Here at The Panelist, we have noticed that it has become fashionable to trash the U.S. dollar, which is why it doesn’t surprise me that supermodel Giselle Bundchen has asked to be paid in any currency except the greenback. Fashion is the consensus of a small group of people, and we sometimes need, as Derek Zoolander would say, "really really ridiculously good looking people" like Giselle Bundchen to demonstrate what is fashionable. But, as Giselle probably knows, fashion fades and style is eternal.

The (stylish) U.S. dollar has been the world's reserve currency for many years, and it's going to take much more than a global re-balancing process to erode that status. U.S. dollar bears seem to be ignoring the possibility that the recent U.S. dollar weakness we have seen is simply reflecting a correction of the currency's overvaluation from 1997 to 2002. How long will it remain fashionable to dump the hapless U.S. dollar?

This is, as Derek Zoolander would say, a really really ridiculously important question for solar investors, who have been cheering every moment of the U.S. dollar's recent record lows. Oil is priced in U.S. dollars, which means that a lower U.S. dollar insulates emerging economies from higher oil prices. A lower U.S. dollar provides a floor to oil prices, and higher oil prices increase demand for alternative energy investments like solar. If we had to see a sudden reversal in the U.S. dollar’s downtrend, oil prices wouldn’t be sustainable at current levels. And given the highly speculative nature of oil’s recent bull run, we could see a violent correction lower in oil prices, which would undoubtedly drag solar valuations lower.

While we’re on the supermodels theme, it would be appropriate to think of central bankers as the fashion designers of the finance world. Central bankers try and guide the directions of markets by telling investors what fashions should be followed. If markets don't listen, central banks intervene, setting the trends for the crowds to follow. A weak U.S. dollar is not in everyone's favor, and a recent Morgan Stanley research note suggests that the Federal Reserve, Bank of Japan and European Central Bank may coordinate intervention efforts to lift the U.S. dollar. Morgan Stanley points out that in the past 30 years, coordinated intervention caused all but one of the changes to the U.S. dollar's long-term trend.

As we just explained, a reversal in the U.S. dollar's fortunes could put a lid on oil prices, the cornerstone of the Iranian economy. This raises an interesting scenario: Can coordinated central bank intervention lift the U.S. dollar, which will knock down oil prices and hurt Iran's economy where it matters, putting a halt to their nuclear ambitions? I believe that a more productive form of pressure against Iran would be taking action aimed at lowering world oil prices, and coordinated intervention on the U.S. dollar might be an interesting solution to the Iranian dilemma. As wacky as it sounds, surely that makes more sense than bombing Iran? In a nutshell, solar valuations could be hurt if the U.S. dollar becomes trendy and Dick (or Darth) Cheney suddenly develops some common sense.

Disclaimer: I don't have any currency exposures. I don't own any solar stocks. I doubt Dick Cheney has any common sense.

Big Oil  Currency  Eben Esterhuizen 

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