So here we sit and see that the USD has dropped and breached the 1.30 mark against the Euro. The question is why? I would have responded on this question earlier, but could not. Last Friday my oldest English Bulldog Patches (11.2 years) went into the doggy hospital, and she died on Monday. Until Wednesday I have been a bit of a vegetable as Patches was my first real dog that I bonded with. So I have been oblivious to what is going on in the markets.

So why did the dollar drop? Is the answer here? Or how about here? What about here? Or what about here? Notice how nowhere you will find the reason why the dollar dropped? I find that really odd! Of course some will say, “Oh its the huge deficits of the US”, or “This drop was long in coming and finally somebody did.” Great love the comments (NOT) as they still do not make it any clearer. Many now say that this is the longer trend, and the drop will be bigger.

I am tempted to believe that this USD drop was the result of a butterfly effect.

Last night my sister called me and asked how I was doing after Patches death, and then asked how my Latin America fund was doing (NOTE: for those that do not know my sister lives in Ecuador and she is my Latin America connection). I had no idea how my Latin America fund was doing because I had not looked at my funds, but was fearing the worst due to the dollar drop. I asked her why she was concerned. She responded because Correra won.

Correra is the butterfly effect that I think caused the dollar to drop and markets to come crashing. Many of you readers will be thinking, “huh, what the heck does Ecuador have to do with the rest of the world?” Quite a bit because Ecuador is dollarized and the USD is the currency of Ecuador. As said in the referenced article:

Ecuador’s bonds however have lost almost half their total gains so far this year after the Nov. 26 runoff election results.

Correra is a weenie, like his friends Chavez and Morales are weenies. To fully understand the scope of the problem you need to read the articles: (1, 2, 3) What surprised me a bit was that Correra won and I asked my sister what happened as Noboa was in the lead. She said about a week or so ago Noboa had a Howard Dean scream moment. That cost him the election.

Here is what I think happened to the markets:

  1. Noboa has a Howard Dean Scream moment shifting the electoral from Noboa to Correra. Correra a leftist has made many anti-capitalist statements including clamping down on the financial system, making investors nervous.
  2. With the vote on Sunday looming and Correra still in the lead some money people became very nervous and moved a large sum of money out of Ecuador on the Friday before. Who did the moving I do not know, but it could have been banks, hedge funds or very wealthy people.
  3. The monies were moved to Europe and the Euro in particular. I am guessing in a bigger picture sense the amount of monies moved were small (eg a few billion), but due to the urgency of moving the money it caused the dollar to drop across the 1.30 boundary.
  4. Traders see the drop across the 1.30 boundary sense that something is happening and jump on the bandwagon. After all traders *would never* panic as a herd.
  5. As more traders jump on the bandwagon the dollar drops and causes panic because of how fast the dollar dropped.
  6. Panic sets in among traders as many chart technicians in Europe Wednesday one week ago predicted that the markets will drop by a large amount.
  7. Traders begin selling equities locking into profits and their year end bonuses.
  8. More panic and people sell left right and center.
  9. Panic subsides and selling stops.

Many of you will be skeptical of what I am writing, and you should be! Tell me if you think I am off my rocker. The reason why I think these sequence of events did happen is because the traders were trigger happy and nervous. With Jim Cramer saying, “This is the best market ever”, I myself became nervous as traders always like to take a opposite viewpoint.

So does this mean the Dollar is on a slide? I think not! I think we are in a slow-down, but things are still pretty good.

UPDATE: The traders seem to think that the dollar will continue to slide, and while I don’t agree with it, the market is always right!