This is what happens when we tinker with markets. You lose control. And yes, this is out of control. I’ve said it on the other sides of trades (during the flash crash) and I’ll say it now. Despite growing international backlash the dollar’s decline has been nothing short of extraordinary at -10% in less than two months. All risk assets are surging in an attempt to hedge against this loss dollar. Most importantly, commodities are rocking. My guess is that it’s only a matter of time before international banks makes waves.
In the wake of the Fed’s move to buy $600 billion of U.S. bonds, South Korea’s central bank was seen selling its won currency on Thursday in a bid to cap gains after it hit six-month highs in the run-up to the Fed announcement.
Brazil has announced a slew of measures over the past few weeks to curb the appreciation of the real currency by direct intervention in markets and doubling a tax on portfolio inflows, although the measures do not seem to have had much of an impact.
Mr. Bernanke has lost control of the game. And yes, that is what this is to him. We are in a bubble of sorts in many markets. There is no telling when that ends. I’ve clearly been wrong about the price action. I can only hope that Mr. Bernanke will be right about the fundamentals. After all, we’ll all be in a better place if he is. But thus far Mr. Bernanke has made a mockery of the dollar and the markets and history has not been kind to those who have done that in the past.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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