Bernanke disses the dollar

Last week Fed-head Bernanke took a slamming from the powers that be in Congress when those all-too-incompetent politicians exacted some revenge on the chairman as he defended his record in navigating the American financial system through the treacherously stormy waters. Sure, they want him back for another term – they just wanted to give him a kick in the balls on the way there, so as not to get one from their own constituents.

On Monday traders waited with bated breath to hear the first comments from Mr. Bernanke following the dip in the unemployment rate to 10% for November. Just to keep you up to date with the story, traders bought the dollar last week upon the announcement and sold bonds in the expectation that the easy money policy they could see beyond the horizon might soon end.

Many have termed the heeling economic process as a jobless recovery, which is pretty apt. But it was still strange to hear the update from Mr. Bernanke’s own lips. One might have expected that he’d have greeted the employment numbers with a little more glee than he did. He was uncharacteristically stingy with his commentary and chose to maintain the broken record.

Mr. Bernanke continues to see a modest recovery. He still sees muted inflationary pressures and that the consumer price index may still fall in the months ahead. In short, he looked right through the data and essentially ignored it. From the perspective of equity investors there wasn’t much positive to take away, while bond holders might muster an improved appetite for fixed income as a result.

But the bigger impact was felt by the dollar. As I noted above investors flocked to the dollar after Friday’s report because they were rather worried that the zero cost structure of borrowing dollars for the past year or so might be coming to an end. In other words an imminent interest rate increase might be on the agenda.

The dollar surged against the euro and the yen. The dollar had taken over the role over the last six months of being the market’s whipping boy. Borrow dollars, sell them short and buy other currencies and invest abroad. The carry-trade victim used to be the role of the Japanese yen – but no more! The dollar jumped three cents against the euro following the release of the report and it added a couple of cents against the pound as it finally faced the prospect of losing its shackles!!

But Mr. Bernanke! What are you saying? Why are you saying that? Surely he knows the consequences of downplaying the recovery and stretching a new canvas on the easel.

Really! You’d think the Federal Reserve chairman actually wanted a weaker dollar. Now there’s a thought….

The Supreme Council of the Secret Order of Jurojin

 Tyche Research

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