Strange Days
"I'm going crazy everyday, watching this dollar strength in the face of all kids of reasons for it not to happen, that I've talked about before. Sooner or later, we'll get back to the fundamentals…"
by Chuck Butler In This Issue… - Strange Days Indeed
- 3 different camps!
- Stephen Roach's thoughts…
- The Asian Currencies Bus…
--- Advertisement --- Need more World Market deposit slips? Simply give us a call at 800.926.4922, or, you can send an e-mail to worldmarkets@everbank.com. We'll be happy to send you more Bank-By-Mail envelopes by return mail. --------------------- And now…today's Pfennig! Strange Days Good day. Well, the Jobs Jamboree Friday wasn't the party the experts believed it would be, and had me wondering how that poor number of only 78K jobs created slipped by the BLS! (Bureau of Labor Statistics) Surely they could dress that number up with some "birth / death model" ghost jobs couldn't they? Well, I guess they could but didn't see the need, and quit calling me Shirley! Yes, the jobs number was a big disappointment, and the dollar got sold like funnel cakes at a state fair, pushing the euro to 1.2345, only to see the rug pulled immediately. There were rumors of Warren Buffet selling his currency positions, but those rumors were very quickly put to bed, and soon the market is going to grow tired of hearing these rumors. But the thing that I'm beginning to see every month when this data is release is the trend of unorthodox moves after the Jobs Jamboree. It looks like the markets want to square up positions before the report, then use their liquidity to get into new positions afterward whether the report comes out bad or good, it really doesn't matter to them! Strange days indeed! Well, so be it! You know, I was reading a piece from a writer the other day that got me thinking. There are many new readers that have never heard the speech from me regarding currencies…so, folks, grab that cup of coffee, and let's go! Basically, there are three camps. There is the group of campers that say "deficits don't matter," And that we have nothing to fear but fear itself. Then, there are those that believe the other side of the spectrum which that the dollar is going to collapse and the whole world will come crashing down. I call them the "gloom and doomers." Then, there is little old me, who believes that (1) currencies should be considered as another asset class in one's investment portfolio that should be used as a diversification. There are studies that prove that owning a currency in one's investment portfolio reduces the risk of that portfolio. The reason is that currencies have independent drivers of price, and therefore will move in different directions. And(2)That currencies move in long sweeping moves or trends, that exist to clean out imbalances…and during those trends the price movements are not a "one way bet." In other words, there is volatility within the trend. No, I don't believe the dollar is going to collapse…I believe it has to get a whole lot weaker to deal with the global imbalances. Friday, my favorite economist, Stephen Roach of Morgan Stanley wrote, "Despite rebounding nearly 3% from its low this January, the broad dollar index is still down about 13% from peak levels hit in early 2002. The dollar's descent is a logical outgrowth of America's massive current account deficit. The only problem is that it hasn't fallen nearly enough to make a dent in the U.S. external imbalance. A comparison with trends in the late 1980s underscores this conclusion: During that earlier period, America's current account deficit peaked out at 3.4% of GDP and the broad dollar index fell nearly 30% over the three-year period, 1985-88. With our estimates placing the US current account deficit at about 6.5% in 1Q05, it is hardly a stretch of the imagination to see the external shortfall rise into the 7-7.5% range over the next year. In other words, today's current account problem is easily twice as bad as it was back in the 1980s but the US currency has fallen by less than half as much as it did back then. On that simple basis, alone, the dollar has plenty more to go on the downside." That Stephen Roach always nails the situation, and explains it so that even people like me can understand it! I'm going crazy everyday, watching this dollar strength in the face of all kids of reasons for it not to happen, that I've talked about before. Sooner or later, we'll get back to the fundamentals… Friday, I had interviews with the Wall Street Journal and Business Week. It seems more and more writers are picking up the scent on the Asian currencies…and in my opinion, that's bang on! Yes, the Asian currencies will be the driver in the next big leg down for the dollar. So, hear me now and listen to me later: The adjustment that needs to be made in our Current Account Deficit that Stephen Roach talked about above, has to come from the Asian Currencies. They hold the majority of the IOU's that the United States has issued… The data cupboard is basically empty this week. We will see Consumer Credit on Wednesday, which should be interesting to see how much more debt we've racked up on credit. Then on Friday, April's Trade Balance, which we all know to be the Trade Deficit. So, most of the week will be dry…searching for something to give the market some direction… Currencies today: A$ .7615, kiwi .7065, C$ .8030, euro 1.2270, sterling 1.82, Swiss .8010, rand 6.765, krone 6.4280, forint 203.50, zloty 3.335, koruna 24.60, yen 107.10, baht 40.61, sing 1.6640, pesos 10.845, and gold…. $425.20 That's it for today. A great weekend for me that ended nicely with the whole family all sitting around in the backyard talking and relaxing. Nice…big week for my beloved Cardinals, as they take on the Red Sox first, and the Yankees second. I'm lucky enough to have a ticket for the Friday night Yankees game, should be tre' cool! So… I have that to look forward to! Have a great Monday and week! |
