When I'm not in front of my screens I love to read. But not so much about the financial markets. I try to save the financial-related reading for business hours for a variety of reasons, not the least of which is that the market-related stuff is often painfully boring and it's easier to stay awake in the office than in my apartment after dark.
My experience, however, is that virtually everything I read offers little strings that, when picked up and followed, ultimately lead back to what I do for a living anyway. Fiction, non-fiction, biographies, cereal boxes, it doesn't matter. Sometimes this is simply a symptomatic manifestation of the underlying sickness I carry around, an obsessive focus on the financial markets. Other times it can help me view things through a larger lens, construct a better perspective, see things a different way.
Last night I was reading a book by Nick Tosches called Cut Numbers. No it's not about the market, wiseguy - literally, it's a mafia thriller. Anyway, I ran across the following passage that I found interesting:
He reached into his pocket and removed a dollar. He sat down and placed the bill on the end of the table, closer to Louie than himself.
"What is it, Louie?" he asked.
"It's a dollar bill," Louie said warily.
"Right. It's a piece of paper called a dollar. When I was a kid, a dollar bill represented a one-dollar gold piece. It was like that until the Depression. Then Roosevelt outlawed gold, and a dollar bill represented a silver dollar. It was called a Silver Certificate, and it said 'one silver dollar payable to the bearer on demand.' You remember those. Eventually, twenty years ago, they put an end to that, and a dollar bill stopped representing anything: payable to the bearer on demand (nothing).
This, of course, is a fictional character's interpretation of the recent history of the U.S. dollar. And interestingly, it's from a book that was published in 1988, not more recently as you might expect given the dollar's spectacular fall from its 2001 high. So, as a fictional character's analysis, don't take it as a history lesson or a direct comment on the dollar. Instead, I bring it up because I find it thought provoking, maybe a bit of a conversation piece, and because it raises some interesting questions about what exactly a currency should represent. I think it might be a good idea to formulate an opinion about this. You never know, one day we all may be asked to participate in a debate over the precise function of our currency, or by proxy, vote in an election that serves the same purpose.
If you've been following the earnings reports and conference calls over the past couple of weeks, then you've heard quite a few U.S. corporate financial officers discuss the positive contributions of a weaker currency to their earnings. They are not alone in their enthusiasm. Sharing their appreciation for a weaker currency are U.S. Treasury Secretary John Snow, South African manufacturers, Japanese government officials, German Chancellor Gerhard Schroeder, China's leaders, and virtually every other country in Asia. Perhaps you are thinking, "Great, then we all agree." Unfortunately, all of this enthusiasm for a weaker currency is not directed toward the same place. Instead, everyone wants his or her currency weaker against everyone else's currency.
Again, the dollar is not necessarily today's business, but I believe it does bear watching, both technically and from a fundamental standpoint. The longer-term trend for the dollar remains down (see chart below) despite the more recent counter-trend move higher, and as the dollar edges closer to concluding its counter-trend move higher, I suspect those who have been voicing complaints over the dollar's weakness to again raise their voices.
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