Hair Triggers and Nervous Hands

Home a bit late, so just a quick thought.

Hair Triggers and Nervous Hands
There were wild gyrations today across many asset classes with stocks, bonds, the dollar and gold all reacting aggressively to headlines. The day's primary driver, both up and down, were words by Treasury Secretary Timothy Geithner. Bet you never would have guessed that!

Shortly before noon there were several reports on major news outlets that Geithner had made a statement that he was "open to the idea" floated this week by a Chinese official about using IMF "Special Drawing Rights." The SDR's are a basket type reserve asset made up of currencies including the euro, yen, pound and dollar.

Yahoo Finance has the chronology here:

Geithner: Dollar is 'dominant reserve currency'
Dollar recovers as Geithner affirms it will be 'dominant reserve currency' for long time
NEW YORK (AP) -- The dollar was mixed against major currencies Wednesday, partially recovering from a plunge after Treasury Secretary Timothy Geithner said the greenback will remain the world's "dominant reserve currency."

The dollar initially tumbled after Geithner, responding to a question about a recent essay by the head of China's central bank, said the U.S. was "quite open" to an increase in the use of the IMF's "Special Drawing Rights." SDRs are a basket of currencies made up of the euro, yen, pound and dollar that have served, in limited use, as a reserve asset since 1969.

In his article, China's Central Bank Gov. Zhou Xiaochuan recommended creating an expanded reserve currency made up of a basket of major currencies and controlled by the International Monetary Fund.

Geithner's "off-the-cuff, impromptu remark touched a nerve in the market," said Brian Dolan, a currency strategist at Forex.com. "The dollar is under suspicion due to a potential devaluation effect" from the flood of money the U.S. government is injecting into the system to help unfreeze credit markets.

Seems like a lot of reaction to such a non event.

I am pretty bearish on the US dollar long term. Given that, my first reaction when I saw the "open to the idea" line was to dismiss is as being taken out of context or never said at all. I never attributed any weight to the quote, and not even 15 minutes later all was clarified.

So what was the big deal?

The disturbing thing about all this was the instantaneous reaction of the market in general to the misquote. No Treasury head would ever, could ever utter such a thing and yet the dollar tanked, stocks slipped, and gold rose regardless.

Would this have happened 20 years ago? How about 10? Even 5 years ago? Probably not.

The kind of moves made on a moments notice on this quote must have been already put at the ready should a dollar run occur. There are some very jittery hair triggers out there controlled by nervous hands. The events of today I think show a real worry about the US dollar. While one can hardly fault foreign debt holders for their nervous energy when confronted with huge US budgets, massive stimulus bills, on the fly bank regulations, and quantitative easing it was still a bit unsettling to see the dash for the door on the most flimsy of information.

All was set right before long, but the split second stampede is something to keep in mind going forward.

Have a good night.