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Enough = Enough

10/28/2016

Did anybody notice that, while the stock market is leaking, the dollar has gained 2.6% so far this month?  This reflects market confidence that the Fed will raise interest rates in December.  But, it comes on top of a 36% appreciation since 2011.  The dollar has gotten too strong and presents a major headwind to US businesses trying to sell their goods abroad.  For the third quarter of this year, the current account deficit was 22% worse than Q3 of 2014.  Large changes in the current account deficit usually signal a top in currency exchange rates, which would be good for the stock market.

Normally, an appreciating currency reflects a strengthening economy, relative to other countries AND ignoring interest rates.  The US economy may be anemic, but it is not bad, especially compared to other countries.  The dollar is simply too strong.  This reduces the ability of the Fed to raise rates, as that puts more upward pressure on the dollar .  But, be careful what you wish for, as the price of oil will likely increase as the dollar weakens.

Maybe, it is time to book that European vacation . . .

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