Last night, I spotted this sign in the window of a local bar: “May is the month of parties. First, we have Cinco de Mayo, or Mexican Independence Day.”
News Flash: the May 5th celebration pays tribute to a battle won by the Mexican army against French forces in 1862 -- or, fifty-two years AFTER the day Mexico became independent of Spain (September 16, 1810).
Yet all across the country, many partygoers will unknowingly tip their glasses of sangria in honor of a holiday that won’t arrive for another four months. Such is the blissful you-know-what of the multitude that neglects to check the simple facts.
In lieu of the non-event event, consider one of the most common misconceptions of mainstream financial wisdom; namely: That a widening deficit decreases the value of the dollar, and vice versa.
Hardly a week goes by that we don’t see this idea posted in the news front windows of Wall Street. In case you missed them, here are few of 2008’s most unforgettable items:
- March: One financial guru reveals: “If something is unsustainable, it’s going to have consequences: so far the consequences [of the record-high deficit] have been a general decline in the dollar.” (Bloomberg)
- Late April: “It will take years for the greenback to recover its value and prestige. You have the U.S. still holding this trade deficit. So, it’s a very dark outlook for the dollar.” (St. Louis Post-Dispatch)
- May, as the dollar hits a two-month high: “Trade deficit improvement sparks rally.” (AP)
Just one problem: An inverse correlation between the deficit and the dollar does not exist. In other words, the mainstream “experts” are observing the wrong holiday.
Has the Dollar Hit Bottom?
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Seeing is believing… and in the December 2004 Elliott Wave Financial Forecast, our analysts presented this ground-breaking chart of the past three decades of the US Trade Weighted Dollar versus the Current Account Deficit/Surplus (as a percentage of GDP).
Here are few of the startling results:
- From October 1980 to February 1985, as the deficit emerged as the largest in well over a decade, the dollar surged 50%.
- From April 1995 to December 2000, the deficit took another huge leap and the dollar rallied 34%.
And, these later observations: From December 31, 2004 to November 2005, the deficit widened to the largest on record while the greenback enjoyed a steady, 15% uptrend.
2007: U.S. trade deficit narrowed for the first time in six years, all the while, the dollar sunk to new record lows against the euro.
Has The Dollar Hit Bottom?
Celebrate your independence from the mainstream financial misleading with objective insight and original price charts of the U.S. dollar today. Apply absolutely risk-free to the Financial Forecast Service and get instant access to the May 2008 Elliott Wave Financial Forecast and the tri-weekly Short Term Update. Learn more