Andy Swan » Why is the DOLLAR higher?

Why is the DOLLAR higher?

February 18, 2009 – 12:30 pm

The US is seemingly falling apart at the seams. Markets are tumbling, the government is rubber-stamping 1100 page, $2 trillion spending bills in 24 hours and even a-rod was juicing.

Why in the hell are people buying our currency in droves?

This is why:

Because in times of choas and uncertainty, you want your money backed by the biggest, baddest mofo out there. You don’t care about his debt to equity, because everyone is screwed anyway. You care about his ability to protect his own (and thus your) assets.

The dollar will fall properly when the dust has settled, inflation kicks in and interest rates start getting cranked up in response. I’m positioning for that, but don’t think it’s a TOMORROW type of trade….because, for now, the US is the most capable of wiping out enemies of its assets and civilians.

Oh….all of that plus every Country in the world is trying to prop up the dollar so that you can buy their flash memory stick in a neat little $300 ipod container.

stuart06230

The losses created by the credit fall out are in USD because that was the currency of the transaction. Non US participents in those losses, of which there are legion, have a USD liability. That is to say no matter where you are on the planet, you have a USD hole to fill. Therefore the USD is being purchased. When the hole is filled, the dollar will weaken.

andyswan

Agree

JakeGint

Please come speak to Phil the Brazilian on Fly's and explain to him why "escaping" back to Brazil is not going to be shelter in the storm. He is a proxy for many who think we're doomed more than others. I think the dollar trade is telling us different.

Pete

If dollar falls and inflation becomes a concern, we should all be cheering in the streets b/c the economy is rolling again. Inflation argument is BOGUS. Only inflation that could happen would be if resource prices spike, which is unlikely given the weak demand forecasts. I can agree w/ higher REAL interest rates to some degree (unless economy really tanks), but not nominal or inflationary rate increases.

andyswan

register for disqus

fabiansiegel

I agree with your thinking re: Dollar. As so often the tricky question is not the IF but rather the WHEN...