Today's News

The new reports dorve the markets today. The dollar increased over 1%, gold plummeted 4% and crude oil dropped 4% as well. All of this occurred as the most recent unemployment numbers came out with unexpected results. Jobless claims were expected to increase by about 150,000 jobs. Instead they increased by only 11,000, an amazing statistic. One year ago we were losing jobs 700,000 jobs a month. New jobs at retail stores gearing up for Christmas sales probably drove this statistic.

In the BBFiles analysis, today's numbers support the theory that the American dollar is no where close to a default and, in fact, is probably approaching a bottom. Lets examine the chain of events that has driven the value of the dollar. Before the recession began the dollar floated between 70 and 75. This is low, but not dangerous and reflected America's large fiscal and trade deficits. When the recession struck, there was a general "flight to safety" (in which investors seek the safest investments) and a lot of investors rose the value of the dollar to about 86 by buying American dollars. Then, over the last several months, investors have gained confidence and slowed their purchases of bonds, thus driving the dollar back down to pre-recession levels. But it also reflects the amount of money that has bee created to fight the recession. Therefore, the value of the dollar should be

DollarValue=(Pre-recession Value)-(Value Lost Due to Increased Money Supply)

When numbers like today are reported, investors realize that the Federal Reserve will begin reducing the money supply, so the (Value Lost Due to Increased Money Supply) will decline, thus raising the value of the dollar. Assuming the dollar is close to a bottom, the Fed can really put the dollar wherever it wants by adjusting how much money goes into the system.