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US Dollar on the Brink of a Breakdown
Posted on 09/25/2006 16:38:38 | Link | Post Comment
Just as the Equity markets were on the brink of a breakdown a week ago and instead did a dramatic about-face reversal, the US Dollar seems to have gotten weak-kneed ever since Ben Bernenke was tapped to be the next Chairman of the Federal Reserve. The Equity markets have so far embraced Bernanke, potentially perceiving him to be more accommodative than Greenspan and so the market might be rating him a potential "Perfect 10", ahead of his tenure, because a weaker US Dollar at this point could be good for US business and international competitiveness and that could potentially get us through what could be a slower 2006, by keeping the economy reasonably strong with the expectations of a stronger 2007 and remainder of this decade, which is very much our view.
Greenspan's shoes may be hard to fill, but so were Volker's and Greenspan came through almost every time, until he took the wrecking ball to the 2000 party and over-reached on the interest rate front, when really the early signs that the divergence between a weakening economy and a rising stockmarket was an unsustainable phenomenon that would have died its own death anyway, without the Fed's interest rate euthanasia. Still Greenspan eventually redeemed himself and has got us this far with one of the best economies ever. With nothing to lose, he now rides off into retirement as he hands over the reins to one who may become characterized as Benign Ben. This may be one Doctor who may not want to do the economy too much harm and Greenspan could ride out on the ultimate high note of a still robust economy with the broader US indices at or close to making new all time record highs.
With that emerging prospect at hand, the US Dollar may have run its upward course for now and with the way Gold, Silver, Stocks and the foreign currencies have responded over the past two days, the Dollar's death knell may be at hand. We are not quite there yet and picking tops can be hazardous, but the decline to new lows in US Treasuries is a wee bit reminiscent of 1979 and early 1987 where the Fed is charged with containing inflation and defending the US Dollar simultaneously, which back in 1980 was like throwing gasoline on the inflationary fire and in 1987 became a futile effort in US Dollar defense, as both rates and stocks soared together, something that also happened from late 1998 onwards as stocks and interest rates rose together in one of the biggest market booms ever...
We will add what may be critical additional market commentary as Wednesday's trading session unfolds.
Greenspan's shoes may be hard to fill, but so were Volker's and Greenspan came through almost every time, until he took the wrecking ball to the 2000 party and over-reached on the interest rate front, when really the early signs that the divergence between a weakening economy and a rising stockmarket was an unsustainable phenomenon that would have died its own death anyway, without the Fed's interest rate euthanasia. Still Greenspan eventually redeemed himself and has got us this far with one of the best economies ever. With nothing to lose, he now rides off into retirement as he hands over the reins to one who may become characterized as Benign Ben. This may be one Doctor who may not want to do the economy too much harm and Greenspan could ride out on the ultimate high note of a still robust economy with the broader US indices at or close to making new all time record highs.
With that emerging prospect at hand, the US Dollar may have run its upward course for now and with the way Gold, Silver, Stocks and the foreign currencies have responded over the past two days, the Dollar's death knell may be at hand. We are not quite there yet and picking tops can be hazardous, but the decline to new lows in US Treasuries is a wee bit reminiscent of 1979 and early 1987 where the Fed is charged with containing inflation and defending the US Dollar simultaneously, which back in 1980 was like throwing gasoline on the inflationary fire and in 1987 became a futile effort in US Dollar defense, as both rates and stocks soared together, something that also happened from late 1998 onwards as stocks and interest rates rose together in one of the biggest market booms ever...
We will add what may be critical additional market commentary as Wednesday's trading session unfolds.
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