Bizarre Shake Up Coming?

Currency markets and government bonds have been doing some strange things these days. Well things may have become weirder still on Monday when Bank of France Governor Christian Noyer was quoted as saying "it is possible for a country to leave the Euro Zone, as states are sovereign."

The dollar has moved up against just about every major currency and that continued Monday. This has been true of the majors (euro, yen, cable) and the commodity currencies (Aussie, New Zealand, Norwegian krone). The dollar is stronger against the Swiss franc too.

Norway, I believe, is the only other country with a central bank raising rates. All the others are lowering, about to lower or are done raising rates. The weakness of the Aussie and NZ dollars is a little surprising because their rates are so much higher. I recently wrote about how low ten year bond yields are all over the planet and they seem to be headed lower but even if that is wrong the US dollar strength is weird. What I think may be going on is that the deterioration of the euro (be it the currency or the political project) is causing a flight to safety, or perceived safety anyway.

With all the problems that the US seems to have, a perception of safety is curious. It will be interesting to see if the demand for dollars that now exists will persist.

The point of this observation is that it may make sense to reduce the net foreign exposure in client accounts. I have mentioned that most clients have 10%-15% in cash. I think they way to get less foreign will be to deploy some cash into more domestic equities and not sell any foreign.

See subsequent post for a chart.