Dollar Din

09/21/2007

The frenzy of dollar-bashing has reached a new peak in the last few days, in our impressionistic sense. This morning our local newspaper had, as its LEAD story on the FRONT PAGE, an article bringing DIRE TIDINGS of the DOLLAR'S PLUNGE. This article constitutes an apogee of sorts, we think, for the rising crescendo of DIRE WARNINGS about the grim fate of our currency.

We do not purport to be currency "experts," nor do we wish to prognosticate about the dollar's prospects. We do, however, offer a few observations based upon LONG, LONG observation of media excitement and its relationship to FUTURE TRENDS:
(1) The media -- including the most eminent and supposedly sagacious organs of information -- are generally at the VERY BOTTOM of the analytical food chain. Consequently, their pronunciamentos generally reflect WHAT HAS ALREADY HAPPENED, RATHER THAN WHAT HAS YET TO OCCUR;
(2)All other things being equal, the longer a trend has been in place, the closer it is to the point of reversal;
(3)If one considers the highlighting by the media of something as a DEVELOPING TREND, one can usually be fairly certain that the trend is long in the tooth and close to the point of reversal;
(4)Putting all this together, it is our view that acting on the basis of the "guidance" afforded by media highlighting is almost invariably a high risk/ low reward venture, at the very best;
(5)Taking it one step further, it may be wiser to regard the klaxon of screaming headlines and TV excitement over a "developing" trend as a signal TO POSITION ONESELF TO DO THE OPPOSITE.

As far as the fall of the dollar is concerned, we would note that it has been going on for awhile. Since markets tend to LOOK AHEAD, our gut feeling is that a great deal of the future economic slowing in this country has ALREADY BEEN PRICED INTO THE DOLLAR. We also wonder how the availability of cheap, high quality U.S. assets -- growing cheaper by the minute in currency translation terms -- will affect investment decisions among sophisticated managers of gargantuan pools of foreign capital (Middle Eastern and East Asian, in particular) looking for superior, SAFE investments in a globally low-yielding environment. Finally, it is hardly a secret that a falling dollar boosts exports and reduces imports, not only treating the undesirable huge trade deficit but implying strengthening export, manufacturing, and technology sectors down the road,with positive longer-term implications for growth in the American economy and an eventual rebound of our currency.