Thursday, November 12, 2009

Currency Wars!!

WSJ is reporting this morning on currency intervention being conducted by a number of countries in an attempt to prop up the dollar.

The report appears to be a riff off of an analysis prepared by Win Thin, a currency strategist at the secretive, but powerful, Brown Brothers Harriman, the oldest and largest partnership bank in America, with long term Rockefeller and Bush ties.

According to WSJ, Thailand, South Korea, Russia and the Philippines have been propping up the dollar through foreign exchange purchases.

WSJ continued:
In Latin America, Brazil's finance minister said the country's currency remained too strong, sparking speculation that the government would intensify recent efforts to curb the real's ascent. On Tuesday, Taiwan banned foreign investors from parking time deposits in the country in an effort to ease upward pressure on the local currency.
Geithner, on the other hand, in today's Asia WSJ OpEd called for a halt to foreign exchange intervention (Likely aimed, for the most part, at China)

In short, nations of the world are ganging up to prop up the dollar by weakening their own currencies, in the mistaken mercantilism belief that somehow exports are better than imports.

These interventions tend to be short term aberrations, and never work long term, as market forces tend to be much more powerful. The best way to generally trade the interventions is to bet against them. That said, the interventions this time appears to be occurring during a period when the dollar is likely to strengthen anyway because of the Fed's tight money supply policy.

In other words, the trade here is to buy dips in the dollar, especially against non-Chinese Asian currencies. You then have two factors going for you, the likelihood the dollar will strengthen anyways and Asian countries providing a put against significant downside dollar movement.

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