Yet More Currency

I had a lot of comments left on my post this morning about Market Angst caused by the dollar.

One reader asked what I meant by re-pricing as opposed to normal market gyrations. I'll try to explain with an analogy. In May 2003 Genentech (DNA) had huge news that took the stock from about $35 to $55 overnight. From there it went to $70 in very short order. The market re-priced the future significance of Avastin. The things that threaten the dollar, the stuff that dollar bears have writing about forever, may have kicked up a notch with some new visibility toward what the Bernanke years might look like or maybe there is something else.

Another reader pointed to 80 as a line in the sand for the dollar index, currently it is around 84. OK, lets keep an eye on 80.

RW asks whether at the same time it was taking away (raising rates) the Fed was also giving (adding liquidity)? I'm not sure about that in the current announcement but money supply has increased by more than 10%.

Roberto left a very dollar bearish comment and asked about the now forgotten (by the media) Iranian Oil Bourse. He asked for my take on the importance of oil trading in euros. The Iranian bourse by itself is not a concern to me because I don't think the world is going to line up to trade oil with Iranin this manner. I do view it as a start to something bigger. I think it creates a clear path to less global demand for US dollars.

This will lead to the need for a re-pricing of our currency. If this holds water I would expect it to play out over several years, cause some discomfort (higher interest rates and a weaker dollar) but not cause financial Armageddon.

If this happens and the magnitude is worse than I think it would cause a lot of things to get hit hard. The last couple of days have been very ugly. They could be a microcosm if the magnitude is bad.