How to treat currency schizophrenia?

I can never figure out currencies, because they're really complicated. The trouble is, the same stuff (money) is used for both spending and saving (or, if you like, investing). Based on money for spending, the dollar looks unreasonably weak. My daughter is spending a semester over in Paris, and it's costing a lot because you don't get so many Euros for your dollar anymore. You'd think that would correct itself: Americans stop buying European stuff, Europeans start buying American stuff, supply and demand shifts, dollar gets stronger. Trouble is, stuff is only a small part of the picture. Last time I looked, which was a while ago, the forex market turnover was about $2 trillion per day -- much more than you could explain just on people wanting to exchange stuff. For the rest of it, I guess, you have to look at the investing side: savers. And they don't care about how much stuff costs in one country or the other, they just go to the currencies with the highest interest rates, which is not the US right now, which is why the dollar is weak. Because of the hyperactivity of the securities markets, the saving/investing aspect of money overwhelms the stuff-buying aspect. It's almost like you need two different forms of money.

I always think there must be an arbitrage here, to take advantage of the different dynamics of stuff-buying dollar and the investment-buying dollar. If there were, then I suppose it would be: buy stuff in the US and sell it overseas. Or look for companies that do this.

Not so strange

I think I get it now: bad economic news increases the danger of a recession, which hits the cyclical semiconductor stocks; it also increases the likelihood of an interest-rate cut, which lifts the more diversified S&P 500.

Strange divergence

It seems almost every time I look at my watchlist these days that the S&P 500 and the SOX (semiconductor) index move in opposite directions. Weird.

Shell Game Continued

So the banks are supplying money to back their SIVs. How is this supposed to help? Where are the banks getting the cash to do this, other than off their own balance sheets, which were exposed to the SIVs in the first place?

Well, the big three behind the deal are going to pull in other banks to help fund the backup pool. Banks that aren't worried about SIVs won't do it -- why should they? Only banks with problem SIVs will participate.

Maybe it's just a back door government bailout. The Treasury helped put the deal together. No doubt they will persuade the Fed to back it -- which is to say, the taxpayer.

Hiding the risk doesn't get rid of it.