McDonald's Says Dollar Strong, Gulf States Disagree

People are watching the Middle East. Speculators. Currency speculators and investors. I know this because the Wall Street Journal tells me so here though the article appears to be on lockdown behind their wall of paid knowledge and we must go by faith (or just google the article's title). But here is the main chunk:

Hedge funds and other investors made bundles of money in the 1990s betting currency pegs around the world would break. They are at it again, only this time they are gambling currencies will soar, not plummet.

Among the prime targets are Persian Gulf nations that link their currencies to the U.S. dollar. An economic boom has touched off rampant inflation in these countries. That is putting pressure on policy makers to allow their currencies to strengthen, something they have said they have no plans to do.

But some investors are so keen on these economies that they think the currencies have nowhere to go but up. Everest Capital Ltd., a $3 billion hedge fund based in Bermuda and specializing in emerging markets, wrote in a first-quarter note to investors that it was betting that Saudi Arabia, Qatar and the United Arab Emirates would loosen the hold on their currencies, allowing them to strengthen.

Trades like that represent a remarkable shift from the 1990s. Then, places like Mexico, Thailand and Russia linked their currencies to the dollar as a way to provide financial stability. As their economies floundered, investors pushed governments to break the pegs, which caused their currencies to tank and sparked broader financial crises.

We are not so sure what will happen when nations revalue against the dollar, or divorce completely (de-peg as they say). But it can hardly be a good trend when people seek to release themselves from the financial coupling with the United States. Spurnings and and plan B's by other parties can hardly be a good sign, can they?

We are sure that those speculators are probably on the right track and should stand to make a nice sum. Nasser Al Qaoud, the assistant secretary-general for economic affairs at the GCC (that would be the Gulf Cooperation Council, not your local community college), suggested that a decision on whether to re-peg their currencies to the buck or use a currency smorgasbord would be made after their own monetary union and the creation of a single currency, ala the Euro.

"We hope the single currency will be approved on time in 2010… all efforts are now concentrating on the realization of this goal on schedule," he said.

Does this worry you? It worries us. Especially as our dollar drifts lower and lower, like a hootchie on the dance floor. Sometimes though, I am reassured by McDonald's commercials, who assure me that the "buck is strong."

My own personal indicator (patent pending) is when all the dollar menus at fast food joints around the country cost $2 or $3 dollars, without the "Dollar Menu" name changing. When you see this occur at five out of six major fast food chains and without legal challenge, know the end is nigh. Or, when the Dollar Menu in the G.C.C. states of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates is in actuality costing ten thousand dollars (or $1 in the local currency).

But until then, be confident as you get that chicken sandwich or fries. Deep down the world loves us and will support us and our addictions.