While we all first learned that bonds and stocks perform "inversely" of each other, because bonds are relatively safe while equity shares are more risky, it should be understood that this is firstly and finally a ridiculous adage to waste a moment recalling. The oversimplified credence should, and soon will be, destroyed once and for all as long term U.S. government debt falls hard with U.S. equities.
Most recently the near free borrowing cost of U.S. dollars in the short term, thanks to the Fed Funds effective rate at 0%, has spurred widespread shorting of the U.S. dollar to fund long positions in risky yet profitable assets such as stocks and commodities in recent months. This strategy known as a "carry trade" has been widely adopted as the most recent micro-trend among traders and is partly responsible for the fall in the USD's value. The reason why it is effecting the dollar more than any other currency is due to the expectations that the Federal Reserve will keep overnight Fed Funds rates at 0% longer than any other central bank.
Therefore, since the Federal Reserve's FOMC announcement on Wednesday afternoon nearly guaranteed that the U.S. Fed won't begin to tighten quantitative controls for the next six months or until employment stabilizes, suggesting that it may be awhile until the carry trades are unwound and the short positions covered. There is however the fact that the risky investments funded by the carry trades may be exited, potentially leaving no reason to stay short a currency which has already fallen so far so fast.
Unemployment leaped to 10.2% in October, destroying the most pessimistic estimates of 10.1% and dragging down any positive notes played by the productivity reports earlier in the week. Equities will have a hard time holding on to any of the gains from Thursday and may fall hard for yet another Friday session.
Don't expect the dollar to hold any weight as Gold continues to climb higher, while Oil diverts from the precious metals in the wake of economic woes and unsustainable price levels.
