The Empire Has No Clothes

I’m going to continue to track the relationship between equities and the dollar.  As discussed in several of our latest posts, there’s a real possibility that the normally inverse relationship will be positively correlated in at least the near-term.  In other words, everything tanks.

While the dollar has plenty of “issues,”  I expect that a falling equities market will trigger sell-offs in multiple markets, driving investors back to the dollar as a (arguably less) safe haven.  It’s certainly not as secure as it seemed a year ago, but the question remains:  what’s the alternative?  Ironic as it may seem, the dollar’s weakness may ultimately generate the kind of rally it couldn’t achieve any other way.

Tonight’s battle of the blowhards on TV and radio did little to reassure markets here or abroad.  It appears as though we will go down to the wire before both parties come to their senses and do what’s necessary to prevent more serious damage to the markets.  In the process, investors have become very well aware of the massive issues that will remain even after the deal is done.  The relief rally I once expected is increasingly looking like it’ll be a total dud.

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