We live in oceanic times. Headwinds have lead to uncharted waters which have created economic Tsunamis and 100 year credit storms etc. Metaphor abuse runs rampant.
The Tsunami metaphor may be more apt than many give it credit for in the context of the US dollar.
A Tsunami is a collected energy shock that travels through the ocean as a small and sometimes barely visible wave. Upon reaching the shore, the wave energy is forced into a massive wall of water piling up. Before the wave hits at maximum height the water actually recedes from the shoreline before the oncoming killer waves.
The receding water lures many into venturing into the exposed beach to see what has happened (pity the investor who goes to look at the exposed shell). All to soon the full might of the Tsunami crashes upon them.
The reason I mention this is that the metaphor of the $ credit Tsunami may be a full blown allegory in which case one might suggest that the current rise in the dollar driven by a global flight to perceived quality might not be the full story.
Once the "quality" of a US economy with significant fiscal and consumer deficits is fully appreciated, we might see the fuller picture and act 2 of the tsunami. If you thought watching Oil lose 60% of its value over a few months was interesting, ponder for a moment the same potential for the dollar in the coming 6-12 months.
Consider the following:
- There are going to be many more dollars around due to current fiscal policy which is trying correctly to counteract the credit contraction
- The faith in the $ as a reserve currency is just that faith which is currently residing the "least worst option"
- The US economie's main street impact hasn't shown its teeth yet
- Many of the recent moves to $ based assets are short term trades not investments, it doesn't matter where they jump to next, just assume they will jump.
Thoughts anyone, comments?
I am still sticking with my Norwegian Krone recommendation and I am sure the gold bugs will chime in.
