After two days of solid reassurances from Messrs. Bernanke and Geithner that the US has a ‘strong dollar policy’ the Greenback had heard enough, and continued its orderly (for now) slide toward the rabbit hole. As one financial media wag noted in response to Mr. Geithner’s ‘strong dollar’ assertion on Tuesday, (loosely paraphrased) “It’s lucky for him he’s not on a ‘pay for performance’ compensation package.”
It’s not just that they do not in fact have a ‘strong dollar policy’. It is that this is one of those disturbing episodes of cognitive dissonance we see from time to time in government finance officials and central bankers. What is most striking is that they seem to have failed to learn the lesson from history: it doesn’t help in the financial markets to consistently repeat the Big Lie. Rather than impress anyone that the situation might possibly be alright, repeating it only serves to drive the trend that much further in its current direction.
And that is precisely what we are seeing in the US dollar on the back of their mindless adherence to an obviously incoherent perspective. The US dollar has many reasons it can likely head lower. Those factors include everything from the US administration’s lack of effective geopolitical leadership to the Fed’s mindless ‘extended’ low interest rate policy driving risk asset price escalation. We’ll have more on each of those very soon. But for now, suffice to say it is the lack of acknowledgement there is a problem which allows the bears to rule the trend of the Buck; and leaves the bulls in considerable disarray.
And the key technical factor which can drive the US dollar much lower is that Geithner and Bernanke have now allowed it to slip into the position where it is an obvious ‘carry trade’ funding source. This is different than the yen or other currencies previously providing ‘free’ funding for risk trades… as it is now a key reserve currency which has turned into a selling target with a bulls-eye tattooed on its back!! Read more…
Just a quick observation here on the nature of central bankers… real central bankers. You remember, those guys who are actually ready to restrain the economy when necessary. In the words of formidable Fed Chairman William McChesney Martin, Jr. (1951-1970), his job was “…to take away the punch bowl just as the party gets going.” It is with that classical philosophy in mind that we note Monsieur Trichet was certainly in fine fettle at the post-rate decision press conference. If you doubt it, have a look at the archived video of the ECB 2011/04/07 press conference. That was right after he exercised that central banker’s prerogative to ensure everyone remembers economic activity and asset inflation driven by excessive liquidity are not grounds for confidence; and if left unchecked will ultimately destroy it.
What is most striking is that other key central bankers are so immune to that precept right now. And so soon after the height of the crisis that hit with full force from a mere two-and-a-half years ago. Especially in light of the major equity market recovery, that may seem long ago in retail investor and general public perception. Yet it is not very long at all (or at least shouldn’t be) in central banker perception of economic cycles. There’s Mervyn ‘the economy’s too weak‘ King. At least he seems to have a passingly good case for ignoring what is now nothing less than sustained raging inflation; even if it is cost-push inflation, and not the more pernicious demand-pull, wage spiral sort.
Then there is that more blatant culprit, Ben ‘I never met a bull market I didn’t like’ Bernanke (with a chance he’ll now drive really ugly US dollar weakness.)
There is little doubt that the ECB 25 basis point base rate hike to 1.25% today was in part to reinforce its pre-eminent inflation Hawk stature. However, it would seem that it was thoroughly justified in spite of concerns in some quarters about the overall necessity for Europe at large, and especially the impact on the weaker sisters at the periphery. As was not only apparent to informed observers but also ultimately explicitly articulated during the Q&A at the press conference, this was at least as much an exercise in controlling the extended inflation psychology has any significant address of actual current price escalation.
There was a very pointed and highly relevant dissent from the need for an ECB hike at this time published yesterday. Not surprisingly, that was from the Editor of the Financial Times. He covered all of the primary points of the nature of the current round inflation and lack of secondary effects to date. All of that is significantly consistent with the position of the Bank of England and the Federal Reserve.
However, we beg to differ on two significant fronts. The first is the ECB’s unique mandate among central banks. Secondly, the degree to which today’s modest hike will actually not make much difference to the fortunes of the weak sisters at the periphery of Europe is fairly apparent to anyone who has fully considered the issue.
Just when you thought he was rich enough, burnt out enough from his last gig, and cynical enough from his recent stint in politics, Schwarzenegger is back! To the chagrin of his detractors and joy of his fans, The Hollywood Reporter notes that he will be “…returning to showbiz as a cartoon and comic-book character named The Governator…” (check out the graphic).
Due to the press release coming into the end of last week, many may have thought this just a good April Fool’s Day giggle. But evidently this is a serious collaboration with comic book legend Stan Lee on an animated TV series and comic book. It will mix the real life of the actor/politician with the superhuman exploits of his movie roles.
Just to begin the blogging adjunct to our primary analysis with a bang, how about the degree to which all of the European Monetary Union rescue plans seem to be a lot of hot air? We’ll get back to how that relates to our recent main analytic views below. But for now, the degree to which those rescue plans are inconsistent within themselves and significantly self-defeating is striking.
We have expressed our own incremental shift in views from the impressive ‘early agreement’ on a ‘deal’ two weeks ago, into cynical realism last week when EMU officials said they couldn’t possibly tackle the expanded funding and functions for EFSF until this summer. But the crux of the matter is that even what has been ostensibly agreed is significantly less than credible.
We’re Baaaack! And this will be where we post our extended comments. As always, we will provide engaging perspectives from others along with our pointed, humorous and/or sardonic commentary.
After a lengthy hiatus it dawned on us the best use for our weblog was to post those interesting additional comments that we had previous been adding to our various TrendView Update reports. While relevant perspectives from third-party sources enriched our analyses, there were some dilemmas with including them in our reports. Two of the most prominent were the digression from the main market perspective, and the sheer extended length that dictated when added to the primary analysis.