Market Report: Dollar Has Major Impact on Global Asset Prices

Have you been worried about the dramatic drop in the dollar? Are you worried that the dollar is falling because of our ballooning deficit or the fact that this country is printing money like there is no tomorrow? Well if the Fed is not worried maybe you shouldn't be either.

Panic time is over! The President of the Philadelphia Fed, Charles Plosser, says the drop in the dollar reflects the end of panic. In fact he even says its drop in value should not be a surprise and was even expected. Well yeah, if you keep printing money and keep rates below zero. Take that Nouriel Roubini! Mr. Plosser says that there is no particular reason why you wouldn't expect the dollar to go back to where it was before the panic set in. He says that the U.S. government has historically let the dollar fluctuate, and a weaker dollar in recent years can be understood as a market response to imbalances in the U.S. current account. The dollar as an instrument to tackle asset price bubbles, monetary policy alone isn't adequate, and that more research should be made on the issue of whether there's a connection between policy rates and such bubbles.

Well I can save him some time on that study. There is. We saw the dollar movement versus other global currencies scream out about the coming problems that affected the global economy. The dollar and its relationship to other currencies like the euro have a major impact on global asset prices. Of course Mr. Plosser's statements on the dollar other than the Federal Reserve does not seem to care and are a bit unclear. Does he mean that he thinks the dollar is going to turn around and we should stop buying commodities? Or is it another sign that the Fed has no real concerns about the weak dollar and rising commodity prices so for the foreseeable future the carry trade just carries on?

Well at least now we know that Obama is worried about the size of the US debt. He told Fox News that, "it is important though to recognize if we keep on adding to the debt, even in the midst of this recovery, that at some point people could lose confidence in the US economy in a double dip recession." Sobering words from a President but a good thing that he is publicly acknowledging the fact.

For the crude oil market the Energy Information Agency report seemed to be supportive but you have to keep in mind the numbers were skewered by Tropical Storm Ida. The EIA said that U.S. commercial crude oil inventories decreased by 0.9 million barrels from the previous week. That was a much smaller drawdown then reported by the American Petroleum Institute. After the API report, that might have been a bit negative if it were not for the fact that the EIA reported motor gasoline inventories decreased by 1.7 million barrels last week. Distillates were nondescript. The report gave us a bounce but stay tuned for next week's report.