May 20, 2003
The Strong, Tumbling Dollar
No More Voodoo.  Snow makes it crystal clear that the US backs a weaker dollar

Perhaps Mr. Snow didn’t receive enough attention as a child. Or perhaps, on a dare or bet, he is trying to accomplish in less than one year what took Paul O’Neill almost two years to do (that being getting fired for making one too many off the cuff, market influencing statements).  Whatever the case may be, US Treasury Secretary Snow’s words have been one of the leading stories in the financial markets for the last two weeks. And judging by the action in the markets yesterday, noting today’s NY Post headline ‘MARTS TANK; FOREIGNERS PULLING OUT’, Mr. Snow may have said too much.

In fact, the problem may not be with Snow’s intent, but with his delivery and timing.  To be sure, by trying to talk down a dollar that was already in decline, Snow risks igniting a flight from US assets. 

Snow Tells Foreign Investors to Leave?

Last week Snow said that a slumping dollar would help exports, and leading into this week he commented that the dollar’s decline had thus far has been ‘fairly modest’. Granted, these words are not that shocking considering that Snow’s predecessor, O’Neill, previously stated that he opposed lending corrupt governments like Brazil money. Nevertheless, and like O’Neill had to do when the States (IMF) bailed out Brazil, Snow may soon have to recant or hedge his recent comments. 

Since most investors already believed that the US probably wanted a weaker dollar, it is likely that Snow’s remarks are being overanalyzed.  Nevertheless, it just seems odd that when foreign investors are already heading out the exits in an orderly manner, that Snow would try to boot them out the door. After all, until yesterday the US financial markets were applauding a weaker dollar, but now, thanks to Snow’s off the cuff comments, stocks are looking at the falling dollar as if it were a curse. Quite frankly, making sense of the situation is about as easy as making sense of Snow’s Greenspanesque comments:
 
“The crazy thing is the confusion Snow has sown…He said that as long as the US economy is stable, he thinks that constitutes a strong dollar. But what the hell does that mean?  His comments really don’t make any sense.”
Jim Kerr, head of foreign exchange trading at Royal Bank of Scotland


As for the US economy, April Leading Indicators managed a slight uptick, but the internals of the report were not promising.

“Five of the ten indicators that make up the leading index increased in April. The positive contributors - beginning with the largest positive contributor - were index of consumer expectations, real money supply, stock prices, interest rate spread, and building permits.”

“The negative contributors to the index - beginning with the largest negative contributor - were vendor performance, average weekly initial claims for unemployment insurance (inverted), average weekly manufacturing hours, and manufacturers' new orders for nondefense capital goods.”

The main economic positives in the US are consumer expectations, an increasing money supply, and rising stock prices.   For those of you with a good memory, these were the main economic negatives leading into 2000.  

 

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