Mar

11

 On the currency moves versus the dollar the headlines get it sort of correct. A currency change seems to effects the non-US country much more that the US. For example since 2003 when the Euro/$ gown down 3 points over 10 days on average,n35 the Dax goes up 50 over next 10 days. When the Euro/$ goes up 3 points over 10 days, the Dax goes down -32 over the next 10 days on average, n05. In both cases the SP is relatively flat during those period. Admittedly the R square is very low. Todays outperformance of the DAX so far is unprecedented since 2003 with the Dax up over 200 and SP up a fraction or possibly down.

Meanwhile, the US consumer is the envy of the world. Energy cost halved, currency at 12 year highs. Rate at historic lows. What's not to like, except US equity markets which lag every other Western nation, except of course Greece.

John Floyd writes:

"I skate to where the puck is going to be, not where it has been." -Wayne Gretzky

I for one would consider the IMF assumption that a 20% rise in the US dollar has a 1% impact on both GDP and inflation. What if the Fed tightens in June to September and the US dollar is still appreciating and markets approach more Greek issues, a UK election, and upcoming Portuguese and Spanish elections?

Chris Cooper writes: 

I've been short non-US currencies for some time. But this appears to have been successful mostly because it is a "risk off" trade. In other words, one theme. My question is similar to Mr. Floyd's. Even if we assume that "risk off" will continue, at what point does USD cease to be a good vehicle for this theme? Is there, or will there be, a better vehicle, such as corporate bonds?


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