The biggest question of the day (Russell’s day, because it doesn’t seem as if anyone else is taking it seriously) is the dying dollar. While this is going on, here is an up-dated chart of the Dollar Index. Thus, you don’t have to take my word for it, you can just study the chart (ugh). Note that we are about to receive a “death cross” on the dollar as the 50-day MA drops below the 200-day MA. – Richard Russell One of the best values anywhere in the financial world at only a $300 a year,  to get his DAILY Dow Theory Letters subscription HERE

When Only a Much Weaker Dollar Will Do

Part One of Two

09/30/10 London, England – It is sometimes challenging to make sense of economic policymakers’ frequently convoluted and occasionally obfuscating language. There are times, however, when they say what they mean rather clearly. This the Fed did in its September policy meeting statement. While these statements normally contain quite standard language that does not change materially meeting to meeting, last month was an important exception. The Fed chose to add some text which, when placed in context, implies that the Fed now has a bias to apply more unconventional stimulus to the economy. Here is the relevant excerpt:

Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to remain subdued for some time before rising to levels the Committee considers consistent with its mandate.

Now if inflation is too low and is likely to remain too low for “some time”, then the Fed clearly has a bias to do what it can to try and expedite a rise in inflation. But with policy rates already near zero and the Fed already preventing a natural shrinkage of its balance sheet as securities holdings mature, all that is left is for the Fed to reach further into its toolkit of unconventional policies.

We have examined the Fed’s various unconventional policy tools in previous Amphora Reports…Read more…