Page 1 of 2 Dollar doing the right thing
By Julian Delasantellis
The 1985 teen sex romp Secret Admirer ran true to form for the genre, in
that the two main stars, C Thomas Howell and Kelly Preston (the future Mrs John
Travolta), always seemed to be either doing it or, more likely, teasing the
audience with talk about doing it; meanwhile, the ancillary characters got
nothing but ridicule and humiliation.
One of these, Ricardo, using a men’s magazine in a manner for which it was not
designed to be used by teenage boys, that is, actually reading it, reported,
"Three international banks predict dire consequences for the European Community
if the dollar takes a sudden plunge."
Ricardo's friends, like skeptical forex analysts, still needed
convincing. "You're too [expletive] weird for words," one replied; another
accused him of "abusing" the magazine, for it "isn't for reading". He then goes
on to explicitly describe what the magazine actually was for.
Twenty-five years later, forex porn rides again. If, as so often happens,
teendom's dolt is adulthood's dynast, one can only imagine in what positions of
power and influence the then-poor Ricardo now finds himself. I think that he
must be a cross-platform ideological planner for Rupert Murdoch's global
conservative media empire. From the Page Three girls in Murdoch's London's
tabloids to the unending fair of former bikini-clad tanning models espousing
introductory freshman Ayn Rand on FoxNews, at the very least, these guys seem
to know very well what to do with Ricardo's magazine.
Like the German battleship Bismarck, all of Murdoch's considerable media
firepower - from The Times of London to the Wall Street Journal to the New York
Post to Fox News and more - are spending sunup to sundown firing on the
supposedly poor greenback, before handing the franchise over to the night shift
for another round of poundings.
Even the nominally non-political Fox show hosts, such as Greta van Susteren,
whose previous experience covering a falling dollar was reportage on what was
in the wallets of photogenic American suburban white girls falling off the
decks of cruise ships, is hot on the trail, presenting "fair and balanced"
coverage from unbiased analysts such as Karl Rove as to why the Barack Obama
administration's engineering and acquiescence of the falling dollar will soon
lead to global economic holocaust.
It's certainly not like there isn't anything to take notice of here. From the
highs of the late summer 2008 to late winter 2009 US dollar rally, the dollar
has fallen, and the euro has risen, from just under 1.27 against the euro to
around 1.50, an 18% fall in just a few months.
But the dollar's performance has been far less terrifying against both the
Japanese yen and the Chinese yuan, both essentially unchanged since the
beginning of the year.
So, is all the sturm und drang of the anxious moment just about the
US$/euro exchange rate, even though trade between the United States and the
European Community comprises, at most, about 17% of total US trade - as opposed
to the over 45% share composed of trade with China, Japan, Mexico and Canada.
If the falling dollar is so bad, shouldn't it be causing bad things, at least
somewhere?
The obvious victim usually pointed to here is the rally in the oil markets, in
that the fall in the dollar has "caused" the rally in oil.
Surface perusals of last year's chart patterns in the oil and dollar/euro
markets might seem to indicate some manner of causation. Both markets seemed to
bottom at the end of last year (crude oil at US$32.00) and rally virtually
uninterrupted from there. Just like every single oil market commentary ever
written invariably says, the Organization of Petroleum Exporting Countries
(OPEC) publishes its benchmark reference price for crude oil in US dollars. Has
OPEC in essence been raising its crude oil price to maintain a stable income in
non-US dollars?
But it doesn't really work that way. OPEC, like most cartels, exercises its now
diminishing monopoly control not by mandating the price of its product, but by
the release of its supply of the product onto the market. OPEC has cut back on
the oil it is supplying to world markets, from 35.84 million barrels a day in
the second quarter of 2008 to 33.60 million in the second quarter of this year.
But, instead of oil being held back from the market in the face of US dollar
depreciation, a far more likely explanation is the falloff of world demand
arising from the global economic slowdown - over that period, world oil
consumption has fallen almost 4%, with the decline in US demand accounting for
about a third of that.
Many of the others who warn about the dollar's decline say it will inevitably
cause US Treasury debt interest rates to rise, as foreign investors demand an
interest rate premium in exchange for assuming the risk of holding debt in a
depreciating currency. This has been a common feature in currency panics of the
past, but it is certainly not the case with US debt at the present time; at
present, the US Treasury is regularly inundated with offers to buy US debt at
very attractive rates, still below 0.10% on one-month Treasury bills, under
3.5% on 10-year notes.
Tuesday's Treasury International Capital (TIC) data, with the US attracting the
most foreign funds to its capital markets, $40 billion, since last March, also
gave no indication that the falling dollar was as of yet depopulating the debt
markets. (For a discussion of the dynamics of TIC data, see
US living on borrowed time - and money, Asia Times Online, March 24,
2006.)
One thing that the ongoing rightwing dollar media panic overlooks is a sense of
a longer-term perspective on the move. It's true that the euro has risen
towards 1.5, but that still puts it well within the 1.6 to 1.25 euro to the
dollar rally that the dollar pulled off from late in the summer of 2008 to late
winter of 2009.
If you're tempted to run with Rupert and think that all is fine with a strong
US dollar, this past dollar rally sure doesn't go along with your thinking.
Indeed, the highs in the euro/dollar in early March were precisely
contemporaneous with the lows in many of the world's stock markets - the US Dow
Jones Industrial Average hit its low, at 6,544, last March 9, rising, as the
dollar fell, just under 4,000 points since then.
So maybe it is true that movements in the dollar imply confidence, or lack of
it, in other world markets, but this example seems to indicate, in a manner
that certainly seems counterintuitive, that confidence rises as the dollar
falls.
By now, most investors know of the so-called "VIX index", a number that rises
along with volatility in the stock market. In most cases, high VIX readings are
accompanied by sharp, violent selloffs in stocks; the record high for the VIX,
90, occurred during the market chaos of September 2008.
This tendency of the VIX to rise along with sharply falling stocks has earned
the index the moniker of "fear index"; a common usage for the VIX is as one of
the more powerful of the so-called "contrarian indicators"; readings above 50
may indicate such gross fear permeating the markets that cautious buys may be a
strategy for the bold and brave; by contrast, the three years up until 2007
that the VIX spent under 20 can now be seen as indicative of the wave of
undeserved optimism and complacency that was shattered with the world financial
crisis.
The ghost in Poltergeist was said to "know what scares you"; so what is
it that scares the VIX and the stock market; conversely, what is it that
represents the stock market's "olly olly oxen free", its "all-clear" sign?
I don't know about you, but being asphyxiated until death has always been right
up there with my top fears. Conversely, having plentiful supplies of fresh
healthy air should put a smile on even the most curmudgeonly. So it is with the
stock market - except that the stock market has no air and/or oxygen flowing
through its lungs and veins - it breathes money.
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