Dollar Strategy

Yesterday was a great day on Wall Street. DJIA up 192 points or 1.38%, which puts the market back above 14,000. This surge in the market came despite Citigroup announcing that its profits may decline by 60% for the current quarter because of its subprime credit problems. Therefore, why did the market go up? Because the dollar is weak! That is the current conventional wisdom on Wall Street. A gradual dollar decline will help exports, which will be good for the economy. However, the optimal word is "gradual." If the dollar falls too fast, it could cause interest rates and inflation to rise, stock market to plummet, and foreigners to sell Treasury debt securities. Not a good scenario. However, take heart in that most economists believe that the dollar decline will be gradual and will not cause any major dislocations to the economy. In fact, the majority of economists, inclusive of the Fed, are saying that a weak dollar will help cushion the subprime real estate correction and be a real plus for the U.S. economy. In other words, the dollar decline will be contained. I believe we have heard all this before in which the containment crowd said that the subprime problems is not a cause for concern. I don't know about you, but I am not buying it. Then again, you be the judge and look at the following link that illustrates the dollar's performance: Trade-weighted value of the dollar.