The Dollar is Weak, and...That is Good!

Let's start out by reviewing the action of the dollar for the last 20 years—since the 1990s.  In the 1990 bank crisis, the S&L problem was huge, but many forget that the massive losses that the major banks had on their books were from foreign loans—principally to countries we refer to today as emerging markets.  The inflation rate was growing at triple digits, and their currencies were plunging.  Their leadership was largely a consortium of crooks that had milked everyone they could, based upon them paing bribes to get entrance into their economies.  It was an evolution, but it would have never started without the massive economic bankruptcies that forced action.  In the chart below, you can see the actions of these countries' currencies since April 1993.

Click to view larger image.  Chart from Thomson Baseline.

From 1990 to 2002, the cost of U.S. merchandise went through the roof, based on the dollar rescuing those bankrupt countries.  Of course, WalMart and the U.S. consumer took full advantage of the situation by buying cheap, cheap foreign produced goods.  And what about Europe?  You can see a chart of the Euro below.

 Click to view larger image.  Chart from Thomson Baseline.

The Euro was only initiated in 1999, and it suffered right along with the other currencies until that low in 2001-2002.  The U.S. was not only bailing out the emerging countries with the stronger dollar, but the Euro as well.  Between 1999 and 2002's low, the dollar moved up 25% and the Euro moved down 24%.

In 1990, we slowly started the evolution of bringing the emerging and teetering countries back from the brink of bankrupcy into an evolution of democracy.  But it certainly hurt our exports and exploded our imports.  Ladies and Gentlemen, that evolution is about to pay off with a huge expanision in our exports.

So today's message is that, as these currencies come into a healthy state, we will see a much stronger consumer.  And with that, a much stronger and healthier United States will emerge.

To read today's complete Market Comment, click here.

Don Hays

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