http://www.dinocrat.com/archives/2007/12/02/a-reminder-2/#comments
{graphic at site}
We discussed the dollar versus the Euro and the pound the other day. IBD
gives us some additional data:
Look at the dollar weighted against all its trading partners, not
just a cherry-picked few, and you see the dollar hasn’t plunged at all.
It’s about where it was 10 years ago — during the Internet boom. It rose
sharply in the late 1990s, thanks to the outsized returns offered in the
U.S. markets compared with elsewhere. Today, after the Nasdaq meltdown in
1999 and 2000, a recession and 9/11, the flood of investment isn’t as
great.
True, the dollar has weakened against specific currencies — the euro
and yen are recent standouts — but that weakness must also be put into
context. The dollar strengthened in the late 1990s due to Mexico’s peso
crisis, the Asian financial crisis and Russia’s market meltdown and ruble
collapse. All of these sent capital fleeing to the U.S. Meanwhile, U.S.
stock markets were roaring. Anyone anywhere with surplus cash protected
it by investing in America.
Those who think a strong dollar means a strong economy have to
explain why, from 1997 to 2002, a time of record dollar strength, the
U.S. economy experienced a number of problems — including a stock
collapse and recession. Those conditions no longer prevail today.
Reccently, the U.S. also has been cutting interest rates, while the
central banks of Europe and Japan barely have budged. So far this year,
the Fed has cut its benchmark rate by 75 basis points. By contrast, the
European Central Bank has raised rates by 50 basis points. So the spread
has widened by 125 basis points in just 11 months.
Good to bear in mind, since we may well be seeing rate cuts in the US of
a further 100-150 basis points over the coming months.
--
Fred Stone
aa# 1369
Liberal: a power worshipper without power. - George Orwell
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