Trader’s Narrative

The US dollar index is back down to the lowest levels for the year. But as I mentioned in the Politics of the US Dollar, it has yet to fall below the 2008 lows. Right now it is about 5% above that floor.

A bright side of the weak US dollar is the earnings boost it gives to US corporations with major international sales:

Source: Bloomberg

Today Geithner told Japanese reporters, “I believe deeply that it’s very important for the U.S. and the economic health of the U.S. that we maintain a strong dollar.” This is the same “strong dollar” pablum that all Secretaries of the Treasury have to peddle as part of their job.

But the unvarnished truth is that the US dollar is being sacrificed so that the US economy can continue with the least amount of structural changes. Instead of having to actually face the bloated deficits and debt racked by the US consumer and the US government, it is much easier to simply reflate your way out. The only sticking point is that this trick is an easy one and much too transparent. Almost every single developed country is racing each other to the bottom.

It is entertaining to watch from our perch as traders. But don’t forget that the stock market can defy the dollar and climb, as it has for the majority of this year. In fact, the dollar carry trade is pretty much single-handedly responsible for the rescue of the world economy from total collapse. As long as it is a controlled decline, it is welcomed.

You can either argue whether this is any way to manage an economy or realize what is going on and make decisions to profit from it.