Comments on: Dollar Rallies Against Euro — Flight to Quality

By: Kurt Brouwer

Kurt Brouwer — Wed, 01 Oct 2008 14:29:49 +0000

Exactly right Brad. It depends, as an old saying goes, on whose ox is being gored [no pun intended]. I think we will see a financial rescue package that passes roughly along the lines proposed in the Senate today. In their defense, representatives in the House are closer to voters than other elected officials.

Both Dems and Reps in the House were petulant though. So, one good outcome out of all this is that we have been reminded how self-centered politicians are.

By: Euro Forex Trading Forecast : Experiences of a Forex Trader

Euro Forex Trading Forecast : Experiences of a Forex Trader — Wed, 01 Oct 2008 12:40:30 +0000

[…] More on Eurozone WeaknessThoughts on the euro as the world’s reserve currency […]

By: Brad S

Brad S — Wed, 01 Oct 2008 01:30:18 +0000

Kurt, despite the losses to my 401K, and your mutual fund business, some very profound things happened yesterday with the rejection of the Bailout:

1. For the last 9 or so years, we’ve seen politicians and media trumpet what I call the Big Shiny Thing (Dot.com Bubble, Housing Bubble, Iraq War, Prescription Drug bill are prominent examples). They’ve promoted the Big Shiny Thing so heavily that people were led to believe it was the Only Thing between us and uncomfortable things happening to us. The American people, through such reps as Dennis Kucinich and Jeb Hensarling, called “bullfeathers” on the Bailout panic-button pushing. Even though a bailout in the same form will likely pass by Saturday, that decision on Monday cannot be reversed.

2. The GOP House, as petulant as some of them sounded after the vote, sent a message to everyone that they can’t be expected to swallow “crap sandwiches” REGARDLESS of actions they take. They finally stood up for themselves, so to speak. Unfortunately, it came in the service of a perceived financial crisis.

3. The 777 point drop in the Dow did something to the American people: it concentrated the mind on getting action passed. Let’s face it: Trying to explain how bad a 3.04 TED Spread (as of today) is to a citizen that is having to utilize 15% interest rate credit cards will always strain credulity. But let the Dow go down big after a crucial vote, and watch the calls go from against the bailout to FOR it instantly! Ask Rep. Joe Barton (R-TX).

By: Kurt Brouwer

Kurt Brouwer — Tue, 30 Sep 2008 23:32:33 +0000

You’re right that a strong dollar does not necessarily imply a strong economy. For example, the dollar was far stronger in 2001 than in 2006. Yet, the economy was much better in 2006 than in 2001.

The increase in the dollar lately has to do with the Fed Funds rate, which has remained stable for several months at 2%. It also has to do with the fact that foreign investors want to buy U.S. Treasury securities.

If you want more information on the correlation between the dollar and Fed Funds’ rates, see How Far Has the Dollar Fallen? And Why? — What’s Next?

By: wewerwerdsf

wewerwerdsf — Tue, 30 Sep 2008 22:30:47 +0000

Dollars lost their value because we flood the world with them by our trade deficit (there was an excess supply of dollars). Oil is priced in dollars so to get the same value of oil you had to come up with more dollars. Oil rose (cost more dollars per barrell) because the dollar fell.

Now that a recession seems likely because of the economic consequences of the banking log jam, the expectation is that demand for oil will go down.

So, oil is now less valueable and you can get a barrell with fewer dollars thus the dollar is going up.

The strength of the dollar has nothing to do with the strentgh or safety of the american economy. It is a consequence of expectations of a slowdown in the american economy.