Talking Up the Dollar
Wednesday, June 11th, 2008
By Michael Lombardi, MBA for Profit Confidential
First Treasury Secretary Henry Paulson started talking about a stronger U.S. dollar. Fed Chief Ben Bernanke was next, commenting on how risks to the economy are fading and controlling inflation (via a higher dollar) was the Fed’s next priority. Finally, President Bush got into the act, telling us how a stronger dollar is in the interest of the U.S. and the global economy.
All this “talk” of a stronger valued U.S. dollar has been working. The principal method to get the value of the U.S. dollar rising against other world currencies is to raise American interest rates. By yesterday, the futures contract on the Chicago Board of Trade showed that there is almost a 100% chance that the Federal Reserve will raise interest rates by this December.
The “talk” has pushed the dollar up to a three-month high against the yen. (Too bad oil is not sold in yen!)
While most consumers are under the assumption that the value of the U.S. dollar against other world currencies does not matter unless you are traveling outside the U.S., investors understand that the value of the dollar is of utmost importance to the financial markets. Case in point at this time: Oil prices.
The U.S. dollar has fallen almost 10% against the euro and eight percent against the yen since September of last year when the Fed started decreasing interest rates aggressively. Reduced domestic interest rates mean a lower valued U.S. dollar. And oil producers in other countries do not like getting paid in a currency that is declining in value.
My message in PROFIT CONFIDENTIAL these past weeks has been consistent: I’m seeing higher interest rates in the near future. As I started writing in January, the U.S. economy is not in as bad shape as the majority of analysts and reporters have been claiming.
Bernanke’s fast interest-rate cuts saved the economy again. The Fed now sees the importance behind keeping oil prices (and inflation) in check. Therefore, it will soon start moving interest rates higher to bring oil prices lower. All that “talk” of a higher U.S. dollar is really “talk” of higher interest rates. And that means that the housing market will continue under pressure (or least will not get better) for some time to come.
Next Post: Chinese Stocks Hit a Rough PatchPrevious Post: Keep an Eye Out for Small-Cap Deals
Tags: euro, interest rates, U.S. economy
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
