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Tuesday, January 22, 2008

A bet that the dollar will go up...

This morning I made a bet with a guy here at work that the US dollar would go up - reaching 19.00 crowns to the dollar by 01 March and 20.00 crwons to the dollar by 01 June. Of course, then the Fed went and cut the key rate that banks charge each other overnight by 75 points, from 4.25% to 3.5%. This has weakened the dollar even more and it currently sits at about 18.00, down from about 18.25 before the announcement. However, I stand by my analysis from yesterday and believe that the dollar will be "saved" by a worldwide (and possibly deep) recession.

Yesterday I mentioned the difference between the "old conventioanl wisdom" - that the rest of the world is tied at the hip to the US economy - and the "new conventional wisdom" that others, like the EU, had disengaged themselves from the US sufficiently that a recession in the US would not doom them.

Here is the EU in all of its "new conventional wisdom" glory. I call this an example of whistling past the graveyard. From the Associated Press:

The EU's economy chief on Tuesday blamed the United States' huge trade deficit for plunging shares on world stock exchanges, saying Europe was in a very different state and could weather the storm despite slowing growth.

"It's obvious that we are living in an uncertain period," he told reporters after EU finance ministers met in Brussels. Fears of a U.S. recession -- not a larger global slowdown -- were behind falling equity markets, he said, stressing that Europe was not facing similar problems.

I hope I don't lose this bet - it's for a beer!

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