EXCHANGE RATES

Currency exchange rates matter, especially when it comes to the game of beggar thy neighbor, something we will likely see more of in 2015 as countries try to export their way to economic nirvana.

Everyone knows that oil is down nearly 50% since mid-June. But take a look at the Japanese yen; it's dropped nearly 20% since summer against Uncle Sam's greenback.  As one observer recently noted "..it's actually cheaper now to buy a new iPhone in Tokyo and have it shipped over than it is to buy one here in the U.S."

On a trade-weighted basis the yen is down over the last two years nearly 25 percent. If you can't stimulate domestic buying then do what other major export nations do, debase your currency. The euro tells a similar story. The risk of further ECB easing in monetary policy supposedly set to begin early next year looms large for weakening the euro.

In essence Europe needs a weaker euro to compete with a weaker yen.

The dollar index, a benchmark that weighs the dollar against its major trading partners, recently traded above 90 for the first time in eight years. Part of the reason for the upturn is the so-called revised strength in the U.S. economy coupled with the safe harbor meme, but there is much behind the scenes scrambling to make the U.S. the buyer of last resort.

Think of it as the now popular divergence theme MSM and others  seem to love so much which recently got a booster shot from the economic revisionist crowd.

Even the British pound fell to its weakest level in 16 months against the dollar, trading at $1.55. Commodity currencies have likewise taken a bath as fears of the global slowdown grew starting with China.

That brings us to the Chinese yuan. The dollar of late has been up against that currency also. A cheap yuan was something American politicians not too long ago use to complain regularly about, often threatening the Chinese if they didn't push it higher.

The yuan now has another currency, the yen, snipping at its heels since the trade-weight yuan has risen nearly 20 percent over the last few years, much of that rise owing to the weaker yen.

Keep in mind that China, Europe and Japan are big energy users. Could these lower energy prices put an unaccounted for source of liquidity into the mix that causes further unexpected mispricing of assets?