The US dollar has been surprisingly weak recently. In fact we are at the lows not seen since just after the US government shutdown when treasury default jitters (see post) sent investors fleeing.Source: barchartWhy is the dollar so weak? Reasons includ…
The U.S. dollar has been the world’s de facto reserve currency for almost 90 years.
But this financial dominance may be nearing its end.
Let’s talk about the so-called Volcker Rule.
When the Dodd-Frank Act was signed into law in 2010 – the bank-busting, save the system, “we’ll never again have a financial meltdown that could destroy the world” legislation – it was more of an outline.
As a follow-up to the discussion on “risk-on/risk-off” (see post), there is further evidence that the market dynamics that have been in place over the past four years have recently been altered. The negative correlation between the US dollar and the US…
Something strange happened in the market today. The dollar (DXY) and the US equity indices traded lower – together.
Historically one would indeed expect a positive correlation between these markets. After all, a healthier US economy – at least in principle – should benefit both the US dollar and the stock market. And the reverse also holds true. But these are not normal times. Since the financial crisis, the correlation has been consistently negative, making today’s move unusual.
|Correlation between the dollar (DXY) and the S&P500 (daily returns, rolling 90 day correlation)|
That’s because markets switched into the “RORO” (risk on/risk off) mode after the Lehman collapse. And the dollar has clearly been viewed as a “safety asset” – an asset that rallies in a risk-off scenario (see discussion from 2009).
So does today’s bout of positive correlation point to signs of normalization? Only time will tell. But this relationship is important to watch, as it will signal any major regime changes in the market and a potential shift away from RORO.
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The reign of the United States dollar as the only reserve currency in the world may be coming to an end. Over the last five years, the U.S. centric balance of economic and military power has been destabilized with the crumbling of the social welfare states of the European Union and the rise of the […]
This is a syndicated repost courtesy of Money Morning. To view original, click here. European Central Bank President Mario Draghi warned about excessive euro strength at a press conference today (Thursday) following his announcement that the ECB had left interest rates unchanged, as expected. In response to a reporter’s question on whether there was a…
This is a syndicated repost courtesy of Sober Look. To view original, click here. US crude oil prices have been moving up for nearly two months now. There are a number of reasons behind this strength in crude, including ongoing Mideast unrest, expectations of higher demand from China, and of course the QE-driven “risk-on” trade.…
While the U.S Federal Reserve claims it needs to keep interest rates near zero to help the economy, renowned economist Peter Schiff says there’s another reason.
According to Schiff, the Fed has little choice: If rates began to climb, the interest payments on the ballooning federal debt would explode making annual budget deficits far worse.
“We’re now so addicted to debt that the highest rate we can afford is zero,” Schiff, the CEO and chief global strategist of Euro Pacific Capital, told Casey Research chairman Doug Casey in a video interview published today.
“We pay about $300 billion a year right now in interest on a $16.5 trillion debt,” Schiff explained. “What if, in two or three years — and the debt is $20 trillion — what happens if interest rates are 5%? Well, that’s $1 trillion a year in interest payments.”
This scenario is not at all far-fetched; the historic norm for interest rates is just below 5%, and rates in the early 1980s were triple that.
Another reason the Fed fears higher rates, Schiff said, is that it would probably bankrupt most of the “too-big-to-fail” banks that the government bailed out back in 2008.
“The only justification for keeping rates so low is that the Fed knows any increase in rates will collapse this phony economy and we’ll be right back in recession,” Schiff said.
This is a syndicated repost courtesy of Money Morning – Only the News You Can Profit From. To view original, click here. This is a syndicated repost. The opinions expressed are those of Money Morning and the author, not those of the Wall Street Examiner. The Wall Street Examiner makes no representation regarding the accuracy…