Monday, September 10, 2007

Dollar Index Down .13% to 79.86; S&P Down 1.85; Dow Up 14

The dollar fell again today against individual currencies like the euro and pound, but also against the basket of key currencies known has the dollar index ($USD). The chart below is something to keep as a reference featuring both the dollar index (candles) and the solid black line which is the 3 month treasury yield.

Many eyes are on the dollar. Failure of 79 won't be a good thing with the key wild card being how overseas investors react to the dollar's decline. Do they stay put, or do they dump not only dollars, but also dollar denominated assets like U.S. stocks?

The inclusion in the chart of the 3 month treasury yield is to show just how low interest rates interest rates fell to by 2004. The last 3 years have been portrayed as a "strong" time for our economy thanks in large part to the housing boom which was fired up by the Fed rate cuts that pushed fed funds down to 1% .
The dollar index has been telling a different story about the health of the U.S. economy and those who have paid attention aren't surprised that the bubble enhancing effects of super low rates, along with bloated federal and current account deficits have come at the cost of hobbling our currency and lifting the pace of inflation. It's no accident that a diminished currency has led to more costly imports, not the least of them being the price of crude oil.

It will be interesting, indeed, to see what happens to the reserve currency of the world in the face of rapidly deteriorating U.S. economic fundamentals, non stop inflation of the money supply and potential Federal Reserve interest rate cuts. Will 79 finally be broken in earnest? Stay tuned.

The bulls and bears slapped each other around, but the Dow ended up just a tad and the S&P 500 slipping a scosh. The stock market impasse came as the market figured out that today's news paraded as bullish was not enough to give the overall market a big boost: Apple (AAPL) annoucning the sale of its millioneth iPhone, Intel (INTC) pre-announcing stronger than expected revenue and news a "reclusive billionaire" picked up a 7% stake in Bear Stearns (BSC). An intraday deficit of about .75% was erased with the help of further speculation that OFHEO might be loosened up to allow mortgage financiers Fannie Mae (FNM) and Freddie Mac (FRE) to take on bigger mortgages.

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