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Ghost
17-11-2004, 22:35
Wasn't sure if this should go in the business section, but thought it might be an interesting read for those wondering "When will the dollar stop falling??"

:)

http://www.fxstreet.com/nou/content/106750/content.asp?menu=market

Enjoy.

Halyavshik
18-11-2004, 10:12
Originally posted by Ghost
Wasn't sure if this should go in the business section, but thought it might be an interesting read for those wondering "When will the dollar stop falling??"

:)

http://www.fxstreet.com/nou/content/106750/content.asp?menu=market

Enjoy.

Crissakes, was that in English ? I didn't understand a friggin' word of it !

corp_fin
18-11-2004, 10:15
The greenback will stop falling in 4 years (that is if we get a democratic president)

Halyavshik
18-11-2004, 10:29
Originally posted by corp_fin
The greenback will stop falling in 4 years (that is if we get a democratic president)

Was that the Cliff Notes version ?

J.D.
18-11-2004, 10:32
Originally posted by corp_fin
The greenback will stop falling in 4 years (that is if we get a democratic president)

even if it's Hillary Clinton?

boscoe
18-11-2004, 10:50
No Idea when it’ll stop falling but I have seen the new designs for the $100 coin made from aluminum…

kak
18-11-2004, 11:15
for those who are interested by that:
EUR/USD for the last two years
http://fr.finance.yahoo.com/m5?s=EUR&t=USD&a=1&c=2

boscoe
18-11-2004, 13:34
Originally posted by Ghost
Wasn't sure if this should go in the business section, but thought it might be an interesting read for those wondering "When will the dollar stop falling??"

:)

http://www.fxstreet.com/nou/content/106750/content.asp?menu=market

Enjoy.

and I could link you to 10 other articles saying 10 different things...

I would say three things to any American who is not concerned that the Dollar is falling – deficit, deficit and deficit...

trebor
18-11-2004, 16:15
Originally posted by boscoe
and I could link you to 10 other articles saying 10 different things...

I would say three things to any American who is not concerned that the Dollar is falling – deficit, deficit and deficit...

As long as people believe the deficit can be funded it shouldn't be a problem.

John Bear
18-11-2004, 17:42
Folks, you're just a coupla Treasury bond auctions away from crisis. Foreigners buy 1/2 all US govt debt ... if they stay home a few days, then dollar plunges, interest rates spike, markets tumble. So you're relying on kindness of strangers.

Only way out of your deficit trap is to manage down the dollar with exquisite finesse to prevent sudden panic.

gadfly
18-11-2004, 19:49
Is the Euro doing well because countries are buying it as a reserve currency?

trebor
18-11-2004, 19:56
Originally posted by John Bear
.....................Only way out of your deficit trap is to manage down the dollar with exquisite finesse to prevent sudden panic.

John Bear
that's exactly what's happening and that's why there's no crisis.

John Bear
18-11-2004, 20:01
... yet

trebor
18-11-2004, 20:12
Originally posted by John Bear
... yet

John Bear
a crisis with the dollar is in no ones interest. Especialy those countries which are already holding VAST amounts of US I.O.U's
A colapse in the value of the green back will devalue their holdings. Countries like Japan will step into the market and help to support it.
In my humble opinion of course :D

John Bear
18-11-2004, 20:14
Originally posted by gadfly
Is the Euro doing well because countries are buying it as a reserve currency?

nope, euro not being held down unlike yen & yuan. If China were to float the yuan or the Japanese to stop buying shedloads of US debt every day, then they would soar.

trebor you're right it's being managed, but you're admitting if things go right the dollar's going to fall and if things go wrong it's going to fall faster.

trebor
18-11-2004, 20:20
John Bear,
You presume a weak dollar to be bad for the US. wrongly in my opinion.
A weak dollar will HELP American exports (as we have just seen with the latest trade dater) and therefore reduce the deficit.
The Euro strength has been part of the orderly decline of the greenback not because it is taking over as the reserve currency of choice.

trebor
18-11-2004, 20:25
Originally posted by John Bear
[B]nope, euro not being held down unlike yen & yuan. If China were to float the yuan .........B]

True the Yuan is particularly under valued but it will not be freely convertable for a very long time. Why?
Beacause that would mean full capital account convertability a long term aim of the Chinese but unthinkable now.

