Finally, the Dollar Falls!
Published in La Tribune
(France) on 5 July 2010
by Marc Fiorentino (link to original)
When I saw the dollar fall Thursday after the publication of new, calamitous numbers for the American economy, I told myself “at last.” Not because I am delighted in the misfortune of others, and even less so for the United States, but because the markets are finally beginning to react in a coherent manner. For months, what troubled the hardiest professionals of trading and investments was the spectacular correlation of the markets. When the investors panicked, everything dropped without discrimination — and not just the stock indices and raw materials but the euro as well, even if the news did not concern Europe. All of this at a profit for the loans of the American and German states, the ultimate sound investments. And when the investors relaxed a bit, which has been very rare, everything rebounded together. As a result, the classic rules of diversification of risk did not function any longer.
Thursday was a fascinating day, and I think that it marked a turning point. First of all, the markets became uncorrelated. While the stock indices took a dive, the euro did not fall. To the contrary, it saw one of its strongest advances in a single day ever. On the other hand, the American and German borrowings did not really profit from the stock market panic.
As for gold, it surprisingly dropped nearly 2 percent. We will have to wait for a confirmation of this disassociation. If this was the case, we would be able to finally witness a return to the norm for the markets. The other major event of the day was the fact that the bad economic news for the United States caused the dollar and not the euro to drop, which ordains that everything is logical, unlike recent months. Then again, let’s not draw hasty conclusions; let’s wait to see what is going to happen in the days to come.
But if the tendency is confirmed, that would mean that the markets are at last finding that the true problem today is not the miniscule Greece on the worldwide scale, nor Spain nor Europe itself, but in fact the United States. America is doing poorly, and Obama is giving the impression that he does not know which way to go. While Europeans have chosen, constrained and forced by Germany, the path of austerity, the United States is still trying to find itself and seems to be playing by ear.
Their debt and their deficit are taking on water in all parts, but Obama still wants to believe that he can avoid asceticism while at the same time playing the recovery card again. Moreover, his budget director preferred to throw in the towel by resigning. The United States have never seen such a mediocre exit from recession despite mounting such colossally bad investments in recovery.
Employment has shown no sign of a return to normality, real estate is crawling forward and consumer activity has stopped since state subsidies are not being paid anymore. The morale of households is low — very low. Therefore, investors will need to wake up and descend from their little clouds.
How, considering American imbalances, can the dollar keep the status of refuge currency? And how can we continue to lend to the United States at such ridiculously low rates? Why so much blindness? To escape the recession that is threatening them, the United States has no other choice than to devalue the dollar. Regarding American loans, they will soon look more or less like Greek loans, and we hope they will not run out like the Russian ones. To the Americans who worry about the euro and Europe, I must say: take a look at yourselves first before criticizing others for the oil spill that is threatening your financial coasts.
Thursday was a fascinating day, and I think that it marked a turning point. First of all, the markets became uncorrelated. While the stock indices took a dive, the euro did not fall. To the contrary, it saw one of its strongest advances in a single day ever. On the other hand, the American and German borrowings did not really profit from the stock market panic.
As for gold, it surprisingly dropped nearly 2 percent. We will have to wait for a confirmation of this disassociation. If this was the case, we would be able to finally witness a return to the norm for the markets. The other major event of the day was the fact that the bad economic news for the United States caused the dollar and not the euro to drop, which ordains that everything is logical, unlike recent months. Then again, let’s not draw hasty conclusions; let’s wait to see what is going to happen in the days to come.
But if the tendency is confirmed, that would mean that the markets are at last finding that the true problem today is not the miniscule Greece on the worldwide scale, nor Spain nor Europe itself, but in fact the United States. America is doing poorly, and Obama is giving the impression that he does not know which way to go. While Europeans have chosen, constrained and forced by Germany, the path of austerity, the United States is still trying to find itself and seems to be playing by ear.
Their debt and their deficit are taking on water in all parts, but Obama still wants to believe that he can avoid asceticism while at the same time playing the recovery card again. Moreover, his budget director preferred to throw in the towel by resigning. The United States have never seen such a mediocre exit from recession despite mounting such colossally bad investments in recovery.
Employment has shown no sign of a return to normality, real estate is crawling forward and consumer activity has stopped since state subsidies are not being paid anymore. The morale of households is low — very low. Therefore, investors will need to wake up and descend from their little clouds.
How, considering American imbalances, can the dollar keep the status of refuge currency? And how can we continue to lend to the United States at such ridiculously low rates? Why so much blindness? To escape the recession that is threatening them, the United States has no other choice than to devalue the dollar. Regarding American loans, they will soon look more or less like Greek loans, and we hope they will not run out like the Russian ones. To the Americans who worry about the euro and Europe, I must say: take a look at yourselves first before criticizing others for the oil spill that is threatening your financial coasts.