1) The dollar has bottomed on a multi-year basis after a major test in 2009.
2) Interest rates are going higher as this recovery “normalizes” in 2010; we see 5% on the 10-year T-note before the year is done.
3) US job growth will be surprisingly strong.
Will the world economy be able to continue its recovery process as global monetary stimulus measures are phased out?
That’s a good question; and I doubt I can sufficiently answer it ... except to say that it’s probably a lot easier said than done.
Any dollar bull story must consist of the Mr. Greenback relinquishing its role as carry trade currency i.e. primary major currency borrowed to fund risky asset and other high yielding investments. The Japanese yen, the all-time carry trade champ, looks like it is about to be anointed once again.
Last Friday I penned Growth and inflation? Key to our 10 reasons the dollar has bottomed. I hope you believe me now. One of the key points to the dollar move was “Carry trade idea history.” History we think because the Fed may surprise on the interest rate front; we expect US interest rates on the front end of the curve to exceed anything Japan has to offer soon. In that case, the Japanese yen once again inherits the carry trade mantle. It is one reason why we are bearish on the yen going forward and why our Members are positioned for such a move.
Well, this is something we haven’t exactly seen in a while. The US dollar is making good on positive fundamental developments; granted it’s being helped along a bit by ongoing worries in Greece.
In case you missed it, another credit rating downgrade of Greece has pressured its bonds, the spread between 10-year Greece and German government bonds has widen to 269 basis points. We haven’t seen anything that wide since April ... and the record during the euro’s existence sits a tad bit north of 300 basis points.
