Thursday, December 3, 2009

Tiger's not out of the Woods Yet - But the US Dollar Might be

Since early March the dollar has been dropping faster than Tiger Woods' endorsement deals...will; and Congress has been taking a 9 iron to the greenback like scorned Swedish women to SUV windows.
So here's the deal. Normally the stock market dictates the direction of the US dollar. Investors flee to currencies as a safe haven from a falling stock market. (Joe's dog, dog wagging the tail) Lately however, the US Dollar has interestingly been calling the shots and dictating the direction of the stock market (Joe's dog, tail wagging the dog). Indeed, steep drops in the dollar are strongly correlated with a rising stock market due to the fear of inflation. These increases in the stock market are reflecting the nominal value of the dollar, not the real value. Even if the market goes up, the value of your retirement could still be dropping (Joe's dog, tail not wagging at all anymore, but drooped in between its legs and hunkered down in depression).

This can't last forever, however. Despite the Federal Reserve's loose monetary policy and Gov's best efforts to whack the greenback and spend its way out of trouble, (Tiger Joe Woods, yes, Joe's his middle name, or it should be anyway) it appears the US Dollar free fall may be over for now. Why? Just this week Japan - the number two economy in the world - announced a large scale quantitative easing policy (or government spending) which should dilute its currency relative to ours. (Japan wants a weak currency because it strengthens their exports) Also, Japan's debt to GDP ratio is actually MUCH worse than ours right now, so it's bad debt position coupled with a ramped up quantitative easing plan should help soften its currency. So there you have it. The stage is set. The top two economies in the world in a race to see who can beat down its currency harder and faster and turn it into fertilizer. (Joe's dog, tail now straight up in the air, squatting position).
Another interesting phenomenon that happened Friday after I initially wrote this post, was the dollar's surge on a much improved November unemployment report. The diminished job loss announcement launched the dollar like you-know-who's tee off because of rate increase speculation. Ben has previously stated he wouldn't raise interest rates until jobs were actually increasing rather than decreasing. This may or may not happen soon. It will be interesting to see if the jobs report for December drops down again, or if the trend line of improved job numbers continues. Construction and manufacturing job losses were still quite high, but government and health care jobs both saw increases last month.

What does this mean for Joe? An increasing dollar value would ease inflation fears, but also throw cold water on Gold Bugs somewhat. I recently posted a comment on to short gold, and received 6 thumbs up and 34 thumbs down, so who knows, I might be way off on my Gold projections. A strengthening dollar would seemingly drop the price of gold, but the future of the US Dollar is very uncertain and fragile still.

What else does this mean for Joe? Joe doesn't have a dog, but could use the companionship since JoAnn hasn't accepted his latest offer yet to marry him before hyper inflation gets a hold of ring prices. Since he believes the dollar might start to stabilize, he's nervous now that she has a pretty good counter argument. The pressure's on for Joe Shareholder. Doggonit.


  1. Joe Einstein has done it again. great work. scary picture.

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