With all the focus on the US Dollar's current free-fall and pundits predicting further weakness for the greenback, a little perspective is in order.
First of all, where have all the pundits been for the last five years? It's not like the dollars fall from grace started yesterday. In fact the dollar's fall has been a result of global growth, not a faltering US economy. The fact is that even with the subprime mess, rising commodity prices and the war in Iraq, the US economy is growing just fine. Could all the doomsayers in the media have a political agenda? Remember, an election is approaching.
After all, US Q3 GDP came in at 3.9% and the October unemployment report showed strong payroll growth of 166,000. Even with all the problems, the economy is still showing very nice growth. The Bush administration has talked about a strong dollar policy, but hasn't done too much about it. While I hate to see the government get involved in anything, could this be the time we see some intervention? None other than current Citigroup (NYSE: C) Chairman Robert Rubin did some US dollar buying and successfully stemmed the dollar's fall while he was at the Treasury in the mid-90's. Maybe current Secretary Hank Paulson should do the same thing. A little intervention can go a long way.
When dealing with currencies, investors can't paint broad strokes. While I agree that versus the Chinese Yuan, the dollar will continue to fall, inflation in China to continues to boil and at some point (after the Olympics?) they will float their currency against the euro. I expect a dollar rebound as traders see that the fundamentals of the US economy are stronger than its European counterparts and that the high euro is killing European exports, resulting in a European Central bank intervention that reduces the value of the euro to help prop up their exports.
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC and Senior Editor of IsraelNewsletter.com. He holds no position in any stock mentioned as of 11/12/07.
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Reader Comments (Page 1 of 1)
11-12-2007 @ 9:29PM
Mr. noitall said...
What the dollar does compared to the Euro, Yuan, or any other paper currency doesn't matter much. It's purchasing power of real goods and services is what really counts. I don't expect it will rebound any time soon.
11-18-2007 @ 3:04PM
Don said...
There is no way that the Fed can stop inflating the money supply and, thereby debauching the value of each individual dollar unit. I fully expect, and continue to bet on, the dollar index to fall to about 40 within the next two years and even that prediction assumes some amount defensive posture on the part of the Fed as well as no small amount of arm-twisting when it comes to foreign central banks.