commentary by Michael L. Bromley
copyright 2005

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... of Politics

Dec 7/04b: So what's wrong with the dollar now?

Previously, it dropped because of the trade and budget deficits and deflated expectations of the U.S. economy. Now, it drops again to a "new low" for the same reason: 

Dollar Hits New Low Against Euro
 NEW YORK (AP) -- The U.S. dollar sank to a new all-time low against the euro Tuesday amid concerns over the U.S. trade and budget deficits and worse-than-expected U.S. employment data. The euro rose to a record high of $1.3470 in European trading before easing back to $1.3432 in late New York trading, up from $1.3417 late Monday. The old record was $1.3460, set Friday. "We've got some short-term spec guys playing these ranges, but the dollar bulls are still not in the market," said Nas Nijjar, a foreign exchange trader with CMC Group in New York.

Tell me, please, when does more of the same stop causing the same effect? I mean, if I hit you in the face every day for two months, would it keep hurting the same every day, or would you get used to it?  Or, wouldn't it just leave a big hole in your head?

The real news in all this is that the dollar hasn't dropped more than it has. From all this hysterical coverage of the sorry state of the greenback, I'd expect a quicker death. They've pulled the plug, but the damned things keeps breathing. It just won't die. It goes down a little, up a little less, down a little, up a little less, in this slow, painfully slow, death dance that just won't conclude. Europe blows upon it desperately, hoping to light a flame to resurrect its own exports on the back of a stronger dollar. China, with an eye on its pile of U.S. Treasuries, and the other on Walmart, has lost count of all the zeros and doesn't know what to do, afraid to walk even across the room lest the patient be further disturbed. What's happening is that there is no alternative to the dollar, so, as bad as it seems for the dollar, nobody really wants it to go away. They wish it'd go off somewhere, but they don't want it to go too far. 

The Yen is up on the dollar, and against its will. It's like a bought fighter trying to lose against an opponent that refuses to hit back. The British Pound is up, something that is useful only for Americans working in or with London who insist on getting paid in Sterling as a 25% automatic salary bonus. Oil tried to bust the dollar, but all those ills inflicted upon the dollar merely drag oil down in less consumption from less growth. Not even gold can replace the dollar. If the gold bulls and the dollar bears really had their way, gold would be in the 800s. But, like the euro, gold is up but only up a little, and far below what the headlines would have us believe. As bad as are expectations against the dollar, the reality-expectation loop for everything else is tilted far more off the wrong edge.

As William Howard Taft said, as an aggregate, there's no ass like the ass that is Wall Street. Currency traders are caught in a circle-jerk that they're afraid  either to break off or bring to its dramatic end.

(Sorry for the stray visuals)
 

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