As I have mentioned in detail , with my blog titled ” A lopsided Trade”, the US dollar has been the new “carry trade”. Institutional investors have been borrowing billions of US dollars (at 50 year low interest rates) and re-investing these dollars into foreign currencies at higher rates of return.
This “carry trade” works very well, as long as the US$ is declining in value (or at least staying the same). Since early March 2009, the US dollar has been on a steady decline (from a high of approx. 89, on the US dollar index) to a recent low of 74.5 (on Dec 2, 2009). In the last week, we have seen the US$ strengthen to 77.3, effectively breaking this significand downward trend .
Dennis Gartman, in his daily newsletter, stated ” The US$ is very strong indeed and we hold to the notion that the dollar has gone through what we have called a WATERSHED shift in its trend, moving away from a protracted and universally embraced bear market, to what is now a protracted, but almost wholly unexpected, bull market instead. ”
The stock market has been almost perfect with its negative correlation to the decline in the US dollar, since March 2009…….the dollar has been in a steady decline, whereas the market has enjoyed a steady rise. With this significant change in the trend, look for the market to continue to decline, in the face of a strengthening US dollar .
The effects of this change could be significant……stay tuned.
Mike
