Skip to comments.The Dollar Looks Ready to Rally
Posted on 04/27/2008 3:01:19 PM PDT by shrinkermd
When the Federal Reserve cuts interest rates for a seventh consecutive time this Wednesday, it will begin to wind down a pernicious campaign that has flooded the market with cheap dollars since last summer. At the same time, the whoosh of air from Europe's deflating credit bubble puts new pressure on the European Central Bank to begin cutting borrowing costs in order to goose growth.
The strategy shifts by central banks will drive a greenback comeback against the overpriced euro, turning back the 15% slide that since August has lifted the euro -- to a record $1.60 last week -- even as the dollar continues to struggle against the undervalued currencies of Asia.
Monetary policy isn't the only catalyst for a healthier dollar. "A lot of what has happened since last summer also is emotional, and that can change on a dime," says James Paulsen, Wells Capital Management's chief investment strategist. Among other drivers: mounting evidence that the credit crisis loosening its grip stateside is still tightening across the Atlantic, and a growing belief that the U.S. economy could bottom and rebound before Europe's.
The rehabilitation, ironically, is driven by a weak dollar, which makes bargains of our exports, fills Manhattan's 65,000 hotel rooms with European tourists, and entices foreign giants from Ikea to Toyota to open factories here to exploit our increasingly cheap labor.
Already, the dollar has begun to strengthen against commodity-driven currencies from the Canadian loonie to the South African rand, and odds are it is close to a bottom against the euro, sterling and most developed-world currencies. On top of that, "negatives about the dollar are more fully discounted compared to the potential positives," says Marc Chandler, Brown Brothers Harriman's currency strategist, who expects the euro to pull back to test the $1.40 threshold this year
(Excerpt) Read more at online.barrons.com ...
What will Glenn Beck do if this happens?
Shop in Canada.
So how does this person explain how the US economy will recover so soon when housing prices are still going down in most areas of the country, commercial real estate has just started its downslide, and the avalanche of heloc and consumer debt downgrades is likewise nowhere near its bottom ?
I really think the housing problem is regional. We lost 10% when we sold in Dearborn, MI, but didn’t get a break when we moved to Louisville, KY. Houses are selling here, and the prices aren’t that much lower. Especially, in the higher prices houses. With people moving in from elsewhere, our housing market is still doing okay.
Recover? Most of the country is not in bad shape.
I agree with you that the market is local - there are pockets doing just fine and then there are total disaster scenarios like Fl, CA, NV and so on.
However, the places that haven’t seen a big downturn seem to be confined to locales that didn’t have a big runup from 2000-2006.
Spend his revalued dollar on more hemorrhoid chiselin’.
May God have mercy on us...
I think all you're really saying here is that some markets are more volatile than others and I think that has always been true.
Are you kidding? It's an election year with a Republican President in office! Things are horrible! Just like 2004! /s
But the dollar is supposed to go to zero while the Euro, Yen and Swissie soar. No, really. I read right here on Free Republic. LOL.
I’ve seen many springs arrive since I became an adult and began hearing the manure spread by the RAT party. It always is the same. The RATS spread doom and gloom until our enemies abroad as well as at home begin the oil price run up, the price of gold goes through the roof and the currency speculators drive down the dollar while other speculators screw over any commodity that they possibly can.
Remember the gas lines during the Jimmah Quadafi Carter era, this is a repeat of the very same crap, much spread by the same large piece of fecal matter Teddy Kennedy.
Right Turns Tight Lines
Not yet and I hope we avoid it getting any worse, but read this for some very frightening numbers.
Go to this website and start reading at the heading “Credibility and asset writedowns”
If the article is right this would be a good time for euros to invest in American real estate.
Jimmah’s retard cousin RoyBoy is running for congress against Virginia Fox here in North Carolina. Isn’t there a sewage treatment plant any palce that can rid us of this Carter filth.
RoyBoy for Congress 08.
Find out about this piece of dog manure, he is really foul.
True. I’m also saying that for long term sustainability, the median price of a house can’t be any greater than 2-3x the median salary/income in any given area. The old 20/80/36 formula worked well for decades - 20% down, borrow 80%, house/insurance/tax costs no more than 36% of income.
There are a lot of areas that have a long way to go down before this is reached.
Selling houses for 500k+ to people making 50k-100k with 0% down and optional principal payments for the first few years was never a good idea.
