Thursday, August 28, 2008

Good news, everyone!

We can say with confidence the the barn door is now closed.

Are there any horses left? We'll have to get back to you on that.

Over the past few months, especially since last December, I've been reporting on the strength of the U.S. Dollar, or more accurately the weakness of the U.S. Dollar. This chart is the USD index over the past nine years or so, which measures the strength of the dollar against a mixed average of currencies, weighted strongly towards the euro, but including the pound, the Canadian dollar and others.

If I were a partisan hack, I might say "everything was peachy and then George W. Bush became president and things went to hell. The End." But that isn't true. The USD still looked good well into 2002, so the timing would be wrong to blame the steady decline on Bush or 9/11. It also doesn't correlate that well with the Fed rate changes. Whatever the market's long term disenchantment with the dollar is, it isn't easily 'splained with one single cause.

But as I said, there's good news, though it doesn't show on this chart because it has taken place mostly this August, and the chart only goes up through July. The dollar has gotten up off the floor. I noted that earlier this year, there were four currencies trading at more than a dollar, and the yen was worth more than a penny. Neither of those statements are true today. Here is the current situation with currencies.

British pound: just under $1.84, down from a high of $2.10
Euro: just under $1.48, down from a high of about $1.60
Canadian dollar: $0.955, down from a high over $1.05
Swiss franc: $0.916, down from a high of over $1.00
Japanese yen: 109.23 yen buy a dollar, down from a high of less than 100

Likewise, the precious metals, which all peaked at record levels in mid March, have retreated dramatically since.

The good news, of course, is relative and depends on the time scale. The USD is slightly lower than it was a year ago, but compared to the situation six months ago when it was under 71, the range now fluctuating between 76 and 78 looks great.

And then there's crude oil. On January 2, a barrel cost $99.33 and early this year, it looked like $100 a barrel might be a strong psychological threshold as the price retreated. But as the markets made everything that wasn't a dollar look good early in the year, even crude oil snuck along for the ride, and by the Ides of March was trading $110.15. This was a record high at the time, but it was overshadowed by gold busting through the $1000.00 an ounce threshold. Since then, with everything else falling back, people started noticing crude oil's rising price, and the financial news became front page news when crude flirted with $150 a barrel.

Then it fell back. Yay, market sanity! Right now, it trades $119.78 a barrel. It's hard to find any commodity or market index that has kept rising since March 15 except crude. Drilling now may seem like a solution to idiots, but I'm going to assume with cause that most of my readers aren't idiots. We don't just need more domestic oil. We need practical alternatives to oil, to break its status as a strategic commodity.

Did anybody tell us this before? Yeah, Jimmy Carter, thirty years ago. He was pretty smart for a peanut farmer, wasn't he?

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