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Commentary & Analysis
Nine reasons why the US dollar could positively surprises in 2013
I know it makes a lot of sense to be worried about the future of the US and the dollar. The growing fiscal nightmare and limp-wristed response is frightening. And given my hard money bent, being a huge fan of the Austrian school for about thirty-years and running, I sometimes don’t sleep too well at night (no problem napping during the day, however) thinking about the endgame. But as we know, currency trading is two things if it’s anything…
- Relative…if your neighbors problems are worse, you don’t look so bad
- Perverse...even if the US triggers the problem, money comes back to the US to hide thanks to reserve currency status a la deeper capital markets and shrinking competition (global hold of euro is fading fast)
…making the sum of the parts a lot more than just “relatively perverse. “
On that note here are nine reasons why the dollar could surprise on money flow; that driven by risk, and that by foreign direct investment based on positive fundamental themes:
- Growing tensions in Asia as Japan and China squabble over some small islands that seem to mean a great deal in principle to both countries. History can be a bitch.
- The Italian Energizer Bunny Silvio Berlusconi rearing his interesting head again and gaining ground in the upcoming Italian election, as he makes nice with the Northern League. He of course is running on an anti-German populist plank that will like scare more capital out of Europe.
- Total lack of G-20 cooperation on global financial issues. The last G-20 was poorly attended and the big boys sent underlings. We are in the its everyone for themselves as global deflation presses down harder.
- Cross-border banking going into a shell, likely means dollar funding is leaking out of the global economy as the European banking system continues to delever exposure outside of home markets. (See BIS paper)
- Implicit trader war between the US and China as the Chi-coms continue to suppress the value of their currency in an attempt to keep their export-driven growth intact. (See the International Economy magazine, “America’s Chinese Headache,” Fall 2012)
- Rising energy independence for the US economy is good for the current account deficit and makes domestic manufacturers relatively more competitive.
- “On-shoring” is happening. There is an increasing trend of US manufacturers bringing their plants back home from China and surprisingly GE is leading the way. (see Atlantic Magazine, December 2012)
- US lead in 3-D printing will make the US relatively more competitive and threatens to obsolete those giant plants in China. (see Caijing magazine)
- Little Timmy “Tax Cheat” Geithner is going away.
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