Well, that is textbook stuff, Doug. But this is a different ballgame. Money has been fleeing to the US out of the "safety" motive, not unjustified fear that the world economy is tanking and the US is the safe haven. With Greenspan's noises, traders are less scared about the world economy. So, it is greater confidence that the rest of the world is not so bad off.
Evidence for this is that is not just the currencies but the foreign stock markets that went up, and sharply. Of course, it is quite likely that this will all unravel again fairly shortly. Barkley Rosser On Tue, 8 Sep 1998 10:00:24 -0400 Doug Henwood <dhenwood at panix.com> wrote:
> pms wrote:
>
> >I don't grasp the currency thing. Why does the dollar decline because
> >Greenspan says he might cut interest rates. I would think that would mean
> >that anyone who wanted into Tresaries would snatch them now...are currency
> >values connected to the bond market? Do people like Soro's actually buy
> >money or is it a country's bonds that get bought.
>
> All other things being equal (and when are they, really?), lower interest
> rates mean that capital will leave a country in search of higher rates
> elsewhere; higher interest rates attract capital. So, the knee-jerk
> reaction to Greenspan's hints of ease (which were only hints, and not of
> ease, but of shifting the Fed's stance for a bias towards tightness towards
> a neutral position) is a lower dollar.
>
> And Soros & Co. don't buy cash - they buy assets denominated in the target
> currency, like government bills or bonds. With short-term instruments like
> bills, you're speculating mostly on the currency move, since short-term
> rates don't move that much; with bonds, though, you're dealing with
> something that can be very volatile, so you're making a double bet, on the
> currency and its interest rate markets.
>
> >And I read somewhere that gold was up because Treasuries were no longer
> >looking "invulnerable". Does that mean the bond market thinks the guv will
> >default. What are they, closet Marxists. Really, do they just make this
> >stuff up for the rubes.
>
> In many ways, they're the rubes, or lots of them are. Never overestimate
> the sophistication of a trader. They don't fear default by the U.S.
> Treasury. Well, a few lunatics might, but that's not a serious possibility.
>
> Doug
>
>
>
-- Rosser Jr, John Barkley rosserjb at jmu.edu