But the world stock markets have acted worse for the most part. Emerging markets have been hit particularly hard on the prospect of rising interest rates. Initially the U.S. dollar went down as this started to unfold and I think that is the natural move for the dollar if it is indeed the Japanese carry trade that is unwinding. A weak U.S. dollar would be bad for the natural resource exporters around the world, and better for our exporters.
But the flight to safety has taken hold over the last couple of days and the dollar has been strong.
Whether the stock markets will be higher is dependant on the currency values in my mind. The world has been engaged in an undeclared currency war for years, with most countries around the world trying to devalue their own currencies to stimulate exports for themselves. But the fact is that everyone can not be a net exporter. China has been the biggest manipulator for decades and this has hit Japan particularly hard. Interest rates have been rising in China lately putting pressure on their currency to rise.
I don't know how things will go in the short term. But in the long term there must be a move away from the U.S. dollar as THE reserve currency of the world. This should give the U.S. a push to become a manufacturer and net exporter again. Particularly true if the natural gas glut holds up.
But in the nearer term I am cautious.