A lot of them have been since 2006. Can’t find the link right now that supports that statement, but I’ll keep looking.
I certainly hope so!
The people who are shrieking about the tens of trillions of dollars of derivatives are either stupid of have an agenda. I liken them to the Y2K doomsayers. Yes, there was a code issue that required attention prior to the year 2000. Everyone knew this and knew how to make the required changes. Of course, we know about the horrible catastrophe that occurred on January 1, 2000 (sarcasm off).
The overwhelming majority of derivatives are used to manage risk. While I agree that Level 3 asset accounting is bizarre and easy to manipulate, value loss events associated with writedowns typically trigger counterparty payments in the nature of a margin call for a borrower against stocks to put the asset values in balance with the associated liabilities according to the contract formula.
To read the hysterical rants of some of “the-sky-is-falling” crowd is amusing. I have never found a better barometer of macroeconomic financial condition than the market. It is speaking loudly now that the worst of the credit pinch is over and that the worst of the excesses (particularly subprime residential real estate mortgage lending) have been managed or adequately reserved for (by a combination of asset writedowns and new capital infusions). I am in agreement with those who see a second half recovery, especially in financial stocks.
From where I sit, the people who should be worrying now are those with 2009 calls on oil and other bubble commodities that are going to deflate big time.
Ya know, I find it kind of entertaining to see the bastions of college educated liberals losing their shirts, Kalif,NY,etc, while us'uns down in the stupid south are not.
House prices leveled out for a year or so and now are going back up. This does not include fools buying concrete boxs on the Gulf of Mexico, condo's, or the optimist's that signed up for ARM's. (I never understood the logic in those.)
How many rosy scenario articles are in Barrons today? Sure seems like quite a run of rosiness. I wonder why?
Because we're doomed?
One thing I have going now is my shares are increasing greatly. After the turn everything should look good. I’m in a high risk category and not recommended for the faint.
Not to agree or disagree - but are you aware that the for most financial companies (MS, LEH, GS) these level II assets are greater than their entire capitalization?
Not to agree or disagree - but are you aware that the for most financial companies (MS, LEH, GS, etc) these level III assets are greater than their entire capitalization?
For the past eight years, regularly and magically, the county auditor has waved his magic wand, and suddenly my house was worth more! (On paper, anyway.) A house we bought for $43,000 twenty years ago topped out at $110,000. Now, all this means to me is I have the pleasure of paying nearly 3 times the property taxes to my local government for little more than good garbage pickup. If I don't plan on selling my house (and trading up to even higher taxes for a level of consumption I don't want to adopt) this supposed value, which I could never actually get for my house, means nothing to me.
Over this time, I have watched Bright Young People speculate and make a killing in realty. I have watched Greedy Wastrels Of All Ages rush in to buy sub-rate homes they couldn't afford from banks drunk with profits who should have known better than to sell homes to these people. I have watched the Democrats who dismissed Bush's perfectly sensible tax cuts as "Voodoo Economics II" pat themselves on the back for "helping the poor man own a home he couldn't afford otherwise." And I have watched ENDLESS federal and local feel-good giveaway programs funded with the ever increasing tax dollars generated by artificially low interest rates pandering to people who never thought far enough ahead to actually ponder what "variable rate" really means.
After this tsunami of spending, now my local government is pulling its collective hair out over the giveaway programs they can no longer fund...and surprise! They are insisting that not only won't my property taxes be going down because my home is worth less, they are going to need me to pass a whole BUNCH of new taxes to pay for the giveaway programs they enacted without asking me in the first place!
If anyone can find Reagan's GOP, the ones who thought we should not only cut taxes, but send nonproductive government paper pushers home permanently, please let me know!
“quite a run of rosiness”
It’s their rosy red bottoms.
Don’t you worry.... that big rebate check is in the mail! It will solve it all.
Gosh, you think Barrons is in on it too? They're in cahoots with Bernanke and JP Morgan?
That’s surely amusing to the few who are convinced that mockery is proof of their own superior intellect.
You are, if you've been playing the U$D up, for the last few years.
Maybe Barrons utilizes a different set of Bollinger Bands than the rest of us :)
I don’t play really long-term positions anyway, but you’re right about that if you trade from 40,000 feet and you’ve been a dollar optimist.
