Entering text into the input field will update the search result below

The Dollar Isn't Doomed, FT's Martin Wolf Says: "Big Shock Upwards" Coming! Posted Oct 30, 2009 07:30am EDT by Aaron Task

Oct. 30, 2009 10:25 AM ET
Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.
The Dollar Isn't Doomed, FT's Martin Wolf Says: "Big Shock Upwards" Coming! Posted Oct 30, 2009 07:30am EDT by Aaron Task inNewsmakers
Related: UDN, UUP, TBT, TLT, GLD, ^DJI, ^GSPC
The dollar resumed its downward path Thursday, lending credence to the idea any rally in the greenback is doomed to be short-lived. Many believe the dollar is going to lose its reserve status and more extreme observers like Mark Faber say it's on an inevitable path to zero.

Hogwash, says Martin Wolf, chief economics commentator at The Financial Times. In fact, Wolf believes there could be a "big shock upwards" for the dollar in the next six months as the Fed takes concrete steps toward tightening (or actually does raise rates.) That, in turn, would prompt an unwind of the dollar carry trade and cause major upheaval in so-called risk assets currently being purchased with borrowed dollars, i.e. stocks, commodities and high-yield bonds.

This view stems from a belief that Fed policy and interest rate differentials are the main drivers of the dollar strength or weakness, not deficits and government spending.

As for the mega-bearish views on the dollar's "inevitable" decline, Wolf makes the following observations:

  • The dollar isn't going into terminal decline because America isn't Zimbabwe or Weimar Germany, Wolf says, adding: "This is not a country with stupendous debt." (That's heresy to the dollar doomsayers but America's debt-to-GDP is not as high as that of many other industrialized nations, much less Zimbabwe or the like.)
  • The dollar won't lose its reserve status because there needs to be a viable alternative, Wolf says. Right now, only the euro provides legitimate competition to the dollar and will likely gain a higher share of international reserves over time vs. the current 65% dollars and 25% euros. But the Eurozone has its own problems, he notes, most notably high deficits and debts. (Just like America!)

"Remember what happened in the crisis [of 2008] -- people bought dollars," Wolf recalls. "There is no better indication than that of the market's belief [the dollar] is the safe haven, and that hasn't changed."


Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You