Market Nosedive Pushes Dollar Down

Stock markets are still spooked on Wednesday following the US government’s rescue of AIG (AIG), the world’s largest insurance company, late Tuesday. In the forex markets, the US dollar is trading with a weaker hand. The aversion of a near-term collapse of AIG hasn’t brought joy to the US dollar, and fears of more trouble potentially brewing in the US financial sector could hurt the dollar. The US dollar is weaker against the Euro, Swiss franc and the British pound in forex trading, but is stronger versus the Canadian dollar and the Australian dollar. The Japanese yen has gained strength versus the US dollar, British pound and Euro as traders cut back on carry trades in light of the bearish stock markets.

Chaos reigned once more in US stock markets, with the Dow plunging more than 300 points at the time of writing. Stock analysts, who said that Lehman’s (LEH) bankruptcy and the US government’s bailout of AIG would calm the markets, are wrong. Apparently, many people, particularly retail investors, are scared that there might be more worms lurking beneath the carpet. It is not that people do not know what’s going to happen, but rather, they aren’t sure which shoe will be dropping next.

The sharp fall in stocks was despite the US Treasury saying it will start selling bonds for the Fed to aid it with its lending efforts, and the SEC announcing that it will strictly enforce a ban on naked short-selling beginning Thursday. All the talk about market manipulation due to short-selling activity is rather ironic, considering that the government is the biggest market manipulator and by introducing these restrictions, it is further “manipulating” the markets, trying to force an end to the downside.

Investors’ fear is rising again, as can be seen from VIX , which rose to 32% on Wednesday from 30% at market close Tuesday. Is it too soon to call it a bottom when the VIX is not near the peak fear high (49%)?

Economic Calendar For Thursday:

UK retail sales 0830 GMT

SNB rate decision 1200 GMT (rate expected to stay at 2.75%)

US initial jobless claims 1230 GMT

US Philly Fed 1400 GMT

Comments

[SW Richmond:]

Grace, you really don't see the connection between the treasury's action and gold's?

2008 Sep 17 04:30 PM

[Reinko:]

Quote from the one before last link in the article above:

Top government agencies are working to supply themselves with much needed liquidity Wednesday, as they scramble to raise capital to salvage crumbling financial institutions on Wall Street. The U.S. Treasury Department is working to raise $40 billion through the sale of cash management bills, which it will then send to the Federal Reserve as they attempt to salvage the swiftly disappearing bedrock of Wall Street.

Comment: For over four years I am studying the US financial system, today I found another thing I knew nothing about:

What are cash management bills exactly? If you can sell that stuff at a 40 billion a day pace, that stuff is very interesting.

__________

For the rest: Good currency actions observed, gold was hammering hard and I hope the food prices like wheat, soya, rice and grain stay under control. If not:

More decoupling is needed...

2008 Sep 17 06:05 PM

[cristian:]

This is not a catastrophe, not such a terrible crisis. A crisis of the fat boys on Wall Street, may be. Look at the difference between SPY and IWM. Never mind TGT. Should tell you a lot. Let the bums pay for their mistakes, hopefully investors will keep management on a shorter leash.

2008 Sep 17 06:45 PM

[sysdo:]

It is certainly too early to call a bottom IMO.

I'd much rather just sit on the sidelines and watch this situation play itself out for a while. Jumping in and committing a significant amount of capital, with all of the uncertainty howling through the markets, seems like a total gamble at this stage.

2008 Sep 17 06:53 PM

[dlaw:]

The 30-day is down to levels not seen, well, ever, and the headline is that the DOLLAR is down?

Huh?

Short rates MAKE a forex price.

There is a historic level of not getting it on this site.

2008 Sep 17 07:29 PM

[Market Holiday:]

Important video on the current state of the markets and our nation:

www.tickerforum.org/cg...

2008 Sep 17 08:03 PM

[C Short:]

Marketholiday:
Thanks for posting the video. It was very informational.

2008 Sep 17 08:15 PM

[green_cheeks:]

Mr. Economy, meet Jenny Craig.
We are going on a financial water fast. We are excreting all the unpleasant tumors that have been residing in the financial nether regions.

Things are falling apart. Some say that everything is going to be alright once the housing market starts back up again. Hasn't everyone had the chance to own a house already? If they haven't failed in their bid for ownership, then their knuckles are bloody and their hope is fading with every head shot as they hold on to their homes. Hard to get a loan when creditors become less lenient. Jobs are also handy and they are disappearing like pine needles popping in a forest fire.
Are we expecting all the DINKs to get divorced and buy separate homes?
Even if you get a home loan and can afford the mortgage for a while, you still have to eat, fuel your car and have some fun. And that costs more every day too.
It is all very interesting to me. And I have lost some money myself, so I am not standing on high ground here. I just don't understand how home purchasing is going to prop the economy.
Or people could just slow down. Eat less. Use less energy. Be simple.

By the way Grace, you sizzle.

2008 Sep 17 08:49 PM

[Will Rahal:]

I have been a Bearish for a while.
As a frequent commentator here, I want to let you
know that I belive that a ST/IT bottom has been put in today.

2008 Sep 18 01:45 PM

[Robert Nilsen:]

I probably should not post here as I am not a trader .. and have absolutely no business dealing in FX.
As such, I rely on the "basic fundamentals" and have had some positions in FXA, FXC and FXM .... NOT because of some magic formula but for the yield and the underlying fundamentals of the US dollar.
The world is awash in US dollars. Deficits (trade and budget) are beyond any level of reason. There is no sign this trend will NOT continue. The "printing presses" are going 24/7/365 so .. dare I apply the laws of supply and demand? .. the trend for the greenback can only be down.
For yield and some comfort look into the FX series (Canada, Mexico, Australia.) They are deposits in New York banks, provide nice yields and offer, in my opinion, some price appreciation potential if one has patience and a time horizon beyond tonight's dinner.
I currently hold a few shares of FXA. Have done rather well in the past (mostly dumb luck) with FXC and FXM... but I liked the yield along with the luck.
God Bless America!

2008 Sep 23 04:10 PM

[Ramzi:]

me too ... but I was considering converting my US dollars into another hard currency with high interest rate and the AUD fits that requirement. However my question is is there a credit risk or default risk by Rydex (the institution that offers FXA). what if Rydex goes under? is the FXA gone with it, or do we, as investors, maintain owenership of the AUD deposits at JP Morgan? can comment Mr Nilsen?


On Sep 23 04:10 PM Robert Nilsen wrote:

> I probably should not post here as I am not a trader .. and have
> absolutely no business dealing in FX.
> As such, I rely on the "basic fundamentals" and have had some positions
> in FXA, FXC and FXM .... NOT because of some magic formula but for
> the yield and the underlying fundamentals of the US dollar.
> The world is awash in US dollars. Deficits (trade and budget) are
> beyond any level of reason. There is no sign this trend will NOT
> continue. The "printing presses" are going 24/7/365 so .. dare I
> apply the laws of supply and demand? .. the trend for the greenback
> can only be down.
> For yield and some comfort look into the FX series (Canada, Mexico,
> Australia.) They are deposits in New York banks, provide nice yields
> and offer, in my opinion, some price appreciation potential if one
> has patience and a time horizon beyond tonight's dinner.
> I currently hold a few shares of FXA. Have done rather well in the
> past (mostly dumb luck) with FXC and FXM... but I liked the yield
> along with the luck.
> God Bless America!

2008 Sep 28 10:12 AM