Maniac in Motion

How Bad Is the Dollar's Fall?

We're reaching a bottom for the dollar. Coming from the biggest dollar bear, that's saying a lot.

Central banks are now intervening to keep the dollar decline moving further. The dollar weakness is threatening how global companies do business. Foreign companies have already complained to government that revenues and profits are being hurt because the revenues earned from America convert to weaker profits in their home countries. Weaker profits make for weaker earnings per share, damping down stock price. On the flip side, the dollar weakness inflates earnings for US companies because of the currency exchange, which is why I'm getting slightly more bearish on US equities.

As a result, central banks are making coordinated efforts to buy more Treasurys, which keeps a further dip in the dollar in check. People's Bank of China, Bank of Japan, Bank of Israel, Bank of England, and the European Central Bank are all accumulating treasurys at these price levels. For instance, if the European Central Bank buys more US treasurys, then it keeps the Euro/USD ratio from rising further, which would hurt profits for companies in the EU. Plus, when the dollar goes up in value, they have an awesome accumulation of treasurys they bought on the cheap.

Thinking an entire country will go belly up is ridiculuous. It's foolish to think we'd go back to a gold standard. We are a global, fiat currency system. One developed country's currency weakness will not undermine every developed country's currency. What next? Are we going to start jumping on horses and stagecoaches because gas is too expensive in the short-term? Yes, there is some doom + gloom being circulated, but don't fall for the gold conspiracy like so many others. Gold is not an inflation play, and it's definitely not a currency play at these levels either.

If you wanna protect, just buy another currency. Although with meaningful central bank interventions around these levels, it may already be too late.