The Dollar Shall Inherit the Earth

Includes: TBT, TIP, TLT, UDN, UUP
by: Danny Furman

Treasuries were snatched up more readily than expected (as usual) yesterday, likely spurred by accelerated risk aversion due to current weakness in stocks and commodities. With all the BRIC induced buck-bashing of late, signals are so mixed on the dollar that it seems arguments, counterarguments, truth, lies... are all one and the same depending on context.

Whether one argues strength or weakness, it is understood that the US dollar is THE WORLD'S reserve currency. Therefore, with the supply of dollars and dollar derivatives at all time highs outside the US while domestic jobs and wages contract, an objective outsider (obviously an alien since no such thing is known to exist) would likely ignore possibilities of inflation or deflation and merely assert a convergence in global wealth.

What this line of reasoning, assuming historically insignificant inflation, would likely require is that other countries peg their currencies to the dollar like China does, or even adopt uncle buck altogether. The fact of the matter is that dollars are internationally more available than ever before and most economies have far more flawed histories than ours. As long as new avenues of demand are continually created, supply can increase to no end.