Why Big Ben Can’t Save the Buck
(No Matter What He Says This Time…)
Also In Today’s Letter…
What a wild ride Bernanke took us on yesterday!
Yesterday, the Big Kahuna, Big Ben Bernanke rocked the currency markets when he stepped up to the podium at the Economic Club of New York. Here’s where it gets interesting. Big Ben announced…
“The Fed will monitor closely the currencies, and that the Fed’s policies will ensure that the dollar is strong.”
Now, when he first uttered those words, traders started buying the dollar and selling non-dollar currencies. But then, a few of us in the industry had this strange feeling that we had heard all this before…
Wait! Haven’t We Heard This Before?
There in the archives, circa June 2008, Bernanke said…
“In collaboration with our colleagues at the Treasury, we continue to carefully monitor developments in foreign exchange markets.”
In June 2008, his statements spooked the markets into believing the Fed was really going to do something to bolster the dollar. But then nothing came along, so traders REALLY sold off the dollar.
In fact, the dollar would have probably kept falling, except the stock meltdown last fall sent traders rushing for dollars as a “safe haven,” (which of course it isn’t, but that’s the argument that sent the dollar rallying until March 2009).
By the way, since March 2009, the dollar index is down more than 18% against the world’s major currencies…
…and the Fed has definitely NOT been helping matters.
I mean what has the Fed done in the past year and a half to “bolster the dollar?” They’ve kept interest rates near 0%. (And will probably keep them that low for longer than they should.) They’ve implemented quantitative easing to pour cash into the system. They’ve bloated the balance sheet of toxic bonds.
In other words, the Fed-Heads are actually doing more harm than good.
Why Traders All Called Bernanke’s Bluff
If you were watching the currency markets yesterday, you could almost see the V-8 moments on traders’ faces.
It was like traders around the world all realized at the same time that they had heard this all before. Nothing became of the Fed’s cheap talk before, so, wait a minute! We won’t get fooled again! No, no!
So instead of buying up dollars, they started selling. They sent the dollar to the woodshed. You should have seen the reversal! It was amazing…
The Big Dog, euro, went from 1.4970 to 1.4860, and then turned around to rise to 1.50!
And gold? Well, at one point in the day, gold shot up $24 on the day! It topped out at $1,142. Gold holders have got to love it! Those that keep waiting for a pullback. Well, they might be still waiting when the cows come home…
Now, overnight, there has been some renewed selling of the non-dollar currencies and gold. This morning the euro was back to 1.4910. Crazy…
But not as crazy as Big Ben spouting off about “monitoring the currencies.”
Yeah, right!
What are you going to do about currencies when they get out of line, Big Ben? Get the ruler out?
I’ll tell you what he’ll do: Nothing, absolutely nothing!
Memo to Big Ben… Ahem… Am I on? Ok, long-time listener, first-time caller: Big Ben… Just what policies are you talking about that will keep the dollar strong?
In the future, you might want to list them, so that people like that Chuck Butler, doesn’t rip your comments to shreds for their lack of truth, and facts.
That’s it for today… late today! Better get going… I hope your Tuesday is Terrific!
Chuck Butler