The Stalwart

Dollar Talk

Don't know if it's a trend yet, but in the last couple of days, I've eavesdropped on two or three conversations of people talking about whether the dollar has bottomed. It all was based on action in dollar/oil over a couple days last week, as far as I can tell. Do normal people really just talk about this stuff casually?

More Dollar Rebound Talk

Brad Setser wonders if the Dollar's decline is over:

The Economist put the dollar on its cover this week. The Economist’s cover is a usually a lagging, not a leading, indicator: it signals that the dollar already has fallen significantly, and sometimes indicates that it is poised for a rebound.

Read the whole thing for a fuller, less anecdotal discussion.

(Disclosure: I have a very, very small EUR short position, which I placed at around $1.49. I'm not sure if I actually have to disclose a currency position -- but on the off chance that I could move the forex markets with this post, I figure it's best to CMA. You never know how small things can create a ripple effect -- the proverbial butterfly in China and all. Mainly I'm posting this disclosure because I'm amused at the idea of posting such a disclosure.)

Bottom Feeding the Dollar

Haven't pulled the trigger yet, but I'm intrigued at the idea of making a nice wager on the Dollar vs. the Euro.

It's not that the Dollar has such great fundamentals behind it right now, but the Euro? Why all the love? It's not like there's any oil there, nor are the European governments paragons of fiscal discipline. Stories like the ones yesterday, of European shoppers flying to the US for a leather jacket coupled with the Euro currency becoming a pop culture phenomenon help to crystalize the idea that perhaps that perhaps this is a bit overdone. Certainly it's hard to find anyone who will stick up for the lowly Dollar. 

But the currency does have a friend at Barron's

Thus, it comes as something of a surprise that GaveKal, an international investment-research boutique with offices in the U.S., Hong Kong, Paris and Abu Dhabi, recently penned a report lauding the dollar's prospects against the euro. In fact, in a telephone interview from Paris, firm founder Charles Gave terms the euro "grotesquely overvalued" at its current level. In the next couple of years, he maintains, the euro should fall to its "parity" value of $1.05 to $1.10.

Gave, whose firm's good track record has won it a large institutional following in the U.S. and Europe, points to several secular factors that bode well for the greenback versus the euro. For example, rapidly aging populations in euroland figure to decimate working populations there and increase the governmental financial burden at a pace far faster than in the U.S. European countries such as France have far higher debt-to-GDP burdens than the U.S., especially when estimates of their unfunded pension liabilities for government employees are figured in.

Adding to this European fiscal burden is a trend that Gave, out of political correctness, hesitates even to verbalize -- Islamization. Higher birth rates of Muslim populations that have been only imperfectly integrated into European economic and cultural life could pose big problems in the Old World over the next several decades. For one thing, the trend could boost unemployment.

Likewise, he sees the U.S. maintaining its lead over the euro zone in such prerequisites of wealth generation as productivity growth, research, product innovation and strong institutions of higher education. "Ultimately, currency values are determined by relative rates of return on capital, and here the U.S. has a decided advantage," he contends. (emphasis added)

(via Paul K)

Ever Heard of a Thomas Cook? or Yes, Jay-Z is the Black Warren Buffett

Gisele Bündchen made an appearance in the business press today on news that she was only accepting payment in Euros from now on. Turned out it probably wasn't true, deflating the hopes of Dollar bulls, eager for any big contrarian indicator. The news never made any sense, unless you assumed Gisele was an idiot. All day I kept thinking, hasn't she ever heard of a currency broker? They have them at every airport.  All you have to do is take your Dollars, and assuming you don't have any coins, get them traded in. Besides, at the volume that she'd be exchanging them, it's unlikely that the banks would take much of a rake -- especially when you factor in her connections.

On the other hand, here's some verifiable news. In the latest Jay-Z video, the formerly retired rap star flashes Euros, not Dollars. Quite telling. It's no wonder that in the lyrics to Threat from the Black Album, he gives himself the moniker The Black Warren Buffett! For real, check it out. Great song and album, by the way.

Meanwhile, all of this stuff about what currency you're getting paid in, makes me wonder about the old apocalyptic fear about what happens if the Middle East petro-states start pricing their dirty drank in Euros and not dollars. Some say this would be a disaster, but it seems to me we could just go to a Thomas Cook and then get our oil.

Small Companies Can Do Currency Too

Big companies think about currency a lot and often times try to hedge their currency exposure.  Small companies typically have to accept their fate and suffer the slings and arrows of their home currency. 

Here's an interesting story courtesy of SpendMatters.  Pizza Patrón Inc. is a Texas-based pizza chain mainly catering to Hispanics (what? Italian food sold to Hispanics, somebody call Thomas Friedman up quick!).  Awhile ago it decided to start accepting Pesos, a move that some people found upsetting.  But apparently it was a pretty good move:

Pizza Patrón, the premier Latino pizza brand, announced today its first quarter sales for this year have increased 34.8% versus the same period a year earlier. The impetus for the chain’s revenue growth is attributed to a number of strategic initiatives put in place during the previous 12 months. In 2006, the “Lista™” program was implemented systemwide, offering “ready now” large 15-inch pizzas, available in pepperoni and cheese for $4.99. In January 2007, the company launched its “Pizza por Pesos™” promotion which garnered international media attention and fueled intense debate on the issues surrounding illegal immigration in the U.S.

Although the corporate office was inundated with heated criticism to the pesos program, the stores experienced a heavy influx of new visitors. “Our customers love the program,” said Andrew Gamm, director of Brand Development for Pizza Patrón. “Perhaps our first quarter store sales are a vindication of sorts for occupying a unique position in the marketplace and not yielding to the pressure from the opposition.”

Love it.  Gotta love the combative tone of the press release.  When was the last time you heard a company talk about illegal immigration and not yielding to pressure from the opposition?  Business is business baby.  If a company thinks it can do better by accepting Pesos, then by all means they should.  Of course, the move not only has given it more store traffic, but it also helps them diversify away from the punk US dollar (arguably diversifying towards the Peso is not exactly a move towards high quality, though it's getting much better).  Unfortunately, Pizza Patrón isn't public.