Lou Thomas

Currency ETFs: The Euro is 'So' Yesterday

seekingalpha.com/artic...

Your statement that the U.S. is not heading for the bread lines is a bald assertion, and I certainly do not agree. In a way, you are begging the question, since U.S. economic weakness is at the heart of the dollar's weakness. Some evidence, please!

The article argues that a steepening Treasury yield curve (happening at the time the article was written) is a sign that the market expects a recovery. But as of this writing, just a day or so later, the curve has flattened, which shows just what a fickle indicator that is. And even if it had not, a steepening curve is an ambiguous signal; could it not just as easily mean that a lack of confidence in the dollar is expected to force the Treasury to increase yields to attract fleeing foreign investors so that the massive U.S. debt can be financed, *despite* a continuing economic need for more interest-rate relief? Such circumstances, even though they include an interest rate increase, would not be a net positive for the dollar.

And besides, since when are Treasury investors such oracles about what is going to happen next to the dollar? They have an opinion, expressed collectively as a number, and as a columnist you really ought to be performing your own analysis rather than tapping into their "group mind," because it might just be the group mind of a bunch of confused sheep reading columns like yours.

Then there is the pure speculation that the ECB will have to cut rates. How long have dollar apologists been predicting this, only to be slapped in the face by Trichet? But they love to take a beating, and keep reciting the same old line, even though Trichet says very clearly and consistently that inflation is his main concern. As for the Fed stopping cuts, we are already at a differential of 2 percent - is that not enough for you? Already the dollar is becoming a funding currency for a carry trade. And will the Fed actually stop when the economy is continuing to slide?

And then there is the claim that because gold is taking a breather the dollar must be safe. Wrong. Your own chart, taken as a whole, shows that gold is down over the interval shown, and so is the dollar! So, how is gold going down an indicator that the dollar is about to rise? And once again you are relying upon the group mind of a gaggle of investors instead of making an original analysis from your own data. Gold is extremely volatile, and therefore not a good predictor over the short term. By contrast, the price of oil usually moves inversely to the value of the dollar - have you noticed what *that* is doing lately?

Why do you ignore that the U.S. trade deficit is still 5.5 percent of GDP? The IMF World Economic Outlook Report for April, 2008 indicates that the deficit is not sustainable at levels about 2-3 percent. It was at 7 percent in 2005. Since then, the dollar has declined almost 20 percent, and we have only lost 1.5 percent of GDP from the deficit as a result. That would indicate (by my rough logic) that we have at least 30 percent more to hack from the dollar's value before the deficit can stabilize.

Still plenty of ARMs to reset. Still a huge and growing unsold inventory of foreclosed homes. Citicorpse is selling potentially 400 BILLION in assets! Just how broke do you think they are to sell that much stuff? How much lending to the real economy do you think they will be doing under those circumstances?

Oil producers are considering unpegging from the dollar. 6 trillion dollars are in foreign hands waiting to slurp our portable commodities out of the country, driving up prices, and to dump the rest on foreign exchange markets to get the currencies of nations possessing viable exports.

You have cherry-picked the data, or simply made claims with no data, to support the dollar-positive thesis that you seem to have written on a blank piece of paper when you first conceived of this article.