However, the Euro is seeing it’s own problems as of last week. The ECB can’t sustain their current rates forever, and now the ugly economic data has started to come in. Their relatively high rates are primarily the reason for Euro gains against the dollar. That is starting to unwind now, I think- but time will tell.
I have a feeling that it will hurt the EU throughout the year, if they continue to believe their own socialist stupidity. They don’t have the philosophical capacity to dig their way out unless they abandon it for real capitalist thinking. It will be interesting to see how long it lasts.
The real threat to us is if China unpegs the yuan to the dollar, or if fat Middle East money is pulled from US investments. That will hurt.
If we turned the chart upside down and labeled it with our favorite worthless dotcom everyone here would be telling you to let the momentum run and you would be a fool to bet against the trend. Fundamentals argue against a PE of infinity to nothing. Never stopped the permatouts from pushing something to the upside before.
So what is different about this. The flipside of the dollar falling is everything else rallying. What folks don't like to contemplate is that we have had a free ride for 3 decades and don't produce anything that anyone else wants except agricultural commodities - and that is how you become a third world basket case is by relying upon selling farm produce.
Who do you know that did that?
The Fed has been printing lots more money? Since when?
What folks don't like to contemplate is that we have had a free ride for 3 decades and don't produce anything that anyone else wants except agricultural commodities -
Is that why are exports are at record levels? Only because of agricultural commodities?
“Selling houses for 500k+ to people making 50k-100k with 0% down and optional principal payments for the first few years was never a good idea.”
Agreed, when common sense leaves the building, economic chaos enters.
Even if the $ somehow managed a rally around 10% to the 78.00 range, that downtrend would still be firmly in place. The Euro and other major currencies are going to have to do a lot of backtracking even to see that big a move.
I do look for a short term rally here, but unless we do something big to help ourselves out - like deciding to massively drill for our own oil - I suspect the downtrend will continue at least to the 69.00 level, at which point the lows might test again. Might. We are really cruising in uncharted territory here...
There is enough inferior intellect on these financial threads that one doesn't need a superior intellect to win the debate.
Yes. By definition, Level 3 Assets are assets for which there is almost no observable market, either because no market existed or because previously liquid markets have become illiquid (i.e., no buyers). These include some mortgage backed securities, securitized credit card obligations, LBO debt which has not been placed, certain asset-backed commercial paper (where the market has dried up), certain credit default swaps (where trading has slowed), and, of course, hedging and other derivatives such as interest rate and currency swaps.
The overwhelming majority of these assets perform and will continue to perform. My guess is that only that portion of the Level 3 Assets that include tranches of subprime mortgages will pose major problems. I will bet that holders have been writing these down.
FAS 157 provides for the accounting treatment and as best I can tell, compliance is being audited by the independent auditors of the holders (like Merrill, Citi, Lehman, Morgan Stanley, etc.). This is a check on the "mark-to-model" b.s. that FAS 157 permits.
The worry isn't so much default as it is illiquidity. The holders of illiquid assets need access to borrowing or functional trading markets to maintain assets and rebalance portfolios. Better transparency on the balance sheet for these assets (and the basis for value changes) and healthy, functioning credit markets will improve things.
I love you Todd. You are so dense as to bugger all belief. LOL!
For anyone else who wants to see the Fed in action, here it is short term money equivalents, according to the economists of the Federal reserve bank themselves.
Now the only question is do you believe Toddster or the Federal Reserve bank as to whether or not they have been creating lots and lots and lots of liquidity. Seems to me they even had a couple of published votes of the Federal Reserve Board stating that that is exactly what they were going to do. But Baghdad Todd will tell you to move along. Nothing to see.
What do you call that 2 Trillion blip up on the tail of the cart from oh about the middle of 2007 through to the present moment?
I just had a CD mature. My MZM just took a big jump. I blame the Fed and their printing press. LOL!
Now the only question is do you believe Toddster or the Federal Reserve bank as to whether or not they have been creating lots and lots and lots of liquidity.
According to this , the Fed's balance sheet jumped about $18.6 billion (about 2.2%) in the last 12 months. Wow! That averages about $1.55 billion a month. Less than $52 million a day. In a $14 trillion economy. How will we survive?
Even Federal Reserve notes, net of FR Bank holdings only rose by $5.2 billion (less than 1%) over the last year. Try again? LOL!
That would be more people holding more short term cash. LOL!