the US dollar is not a dead duck

Foreign Exchange Outlook: Risk aversion could come flying back in the window when we get two bits of data this morning, the Q3 GDP revision (8:30 am EST) and the Conference Board consumer confidence index (10 am EST). GDP will likely be rived from -0.3% to -0.5%, while the confidence index was probably steady at 38 in Nov, the same as Oct, according to the Bloomberg survey. This is not a deterioration but still the lowest since records began in 1967.

It’s notable that while we all hear Obama talking about infrastructure spending as a big component of the stimulus package, focus remains on the consumer. Even the finance guys at the Fed and Treasury moved from saving their buddies at the banks first to consumer credit second (not the housing sector, which would have been more logical). But consumer spending is not going to get us out of this thing. The only way for that to have been true would have been Helicopter Ben throwing $24,000 out of the sky for every person in the country. The Obama approach calls for the industrial sector to be revitalized by government spending, whether it’s wind farms or road-building.

This could be the post-industrial industrial revolution. Nobody has the slightest idea what it will look like, but given technology advances, it will probably result (in five-ten years) in a tremendous increase in labor market productivity. We tend to think of productivity as how many widgets a worker can churn out in an hour, but in practice, the US is a service economy and it runs on trucking. Better roads and bridges, together with an improved national electrical grid, are a tremendous injection of value into the economy (buy UPS and FedEx). Besides, it will be fun to see whether it’s really true, as we saw with Eisenhower’s interstate highway system, whether government is sometimes the solution and not always the problem, the old Reagan mantra.

This is to a certain extent the basis of the new optimism - one way or the other, all these experts, under Obama’s leadership, will fix things. Well, no. These are the same experts who may have warned us of impending doom but failed to get action (Summers) or to instigate action (Geithner). It ain’t over yet and nobody can even tell us what inning we are in. It’s the proverbial black swan situation and optimism-in the form of giant stock index rises-is unwarranted. We believe in trends. The Dow was up but has not reached red resistance. It could be an aberration. The same thing is true of oil, although gold has a pretty scary chart-two gap openings in a row.

Assuming more dismal new releases are out there waiting to hit us over the head with some calamity or another, the US dollar is not a dead duck. As noted above, the case for the dollar exchange rate demise has not yet been proven. We do not doubt that it will be one day, but not yet. Keep the faith.

Bye For Now

Barbara Rockefeller Foreign Exchange Trading
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