It has always been my assumption that international moneyflows accumulate in the currency with the greatest chance of relative rising rates in the near future. The reasoning is obvious. And, it has worked everytime for as long as I can remember. The FED has been ratcheting rates up on a consistent basis for over two years now. Around the beginning of the year, the Dollar started to advance when the pendulum swung in favor of the Dollar, and international rates became less appealing. Bonds, on the other hand, reached a peak (low in long term rates) around mid-year. This probably coiincides with a peak in international commerce. Afterall, we are the world's greatest importer. And our trade partners have to park their money somewhere, near term. Remember Greenspans conundrum? Well, we still appear to be a few months off, but I feel it's all about to change. Posting two charts: Bonds and then the Dollar. Will update time to time and see what unfolds.
Interesting ... I have both bets on also. Also interesting that there are still so many dollar shorts fighting the tape. I'm thinking the Fed is concerned about runaway asset (oil, house) prices and will not flinch at pushing the US into recession in order to forcibly correct some imbalances. That and Snow came out and said last week Bush is concerned about his legacy on spending and is preparing a new push to cut the deficit. We'll see ...
let me chime in with the same ideas. Rates rise until recession, dollar strengthens until ECB starts raising too. You know, a few more and there will be a choir, which we can all preach to.
I can't see it happening, though it would be a nice surprise. The most effective way for Bush to cut the deficit or reverse his hefty contributions to the national debt (especially this late in the game) is to reintroduce restraints on military spending -- and I don't think he's ready to do that. He can cut every social program in America down to zero, but half a dozen experimental warplanes (or an invasion) later and he's firmly back in the red. I can't see him raising taxes to better fund his war efforts... btw, nice charts, gharghur2.
I'd have to go look it up but, if I'm not mistaken, just a few days ago I saw a headline that the US Pentagon actually requested a reduction to its budget. Sounded like the Pentagon asking, or not asking for what Bush directs them to ask for. Such a move on Bush's part would be 'second order effect' that, as Charles Munger and Soros have laid out, are often overlooked/discounted by speculators to their own detriment.
Market loves to hate the dollar. I agree, dollar will rise until a point sometime early next year, when Mr. B. comes in and makes a move. If he wants to show everyone he's tough on inflation like he claims, he'll bump up the rates again. But cannot say much about what he'll do after that. The moment the market even thinks a pause is in the works, it'll go right back to imbalances.