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246 comments on DrumBeat: May 24, 2006

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Darwinian on May 24, 2006 - 10:16am Permalink | Subthread | Parent | Comments top
The Dollar index, which is the dollar measured against a basket of all other major currencies, sits at .85 today. This is a drop of .04, from .89 where it sat at the beginning of 2006. However at the beginning of 2005 the index sat at just above .81. It goes up and down. There is no reason to believe that the dollar will not recover as it usually does.
http://futures.tradingcharts.com/chart/US/W

The ultimate cause, but not the proximate cause, of this oscillation is the inflation rate in the US as measured against the inflation rate of the other currencies. If our inflation rate is higher than theirs is, the dollar will drop, otherwise it will climb.

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BrianT on May 24, 2006 - 10:18am Permalink | Subthread | Parent | Comments top
In the short term. In the longer term, the fundamentals will win out.
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Darwinian on May 24, 2006 - 10:21am Permalink | Subthread | Parent | Comments top
Yes, the fundamentals will always win out in the long run. However the inflation rate in the US verses the inflation rate in the rest of the world ARE the fundamentals in this case.
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BrianT on May 24, 2006 - 10:30am Permalink | Subthread | Parent | Comments top
No. The fundamentals are the current account deficit (mainly) and the fiscal deficit. The published inflation rate in the USA doesn't have the credibility it once had.
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Oil CEO on May 25, 2006 - 12:59am Permalink | Subthread | Parent | Comments top
How are they measuring it? The credibility, I mean. And where do they publish it? Somewhere near the American League East box-scores, I hope.
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BrianT on May 25, 2006 - 6:34pm Permalink | Subthread | Parent | Comments top
Don't believe everything you read.
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tate423 on May 24, 2006 - 10:39am Permalink | Subthread | Parent | Comments top
Real inflation is approaching 10%.  Our own Fed doesn't get it right, so why should I trust any inflation number coming out of any other country?  Bottom line is countries are becoming more disinterested in our money, so the Fed is monetizing the debt.  Any other countries doing this?  I don't know, but if not I think it's safe to say we will have higher inflation than most any countries.
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Darwinian on May 24, 2006 - 10:49am Permalink | Subthread | Parent | Comments top
The published inflation rate does not matter. What matters, what moves the dollar verses other currencies is the REAL inflation rate. Currencies will always seek their own level in the world marketplace. When the dollar buys less in overseas markets, that means it is inflating faster than other currencies, therefore it will fall. If the dollar buys more it means the dollar is stronger, or rising if you will. Published reports count for nothing, real buying power, currency verses currency, determines the level of all currencies.
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tate423 on May 24, 2006 - 12:13pm Permalink | Subthread | Parent | Comments top
I completely agree.  I'm pointing out that the published rates do not jive with the reality, that's all.  So real PPP is determined on a micro level every day.
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Apuleius on May 24, 2006 - 10:25pm Permalink | Subthread | Parent | Comments top
Those fundamentals include all sorts of emerging problems around the world. China has a bad loan and corruption problem. The euro is causing all sorts of problems by making the European countries have roughly the same interest rates instead of letting them float. Not a problem in America because people in America move. But Europeans stay put even if their home country's economy is in the pits (relatively speaking) and so the euro has them kicked in the shins pretty bad. Then you have Chavez making every economy around him jittery.

So in other words, the dollar won't tank, but for reasons that don't leave much for hope.

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DIYer on May 25, 2006 - 7:08am Permalink | Subthread | Parent | Comments top
In the long term, you die.

Meanwhile the 'invisible hand' is gonna slap you silly.

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wstephens on May 24, 2006 - 10:42am Permalink | Subthread | Parent | Comments top
If the dollar index makes a little rounded bottom at 85 on your chart then the "chartist" could see this as a head-and-shoulders bottom (on the monthly chart). -- Shoulder early 2004, head late 2004 / early 2005, and shoulder mid-2006 (now). BTW, I am not a chartist.
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