Friday, October 9, 2009

Wretched Excess Filters Through to the Dollar

The weak US dollar does not come as a surprise to anyone who trades FX or watches the economic barometers that have been flagging trouble for a few years. The wretched excesses of the consumer, aided and securitized by the banks and nurtured by successive US governments are finally coming home to roost. George Soros said at the World Economic Forum that this is "basically the end of a 60-year period of continuing credit expansion based on the dollar as the world's reserve currency."
For a while there a perky (some say too perky) stock market was the placebo. But when the dollar started creeping lower again reality hit. The gigantic budget deficit, the US Treasury printing money, and a general slowdown in FX trading are all contributing to the lack of support. (Data from six of the world's FX committees showed average daily FX turnover down nearly 25% from Apr 2008 to Apr 2009, according to Profit & Loss Magazine.) Secret meetings among oil-producing and consuming nations to try and figure out a new reserve currency have been widely reported. The almighty dollar's dominance is under threat. But I have a trick that anyone is welcome to use in trading or hedging the dollar. With alarming regularity the dollar seems to hit its yearly lows when I am abroad. I had the deeply unpleasant experience of paying $1.80 for a euro in April 2008 in Paris (the print was at about $1.60 at the time). I am planning a trip to London early in November, so expect the dollar to be hammered down further at that point. Only to rebound when I am back in the USA.
BTW, I was way off on Phibro. It went to Occidental in the end, which is a good fit - E&P meets trading and speculation. Oxy only paid a bit more than 1X net earnings for Phibro, which I found odd. But as a source pointed out Phibro owns nothing but bums on seats. And brains, hopefully. Maybe Andy Hall is having the staff unpack?

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