May 18th, 2013.

In an upside-down universe, nothing is as it seems. Black is white, up is down, cats marry dogs and television sitcoms are actually funny. Well, I don't know much about sitcoms, but economically speaking it can no longer be doubted that we live in an upside-down universe.

            Case in point. In a regular universe a rising currency is a sign that the market values the strength of your economy and the stability of your government. In our upside-down universe, however, a rising currency is merely a sign that you have the nicest looking economy in a rough neighbourhood and that your competitors' governments are likely to fall apart slightly quicker than your own. In other words, a rising currency in this universe is not necessarily a sign of strength.

            This is the situation we see developing in the USD as the greenback rises to 3-year highs not on the strength of its economic fundamentals (soaring unemployment, historic levels of Americans on food stamps, lacklustre retail performance) but solely on the fact that its main currency competitors are doing so poorly. That would of course be the Japanese Yen, which is falling in direct proportion to the skyrocketing Nikkei (and skyrocketing JGB volatility... but more on that later) and the plummeting Euro, which has just hit a six-week low as the ECB floats the possibility of introducing ne...
(full article).