Monday May 9, 2005 - 09:59:46 GMT
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Black Swan Capital - www.blackswantrading.com
Reasons for a higher dollar
“I know one sure tip from your broker…your margin call.”
Our intermediate-term story hasn’t changed. Here are four reasons why we think the dollar can continue to move higher.
1) Relative positive US economic growth - Despite some major concerns, the US economy is growing much faster than its competitors.
2) Relative positive rising dollar yield differential – It all comes back to the Fed.
US dollar interest rates are rising—at least on the short-end of the curve. But they aren’t rising anywhere else at the moment.
3) The carry or reflation trade is being unwound. When the Fed Funds was sitting at 1%, it was an easy game…borrow short and lend long…or leverage long into bonds, or stocks, or real estate or commodities…when the cost of money was basically free…why not take it…
But the Funds rate has tripled, and is due to go higher, this game is over…but there is still plenty of leverage to be unwound in the system.
4) Trouble in Asia will lead to funds flowing back into the US dollar. We believe China will land hard, possibly even crash…and that will probably be good for the dollar (as institutional money rushes back on shore) and bad for most every other asset class…
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