter. That’s the bad news. The good news (as seen by the markets) was that the government is going to raise the amount of loans that Fannie Mae can purchase. Is that really good news???
Lastly, the durable goods for January was down 5.3% over the previous month. This index bounced around a lot, and you should ignore it for now. In reality over the past year, this index is about flat.
Here are today’s Numbers:
Dow Jones 30 Industrial – 12,694 (Up 9 points)
10 Year Treasury Bond – 3.85% (Down 0.01%)
Euro – $1.5122 – a NEW HIGH – again and again.
Gold – $961 (Up $12) – a NEW interday HIGH of $964
Oil – $99.64 (Down $1.24)
Gasoline – $2.48 (Down $0.07)
My question is when will central bankers no longer accept the dollar as legal tender in their country. Right now they are givning their goods and services for our currency and in exchange they are saving our currency by buying US debt.
There will be a point when the citizens understand that they are exchanging their goods and services for nothing.
Darrell,
Great question. You are indeed thinking about how the world works. Under the gold standard, countries could demand gold bullion in exchange for dollars. Those days are long gone – and the printing press is free to flow out dollars, as well as all other currencies.
The exchange rate mitigates the desire to throw away dollars rather than using a “barter system” – a viable alternative. Foreigners can and are coming to the US and buying everything they can get. It’s like a kid in the candy store. I was at the Atlanta airport this last weekend, and a bunch of Italian teenagers were there going back to Milan. They ALL had purchased big bags of American goods from some of the most expensive shops available.
When people give up on the dollar, they will refuse to take dollars, and we will be stuck in supply Euros, or gold, or something else to purchase foreign goods.
Tom