Take my currency-Please

While the volatility in Equity and Credit markets over the past year has been quite benign, the volatility in currency markets has really heated up this year, most likely as a response to a perceived shift in Fed policy. What has really driven capital flows however has not been the relative rate adjustments by Central Banks, but the perceived economic strength of the U.S. vis-a vis almost all other G7 and non G7 countries. We have all heard the cute little analogies used to describe the relative strength of the dollar: ” The cleanest of the dirty shirts”, ” The smartest kid in summer school”, etc..  What is interesting to us is that such minuscule yield spreads are the impetus for such drastic movements in the relative value of currencies. Not only that, we are completely astonished that no one is really advocating the positioning into something which can hold its value relative to all currencies; namely hard assets.  We know that our astonishment is too dogmatic however, as we are all aware that  in reality Financial Markets are constructed to deliver product, most of which is designed to give people what they think they want and not what they really need. We still adhere to the precept of mean reversion (both in returns and relative currency values); a philosophy which is completely contra to todays current ideology. Kings don’t live forever, fade King Dollar and Buy Stuff

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