>"The Dollar is an Accident Waiting to Happen" We hear this a lot -
>that the greenback's descent will ultimately come home to roost in a
>bad bond and stock market. First, there is no evidence, at least
>during the Greenspan Fed era, that the central bank ever altered
>monetary policy just because of the greenback. This isn't the Bank
>of Canada. Second, while it is true that the foreign-held share of
>American securities has ballooned alongside the burgeoning current
>account deficit (non-residents own roughly 40% of U.S. government
>bonds; over 20% of corporate bonds and 12% of equities), foreign
>central banks, mainly from Asia, have emerged as huge buyers of
>Treasury securities as they intervene to stem the dollar's descent
>(the PBOC, last we saw, is now the world's third largest holders of
>dollars and the BOJ reportedly intervened to the tune of over $20
>billion in Q1). Over the past three months, foreign central bank
>holdings of U.S. Treasury and agency securities have surged at
>nearly a 20% annual rate. And while we may not be the most bullish
>camp out there in terms of the equity market outlook, stocks won't
>suffer from a weaker greenback unless interest rates were to back up
>sharply. If that were going to happen, it probably would have by
>now. Besides, the stock market bulls continue to gush over the
>better-than-expected Q1 earnings results, which were largely skewed
>by the currency-translation effects from the dollar's slippage, and
>are likely to remain a source of support for top-line growth, at
>least for the multinationals, for several quarters coming.