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Minyan Mailbag - Dollar

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Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next column with that very intent.

Prof. Succo,

For the past year or more, we have been hearing from the teletubbies that a lower dollar will help our trade gap by making our exports cheaper. As we saw in the trade stats today, however, this is not happening. Quite the opposite: the trade gap is actually getting worse. Will the pundits keep using the same spiel until they are right? What's going on here?

Minyan Ed

Ed,

The lower dollar is usually quoted as the DXY, but that index is heavily weighted to Europe. Our main trade problem is with Asia. A broader dollar index shows that the dollar has not fallen against these currencies nearly as much. I can guess why.

Secondly, even as the dollar drops, foreign manufacturers will cut margins to hold onto market share.

These market forces will grind for a while against central bank intervention. It will only delay a major lower dollar eventually against Asian currencies.

Regards,
Prof. Succo

No positions in stocks mentioned.

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