Dollar rally soon

The guess here is that we'll soon learn that the big currency players in the hedge fund world have turned their books around and loaded into bullish bets on the dollar. Yes, that's the beleaguered U.S. dollar, down 40% in the last six years and almost half of that in the last two, is ready for a material comeback. Some life in the currency last week could be more than just a tease. Why?

---Nothing drops straight down forever. That's an encouraging start, right.

---The G-7 central bankers are now all worried about the pace of change, down, down, down, of the dollar and the disequilibrium that could cause in trade and financial flows. They may now be serious enough to exert some pressure.

---With the U.S. Fed now accepting substitutes for government securities as collateral in reaction to the liquidity crisis in the financial markets, the overwhelming demand for treasuries in the past few months is waning, meaning that U.S. treasury yields should begin to rise, supporting the dollar.

---It now appears that the U.S. has been on the cutting edge of a housing market downturn that is just beginning to show its ugly face in countries such as Spain, Ireland, Italy and the U.K. As banks in the U.S. have already taken significant writedowns to address this issue and the economy has been in the process of digesting the impact on the consumer of this loss of wealth, other economies are just entering the tunnel.

---All of a sudden it is big news that food prices are rising globally, news now as a result of actions by some producing countries to curtail exports and keep supplies for domestic consumption. The U.S., relative to many countries a model of efficient distribution and adequate resources, may begin to be appreciated again for its safe haven reputation.

---With the example of GE's recognition of losses, the continued writedowns at financial institutions, and the almost stealth daily write down of the values of many fixed income securities in brokerage accounts, the medicine is being taken and one could surmise, hope, that liquidity will soon be more visible broadly.

---Many Asian countries must continue to support the dollar or risk political issues in economies that depend on exports.

---European economies could be hit by a powerful double whammy if their economies begin to falter and their exports continue to be hit by a falling dollar. Support for the dollar is in Europe's interests as well.

Is this a sound economic argument. Of course not. It's just a short term forecast, or guess, that just might be right. If we wake up one morning and it all of a sudden seems to be common knowledge that the big currency bettors have made a switch, the dollar's turnaround could be sharp. Sustainable? That depends on relative economic performance over time doesn't it, and everything feels like it's up in the air now. Broad global uncertainty usually underpins the greenback. Uncertainty focused primarily on the U.S. does not. Stay tuned.

Please refer to the Eyes Not Sold disclaimer in the header for any reassurance about this post.