Lou Thomas

Will the Dollar Recovery Launch a Bank Rally?

A few days of recent dollar appreciation is pretty sketchy evidence for the "dollar recovery" upon which this article is based. What we've actually seen in the last few months is dollar stabilization within a range through actual or anticipated currency intervention, capped by the recent (and not credible) jawboning by the Fed and the G8. On fundamentals, the U.S. economy continues to stagger, and other nations will not be willing to hold up its massive weight for long.

As for commodities, the present run-up may well be the result of banks attempting to backfill their subprime and credit default swap losses by speculation (using money from Fed credit lines!). A reversal of those gains in the short term depends upon action by the Commodity Futures Trading Commission action, but the CFTC seems quite willing to look the other way, even as Congress raises its eyebrows. It may well be that such speculation is all that is holding up the financial sector that you are predicting will revive. So, if I'm correct about this connection, then the very fall in commodity prices that your article predicts may result in the punishment of such speculating banks, and bring further pain to the financials that your articles predicts will rebound from funds shifting out of commodities and into the financial sector.

It such a volatile mess out there, and so much of what goes on is not public, that one has to make guesses as to what it really occurring, so there you have mine.

As you say, there is a falloff in demand at these rates, and so the upside of that market seems limited, while the downside is substantial, given that it is a bubble.