The dollar went down today!?!
I thought maybe I misunderstood what happened this weekend but, this evening: "French Finance Minister Christine Lagarde said investors haven't grasped the magnitude of the Group of Seven's shift in stance on exchange rates, likening its significance to the 1985 Plaza Accord. “It's a strong statement which I am not sure the markets have yet fully understood and appreciated.''
The Plaza Accord was an agreement reached by the then G5 to DEvalue the dollar against the Yen and the Mark. Over the next two years, the value of the dollar to the Yen declined 51% thanks to the movement of currency by Central Banks. At the time, the idea was to help the US reduce it's 3.5% current account deficit by inflating the GDP away from debt (something we are now addicted to) and to boost US exports, particularly autos. The slide in the dollar was halted by another CB intervention called the Louvre Accord two years later.
Lagarde's remarks indicate she may be frustrated that the dollar failed to rally today after the G-7 warned that recent “sharp fluctuations'' in exchange rates risk hurting the global economy. The group of seven major industrial nations issued their statement after the dollar slid 8 percent against the euro and 6 percent versus the yen since they last met in February. The April 11 statement was “not very different'' from the importance of the 1985 Plaza Accord, she said.
So a G7 Minister is also dumbfounded by today's action in the dollar and commodities. Back in 1985 all it took was a statement and the dollar moved 5% within days, the G7 purposely watered down their language to avoid a very sudden move but apparently, they sure weren't expecting no move at all!
Make no mistake about it, the people who literally control all the money in the World are telling you they are going to pump up the dollar and it will get pumped up but I suppose they were kind of hoping they could get away with more talk and less action but the US economy isn't exactly inspiring any confidence this month. The problem is that the G5, back in 1985 dwarfed the actions of currency traders and it took less than $10Bn to drop the dollar 50% against other currencies. Now, close to $3Tn PER DAY is traded on the Global Forex including $9Bn a day traded by Japanese housewives (it's a hobby over there).
So perhaps it now takes a while for the news of G7 intervention to filter down to the now millions of people who trade currencies in the Global marketplace or perhaps these traders have become a beast that can no longer be controlled by 7 bankers in an ivory tower. The genie is well out of the bottle and isn't going back without a fight and if the G7 wants to prove they are relevant, they are going to have to assert themselves here and teach a new generation of investors that they ignore the wishes of the G7 at their own peril.
The markets had a lazy day today ahead of a busy week's earnings. PBR found 33Bn barrels of oil in Brazil, topping the 5Bn barrels they found last year and they still have a whole, promising, 3,000-mile coast left to explore. The discovery of the world's 3rd largest oil field, of course, sent the price of oil higher (that would be the sarcasm font). No one really knows how much oil is out there. “Salt is difficult to see through for a geologist because salt absorbs seismic energy,'' geologist Dick Gibson said in an interview today. “Also, a decade ago the physical technology didn't exist that would even enable you to drill in water that deep.'' At $100 a barrel, you can expect a few rocks to get turned over looking for oil…
This makes the PBR Jan/May $125 spread attractive at $12 net – it's a little risky but it will be fun to play.
We got awful news from CROX today but the capitalist tools at Forbes wrote a glowing peice on AAPL who said: "Everywhere you turn this year, Apple's machines are on the march. Apple's iPhone is continuing to gobble up the smart phone market. Apple's PCs and notebook computers–long relegated to a niche status–are tearing off big gobs of the PC market. Even Apple's least successful effort–AppleTV–has rivals such as Blockbuster scrambling to blunt Apple's attack."
Like I said though, with AAPL and everyone else, it's all about earnings this month and tomorrow is the first of three very heavy days with lots of big names reporting (more on that in the morning).
