In the 1920s a popular phrase was ‘Follow the bouncing ball.’ The phrase was created by Max Fleischer of Fleischer Studios. Included among the characters attributed to Fleischer Studios were Superman, Popeye, and Fitz the Dog, later to be renamed Bimbo.
Following the ball was an early form of a sing-a-long. As the audience watched a cartoon, subtitles for the music appeared at the bottom of the screen, and a bouncing ball would hover over the words to the song so that the audience could participate.
An economic and investment version of following the bouncing ball is the Dollar Index. The largest component of the Dollar Index is the euro. The rest of the mix contains a few other European currencies and the Japanese yen.
In recent years, we have become transfixed by the back and forth oscillations of the index. Other than the precipitous decline from the highs prior to the introduction of the euro to the current level of roughly 80, it has been an insight-devoid oscillation appropriate only for traders.
We have been following the bouncing ball as intended. The dollar goes up, the euro weakens. Coincidentally, swaps occur between central banks at the same time. For example, if the U.S. Fed provides dollars to the Europeans, the dollar weakens as they are converted into euros and the euro rises. It often occurs around solvency crises, keeping the aggregate banking system from capsizing and on a seemingly even keel. The pattern then reverses. It is all part of the charade.
We find that following the Dollar Index is a worthless exercise if one wants to gauge the condition of the currency markets. Will it go to 50 as some suggest? Perhaps, but that will only occur if the current range of the high 70s to low 80s cannot be defended. The usefulness of the Index is to divert our attention from the real battle being waged between the fiat currency bloc, the yuan, and gold.
Author: Shared Links
This post was not written by Z3news.com but is shared in part here with a link to the full post on the original source website.
© 2013, Z3 News. All rights reserved. This content may be freely reproduced in full or in part online, email, or other digital formats but only with full attribution to the author and a clickable link to http://Z3news.com. For permission to reproduce this content in other media formats please contact us.