US Dollar

I have been sitting here watching the action on the US Dollar in the wake of Ben Bernanke's decision to keep the key interest rates at 2%.

With this decision, the US now joins the rest of the world in getting aboard the inflation fighting bandwagon. The past number of years have seen spectacular growth stories. Manufacturing has boomed in Asian and even here in the US growth was most evident in the housing market.

But growth has consequences and inflation is perhaps the greatest consequence. Now Central Bankers are on a mission to beat back the savage beast of inflation. Problem is, many Central Bankers started their mission against inflation many months back. Read more »

In a recent blog I compared the US Dollar to a "drunken sailor". In my most recent Commodity Supercycle Report I presented empirical evidence for a bear market rally in the Dollar. Evidence included an over-bought Euro, an over-extended Yen, and a Gold market in need of a correction.

It now looks like the "drunken sailor" is getting up. The Dollar is in fact attempting a rally and at issue is the glimmer of hope that the US markets were afforded recently. Bear Stearns fell on its sword and J.P. Morgan with the aid of the Fed deftly swooped in to collect the corpse. The Chairman of UBS stepped aside this week amid jeers and cat calls from disgruntled shareholders. UBS is now saying it is getting back to banking basics. Lehman Brothers went to the street looking for a $3 billion injection and came away with $4 billion. The markets indeed may be seeing some light at the end of the tunnel. Read more »

There once was a banker who enjoyed tremendous success lending to clients around the globe. But gradually over time, the forces of globalization grew so powerful that his clients no longer needed to borrow from him for they were enjoying unprecedented wealth of their own.

If you are waiting for Snow White and some dwarves to come around the corner next, forget it. This is no fairly tale. This is real.

The banker I speak of is the International Monetary Fund (IMF). Once a powerful global lender to developing nations, the IMF now has only $20 Billion in outstanding loans ( 1/4 of what it had 7 years ago)and half of this outstanding amount is to one country - Turkey. Read more »

A recent column in the Wall Street Journal by Tahani Karrar caught my attention. In fact it made me shift rather uncomfortably in my chair.

The title of the column was "Qatar Rethinks Dollar Peg Amid Gulf-wide Inflation". The jist of the story was that the emirate of Qatar was thinking about severing its peg with the US Dollar. As US money supply runs rampant, those countries with a peg to the Dollar must likewise follow suit with monetary policy. The end result is - as the headline suggests - run-away inflation.

A few days after I read this column, events in New York took a rather bizarre twist. Bear Stearns collapsed from $30 a share to $2 a share and JP Morgan was there (along with the Fed) with a safety net to catch the falling pieces. Then Ben Bernanke cut the lending rate by another 75 bps. All events that would normally be dollar negative. Read more »