Tuesday, May 01, 2007

What They Don't Tell You

Steve Antler at Econopundit, who has recently returned to blogging, has a post that puts the recent dollar weakness into perspective. In short, the fall in the dollar doesn't seem so bad when viewed in the proper context:

WHAT THEY TELL YOU: The dollar dropped to an all-time low against the euro after the U.S. government reported the economy grew at its slowest pace in four years.

WHAT THEY DON'T TELL YOU: The dollar's been around for quite a while. On the dollar-historical scale, the euro was invented last week. "All time" highs or lows aren't really very interesting under these circumstances. Similarly, "slowest pace in four (count them -- 4!) years isn't that interesting either (except as a scary headline).

WHAT THEY TELL YOU: The dollar also weakened against most other major currencies, with the Federal Reserve's Trade Weighted Major Currency Dollar index at its lowest level in its 36-year history. The U.S. currency pared its losses against the euro after touching the record low and triggering buy orders.

WHAT THEY DON'T TELL YOU: First, read this carefully. The dollar dipped below its historic low briefly, then came back up.

In my recent Tactical Update, I touched on this, but Antler puts it into a longer term perspective. I am not much worried about the dollar and frankly with everyone else worried about it, I probably don't need to. I am beginning to wonder if we aren't in for some kind of major counter trend rally in the dollar. With everyone else bearish, maybe it would pay to be a little bullish.

Antler also points out that this is nothing new with the dollar:

Oopsies! Bloomberg forgot to point out there was a much bigger runup of the dollar's value in the 1980's, and a much bigger dollar crash between 1985-1988!

STILL MORE THEY DON'T TELL YOU: The consequences of run ups in the dollar index have been deteriorating current account trade balances. The consequences of occasional dollar "crashes" have been improvements in the current account trade balance (a.k.a. more domestic jobs)....In short: we've been here before, only much worse, and actually everything came out okay.


David Wozney said...

A "Federal Reserve Note" is not a U.S.A. dollar. In 1973, Public Law 93-110 defined the U.S.A. dollar as consisting of 1/42.2222 fine troy ounces of gold.

Joe said...


I want a gold standard too, but I have to make a living in the real world and the value of a FRN is as close as I can get to a "dollar". We live in a world of fiat currencies and I have to navigate an investment world that functions on them and that means looking at relative values.