Is the Dollar’s recent strength a reflecton of improving conditions in the US — or Europe’s ongoing malaise?
Thats the question the front page of the WSJ asks this morning. It also provides the excuse I needed to introduce curency as a new category.
Chart: Currency’s gains reflect better outlook for U.S., weaker one for Europe:
WSJ: "After a long stint as the 98-pound weakling of major currencies, the dollar has put on some muscle in recent months, forcing currency traders to revamp their outlooks and giving a break to Americans traveling abroad.
The U.S. currency jumped Friday to its highest level against the euro in nearly seven months . . . The euro has fallen about 7% this year against the dollar.
The U.S. Dollar Index against major currencies last Friday posted its first weekly close above its 55-week moving average since April 2002. That’s a key resistance level, a kind of psychological barrier that helps define which way the market is moving. Breaking through it could persuade many currency traders that the dollar will continue higher. Commodity prices, which tend to move in the inverse direction of the dollar, also slumped last week."
Note that the technicals of the nearby chart: higher lows, and (mostly) higher highs. That’s the textbook definition of an uptrend. So where is this strength coming from?
"Some strategists and currency managers attribute the dollar’s newfound strength in part to encouraging U.S. economic data and worsening economic and political reports from Europe. They also cite a pause in the speculation that China is about to revalue its currency. Such speculation has been a source of downward pressure on the dollar.
Long-term structural issues, such as the trade deficit, still bedevil the U.S. currency. But a stronger dollar has an upside for the economy. It could ease concerns about U.S. inflation by reducing the cost of imports. A stronger currency also makes U.S. stocks and bonds more attractive to international investors."
That certainly sounds pretty good; The bigger question is whether this is merely a short-term, counter-trend rally within a longer bear market for the greenback? Its a realistic possibility that this is merely an oversold bounce of sorts.
The given explanation has an element of complacency in it:
"The dollar’s unanticipated resilience suggests that global investors may be taking a more benign view of the U.S. economy and its structural imbalances than they did a few months ago. U.S. consumers’ appetite for imported goods and the weak performance of American exports has sustained a huge trade deficit, but a recent narrowing of the gap has eased fears, at least temporarily, that ballooning deficits could spark a crisis. Fresh signs of jobs growth and strong retail sales have made concerns about an economic slowdown look slightly overblown."
This is an extremely important subject for markets going forward. Be sure to read the full article.
Dollar Rebound Builds On Stronger Economic Data
The Wall Street Journal
May 16, 2005; Page A1
China’s Wen: Won’t yield on yuan
Reuters, May 16, 2005: 7:26 AM EDT
Here’s a fascinating list of the top 50 cyber elite — the most influential titans of tech, and a great guide for how investors should put their money to work.
#1 is Bill Gates, and with good reason. Hasn’t he and his company done so much for internet technology? Of course he’s at the top of the list. Think of all the innovation Microsoft is responsible for.
#2 is Nobuyuki Idei, President and co-chief executive officer of Sony Corp. ‘Cause really,when you think of "Cyber," doesn’t Sony immediately pop into your mind?
#3 is Steve Case of AOL. ‘Nuff said.
Worldcon’s Bernie Ebbers is #11, GeoCities founder and chairman David Bohnett is #16, and
Lucent Technologies’ Chairman and CEO, Richard Mcginn is #18. Then there’s Eckhard Pfeiffer, Compaq’s CEO at #21.
Be sure to watch VC Ann Winblad at #22. Latest investments: "Keep an eye on Biztravel.com, Liquid Audio and wedding services and information site, The Knot." Oh, and she once dated BIll Gates.
And yet — somehow — the guys at Google got overlooked in this list. (I wonder how that happened?).
If you haven’t figured it out yet, I am pulling your leg. I left out one small detail: The list is from Time Magazine’s 1998 most influential Cyber elites. The point I hope to make is just how caught up in the moment the financial press can get (btw,that’s a new category I am introducing with this post).
Magazines love lists, and while this might make entertaining reading, its a classic example of exactly how dangerous it is to follow these sorts of rearward-looking junkets for investing ideas.
While the list as investing advice is laughable (Gerald Levin of Time Warner! Christos Cotsakos of E*Trade!), some of the quotes contained within are outright hysterical: The fawning over Eckhard Pfeiffer’s plans for Compaq.
But this one is truly my favorite:
The full 1998 list can be seen below:
Category: Financial Press