Posted By: Matthias Paul Kuhlmey
The legendary Jeremy Grantham, of asset manager GMO, describes in his latest market outlook the aspect of the “negative” European vs. the usually optimistic and, hence, more daring and successful American (oversimplified interpretation). Having been raised in Germany, this observation makes sense to me, especially when considering the northern hemisphere of the European continent; with this in mind, I pledge to change! Going forward, I will remove my bearish stance from blogs and market/economic updates. Here we go.
Yesterday, Federal Reserve Chairman, Ben Bernanke, gave his first ever news conference after the FOMC meeting. In his view, things are just fine. In summary, Mr. Bernanke stated that the U.S. Economy will continue to grow, despite a (structurally) high unemployment rate, weak job growth, and an exceptionally weak housing sector (raise pitch of voice slightly to convey enthusiasm). Further, Mr. Bernanke commented that the controversial policy of buying USD 600 billion in Government Bonds will not extend beyond its June deadline, but, at the same time, he did not signal any inclination to cut the program short. Mr. Bernanke also stated that, in his view, the U.S. follows a Strong Dollar Policy. Last but not least, inflation expectations have been raised.
Overnight, the U.S. Dollar Index traded at 72.8, nearly testing the lows marked in 2008 – the “good old times” when the Carry Trade was the big thing (a strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase a different currency yielding a higher interest rate). In consequence, most risk assets, including commodities, continue to move higher, and it is no surprise that Regular Gas at the pump in New York is now selling at between USD 4.03 and 4.62 per gallon. The U.S. Dollar even traded at nearly 1.49 (!) against the Euro this morning (be mindful a higher value indicates a weaker Dollar, and this is an increase of almost 25% from a low of under 1.20 last May), even though Greece is moving closer to default and restructuring every day, and the crisis in Europe (in my view) has not fully run its course.
All in all, a positive development, right?