What's Bringing the Dollar Down

" What that could also impacted dollar and today we're really going to do a special focus on the dollar all throughout the two hours that we've got together. We know this the dollar is near an all time low gold at an all time high oil is up. A lot of it having to do with the dollars so let's begin with some basics right YA. Is the US dollar so down and out well as a few reasons here let's walk through number one. It's really a decade long weak dollar policy right and is -- back to the Bush Administration you could say well you know politicians come out and say. A strong dollar is in the nation's best interest yet they say that. But they don't go to -- about it so we've really had this sort of implied weak dollar policy. For the better part of a decade you've also gotten yet we know the deficits we talk about -- all that government spending. We'll debt growing faster than GDP -- another big reason right off that debt sort of reduces the value of our assets. You got the money printing which Peter talked about there the quantitative easing if you will the Fed with interest rates basically zeroed out. You know point five basis points zero point 25%. -- liquidity out there right so record low interest rates and the money spreading. We call liquidity when you add more something to the system you tend to reduce the value of that which is already in the system I ET the dollar. And of course all that potential talk and various reports. At a reserve currencies for countries like Saudi Arabia Russia China will they stop buying as many dollars will they start using other currencies may be like the yen. The Euro or even the Chinese renminbis. Lot of discussion there about whether or not the US dollar will hold its place as basically to de facto world reserve currency. So that's why the dollar is down what about the impact. Of a weaker dollar well I guess the outside of weaker dollar would be that right stronger stock markets sure. Got stocks makes it cheaper to buy foreign assets and if you've got. You know a big buyer in Germany who's sitting on the Euro that is now worth nearly 50% more than the -- They can come in and they can buy out our assets. For laughs so we are seeing the stock market rise partially on earnings optimism but also partially on that weaker dollar. The downside might be this we talk about higher oil and gold prices. Also known as the threat of inflation you look at countries that are notoriously printed tons of money I mean we're not going to compare us. Necessarily to state post World War I Germany or Zimbabwe. But the more you -- of something you're going to eventually re inflate the system we're seeing already with gold and oil so the concern about hyperinflation. That is one will remain on the short term most people think deflation is a bigger short term concern. But ultimately inflation if wages begin to rise inflation will also become a big story. And capital flows out of America. One of the things we hear about the weaker dollar is this pay. If we reduced the value of the dollar. That will instead US manufacturers. To build more and those hire more people because they can sell their US made goods around the world. For less money. Yes but there's always a -- right. The downside is that capital will also tend to flow out of the country in other words. Other nations can borrow dollars. And then reinvest in their own country for less money kind of a global carry trade if you will borrow cheap. Build outside of America ask yourself this folks. If a weaker dollar necessarily helps bring manufacturing jobs back to America. Why we lost so many manufacturing jobs in the last ten years when the dollar has been. -- but a downtrend. For the last ten years so least the last decade a weaker dollar has not helped bring manufacturing and jobs. Back to this nation let's talk more now about the dollar or somebody knows a lot better the night. Nick Bennett broke he is head of currency strategy at Wells Fargo and he joins us now nick -- to see again more okayed the reasons why we put forth for the weaker US dollar. Do you think their ballot."

" While -- Motorola suddenly a group assassinated -- the audit bureau of a lot of easy money out there right now the very low interest rates for example and here is the central and on neglect of the dollar policy make is you greeting US as an implied weak dollar policy. Yes it's it's really not are several relevant terms with a Dole's going we have a you know administrations as we support of all all we don't support the -- Probably isn't going to have a lot of impact on the currency is going but the one area where would substantially disagree with you is this idea of the deficit labels and and we know that they're very hard the United States and and it's not welcome little. But the other competing currencies would be -- all of -- say the British pound the Japanese in for example. They have the similar talks problems for -- or worse or worse in the data Japanese deficit on GDP basis worse than ours well right now the -- but the debt levels of the cumulative deficits over the past for example our -- hard for example in Japan and so there. We I don't believe -- a structural decline of the Paula I don't believe in as they did this document and when you look at who's buying up treasuries for example. Foreigners are still buying treasuries is mainly central banks not so much right now the private individuals but there's still the month of -- purchases of treasury bonds treasury bills. So I don't believe we're seeing a structural decline of the dollar the -- missing more cyclical decline. Were reflected in the state of the economy. Cyclical decline and would imply you believe the dollar is set at some point in the relatively near future. To gain. Against other world currencies right you can kind of put one of sort of around those parts of words that you want in terms of relatively near its look and an issue of harming but the good news for the all the bulls in my opinion and I -- to be a gullible you are -- for example is that what we're seeing is a cyclical Deloitte decline in the dollar as opposed to a structural decline at all. The cycle can change the -- can come back for example. So that's why -- think anything can happen will it happen will the dollar strengthen meaningfully and long term. We saw the dollar strengthened for a few months earlier this year against the -- That would bite right back and weakness what we believe the postal at a very early stages of what could be a multiyear uptrend for example and we think it will strengthen in 2000 -- may be to be a little flattering 2011 but the two government can we think the ball will be stronger. We think a lot of that is going to have to do with wing central banks stop pointing. Not only the federal suit but the central banks around the world because we believe again that a lot of the -- weaknesses drew more true liquidity as opposed structurally arguments we're in the state of the economy because you it's. Isn't really doing that bad relative to Europe."

" That you can get that that's that's what's interesting I think when you look at the US and we have our problems it's not as if the Euro zone nations. Or sitting pretty it's not as if China doesn't now China of course has that fixed range so they've kind of got an artificial. Level for their currency. But the Euro zone economies many items primarily Italy Greece they're very -- they've got significant problems. Why do you believe the Euro has been able to hold on this level against the dollar."

" I I think the prospect of liquidity we certainly don't think that the US is under performing other areas of the royal world for example and so when you look at this liquidity that the Federal Reserve UK for example the Bank of England have injected. What what has had -- to the global financial markets we we believe that supporting equity markets we believe that supporting commodity prices for example and we don't believe that the equities will be commodities. And necessarily fully supported by the state of the economy."

" Very quickly did you hear Peter Barnes he talked about this test cover reverse repo program the Fed is ready to do now I know it's subtle complex reverse repo it's market jargon. Basically what that means is the Fed is going to test how to start to get some of that liquidity out. Which might be the first step toward raising interest rates might seem to cover story in Barron's this weekend pay raise rates. Win rates begin to rise to eventually they will have to whether or not it's qualitatively through the reverse repose or through Fed's direct action. Is that a sign the dollars is gonna."

" Move up well well it has but as police unfortunately slightly too early yet and you're seeing. Little reaction to the Barron's article for example limited reaction to to what happened with the -- the recall announcement you really to -- comments from the chairman Bernanke for example he -- from the we're taught me when you start to see some senior individuals from people who were really got the hands. Ronald relieve the that's when I think speaks Tutsi the good stuff."

" Nick Bennett Brooke Wells Fargo and it always a pleasure thank you very much we appreciate it all right moving on for the dollar and."