Wednesday, August 19, 2009

Conspiracy theory of the day - manufacturing dollar's decline

International bondholders are sweating on a strong USD policy - if you believe the party line out of China (though it has been awhile since officialdom rattled the cages about a devaluation being akin to default - maybe they are just voting with their feet now).

The US admin remains supportive of the strong USD, at least officially, but are we seeing the groundwork being laid for a devaluation?

Consider the public statements from Warren Buffet and Pimco over the last week. These guys move markets. They also have been known to share the sauna with the administration. What are they really saying then?

Compare and contrast with the shrill cry of Peter Schiffer when asked to comment on these 'the USD is going lower' views. Here is a man raging outside the gates (but wanting to get in - he is running for the Senate after all).

I've been a supporter of the contrarian call on the USD - that the short trade is crowded and the bounce that began a week or so ago would kick on for a while. But given these ramblings coming out of the council of elders, I'm now not so sure.

Let's not call it competitive currency devaluation. Maybe it's just a way of getting inflation kicked started. David Rosenberg has some pretty compelling charts (via Traders Narrative) of how deflation has a vice like grip for the moment.

And as Bill Gross states "reflating nominal GDP by inflating asset prices is the fundamental, yet infrequently acknowledged, goal of policymakers". Wonder who else was in the sauna?

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