Daily Forex Commentary
By Jack Crooks
- Investors in two troubled Bear Stearns Cos
hedge funds that made big bets on subprime
mortgages have been practically wiped out.
- Morgan Stanley economist Qing Wang said
it is unlikely that China will allow a one-off
revaluation of the yuan this year. "I think in the
remainder of the year, we will see continued
gradual appreciation of the currency. A one-off
revaluation won't help address the problem unless
the one-off revaluation is very large [about 20%],
but I don't think Chinese authorities are prepared
to make that bold move," Wang said. (The
- "The Singapore dollar is also
attractive as a funding currency because of its
lower volatility, slightly below that of the
Taiwan dollar and significantly below that of the
Japanese yen," Citigroup Inc economist Chua Hak
Bin wrote in a note to clients yesterday.
(Bloomberg –Andy Mukherjee)
7:00am: MBA refinancing index. Previous:
8:30am: June consumer price index.
Expected: +0.1%. Previous: +0.7%.
CPI, ex-food and energy. Expected: +0.2%.
8:30am: June housing starts.
Expected: -1.6%. Previous: -2.1%.
proudly proclaim their gifts to the world, and
never worry about the source of funds, nor weigh
the gifts against alternate choices. They simply
get to give, smile, and sit back to receive the
accolades that fall at the feet of the political
don. What a life - though a life devoid of reason
and reality. We are continually emasculated by DC
thugs who steal our dollars and then hand them out
as their own, leaving us to distribute whatever
change is left in our pockets." - Jim Fedako,
FX Trading –stocks
adjusted by the dollar!
In case you missed it,
unlikely unless you've been visiting another
planet lately, the stock market is on a tear. The
Dow Jones Industrial Average poked its head above
the 14,000 barrier on Tuesday, but settled in for
the night just below the rarified mark.
The Dow and the Transports have once again
confirmed there is more to go on the upside, no
matter the increasing frequency of nosebleeds.
Thinking about this, and thinking about
the dollar as we always do (occupational hazard),
we wondered what the Dow Jones Industrial Average
would look like if we adjusted it for the fall in
the dollar. So, that's what we did.
chart below it shows the Dow Jones Industrial
Average (black line) compared to the Dow Jones
Industrial Average Multiplied by the US$ Index
(red line), both are a monthly price series. What
we noticed is despite the very nice surge in the
unadjusted Dow, when adjusted for the falling
dollar it is still well off its old highs made
back in May 2000 ...
care to offer some conjectures, implications,
guesses, or logic ...
Our attempts are
1. Stocks represent ownership of real
assets in the real world. And said assets (just
like gold) should reflect "real purchasing power".
Thus, a falling dollar means said assets should go
higher, all things being equal (ceteris
paribus for the economic literati among
2. International investors see the Dow as
cheap thanks to said dollar demise.
3. The P in
P/E (price earnings ratio) is bid higher precisely
because the E in the equation is rising thanks to
a falling dollar. And of the E generated from
overseas sales relative to domestic tends to rise
because currency translation benefits back into
dollars. When the collective Ps for multinationals
(which are a very big part of the Dow) are bid up,
the index follows in kind.
question is: Does the Dow get hammered if the
dollar ever stages a rebound? Over to you on that
Below is the same chart above with
our hero, the dollar, overlaid in blue:
may also notice we added a bit of commentary. The
"launching pad" for stocks, which we consider to
be the emergency Fed Funds rate pushed down to 1%,
allowing Mr Alan Greenspan to save the world from
"deflation". This coupled with the enormous surge
in sausage derivatives manufacturing.
Anyway, if you're bullish on stocks it's
likely the dollar trend is your friend. If you're
bearish the news that Bear's subprime hedge funds
are going belly up may make you feel better.
As they say, choose your poison!
Black Swan offers a subscription-based
currency advisory service for forex and
Jack Crooks has actively traded in global equity, fixed income,
commodity, and currency markets for more than 20 years. He is president of
Black Swan Capital, a currency and commodities market advisory firm -