Power And Dollar

Dollars and stocks

Dollars and stocks

 

The stock is falling!

 

http://money.cnn.com/2008/02/29/markets/markets_afternoon/index.htm?cnn=yes

 

And, the dollar is falling!

 

http://www.bloomberg.com/apps/news?pid=20601087&sid=aXJ2_jFdMyZI&refer=home

 

Guess what is going up?

 

http://online.wsj.com/article/SB120430230236203171.html?mod=googlenews_wsj

 

Oil!

 

What is going on, aside from Bush’s deficit?  Who is creating this nightmare?

 

Eh… Election times, folks.  Election gives you political uncertainties.  No investor likes uncertainty.  So, institutional investors will park their money somewhere, i.e. less risky places.  

 

How is this election making US risky?  Well, NO, not this election is making US risky.  It’s all elections create risk for the market.  Elections mean new government will come into place.  That may mean new regulation, new fiscal policies.  These things affect specific industries.  For instance, Democrats promise to renegotiate NAFTA.  That could mean public traded Canadian oil companies may get affected, since they primarily export to the US.  Here it goes with the stocks.

 

Public spending is uncertain.  No one knows what the new budget would be like in 2009.  so no one can figure out if buying US bonds is smart.  So, one may go with a EU bond, Japanese bond, or even in a New Zealand bond.  And of course, when one buys a New Zealand bond, that money is then in New Zealand dollars.  Sell US, convert into New Zealand dollars, and buy New Zealand bonds.  Now, the US dollars go south.

 

Why then is oil going up?

 

Ah… oil is still being traded in US dollars.  While the value of oil may not change much in UK, EU, or even in Timbuku, since US dollars is falling and remain the same in euro, yen or yuan.  So, oil, along with other commodities can only go up, EVEN when all other US economic data show positive.  And we know it is not, so they can only go up even faster.  

 

Individual indicator may go well for the States.  Individual trading day or industry may go well in the States for a period of time.  However, this political uncertainty has to get settled so that this free fall can reach ground.  

 

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February 29, 2008 - Posted by | Current Affairs | , , , , , ,

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