John Bear
18-11-2004, 20:45
Originally posted by trebor
John Bear,
You presume a weak dollar to be bad for the US. wrongly in my opinion.
A weak dollar will HELP American exports (as we have just seen with the latest trade dater) and therefore reduce the deficit.
The Euro strength has been part of the orderly decline of the greenback not because it is taking over as the reserve currency of choice.

Course it will be helpful if it continues to be orderly, tho not for expats whose salary is in USD.

There is also a chance that it's disorderly ... but if foreign folk continue to fund you, the oil price falls, US growth continues, America starts saving it's way out of "Squanderville" (Warren Buffett's phrase), global growth picks up to buy US exports and inflation stays tame, then everything could resolve happily.

trebor
18-11-2004, 21:07
Originally posted by John Bear
......................tho not for expats whose salary is in USD.

There is also a chance that it's disorderly ... but if foreign folk continue to fund you, the oil price falls, US growth continues, America starts saving it's way out of "Squanderville" (Warren Buffett's phrase), global growth picks up to buy US exports and inflation stays tame, then everything could resolve happily.

Sit tight on your dollars. If you have some spare cash in pounds etc. consider buying more and change back later for a profit when this latest crisis blows over. I've seen the US$ at 2.00 to the pound before.
You are right about the generosity of the rest of the world to buy US tresury bonds and perhaps one day countries will decide to invest at home but unlikely.
Oil price falls? That wont happen in the short term with problems in Venezuela, middle east (Arafat's death and Iraq) winter coming
and a short fall in world stocks.
Americans start saving?? C'MON GET REAL!
If inflation picks up that will be a problem for one and all not just the American dollar.
All these problems are already out there and are the market is handling them...........................orderly!

trebor
18-11-2004, 21:09
Oh, by the way i'm a Brit.:eek:

Ghost
18-11-2004, 21:13
Like it or not (and most do not like it) the world's economy is tied to the US - right now. That may change in time, but a crash in the US (which isn't happening anyway, if you've seen the latest econ releases in the last 3 months, you'd see that) would destroy much of the Asian economies, and part of Europe's.

Germany just released GDP growth estimate for 2005: 1.4%! Ouch! Couple that with euro nations in double digit unemployment and an export dependant culture (with now an unattractive export pricing scenario) and it's exceptionally dangerous for the future of the EU.

Boscoe is correct, there are half a million articles out there all saying different things. Some are dollar bullish, some bearish. I just posted the above one because it had an interesting perspective - one I happen to subscribe to. This is not a crisis, nor will it become one. In fact, I think you'll see a detour in the dollar by Christmas - if not sooner. But before that happens, you'll see lots of dollar selling, which will bring the dollar index down quite a bit. You may even see Euro 1.35 to the dollar, and a yen of 101ish.

But Secretary Snow says it best "Our Currency, Your Problem."

Ghost
18-11-2004, 21:15
Originally posted by trebor

A weak dollar will HELP American exports (as we have just seen with the latest trade dater) and therefore reduce the deficit.
.

Trade deficit yes. Budget deficit no.

koba65
19-11-2004, 07:40
Originally posted by boscoe
No Idea when it’ll stop falling but I have seen the new designs for the $100 coin made from aluminum…

Just like the East German coinage? Their coins would blow out of your hand on a windy day...

trebor
19-11-2004, 09:07
Originally posted by Ghost
Trade deficit yes. Budget deficit no.

Are they not linked?
The budget deficit being the difference between American spending and its earnings.
If exports were to improve the situation with the capital account should improve and therefore would require less borrowing.

kniga
19-11-2004, 09:17
Boscoe,

Why do foreigners continue to buy U.S. dollars? Because they know the U.S. is the safest place in the world to invest. If this were not true, they would invest elsewhere.

John Bear
19-11-2004, 12:56
Originally posted by kniga
Boscoe,

Why do foreigners continue to buy U.S. dollars? Because they know the U.S. is the safest place in the world to invest. If this were not true, they would invest elsewhere.

Sure the Japanese Finance Ministry sees low-yield US debt as safe, so they've decided they can stop spending Godzillions mopping up the surplus.

Aaargh, wait .... pls no .... pls nice Japanese FinMin, come back pls, we were only joking.

kak
19-11-2004, 13:09
Originally posted by gadfly
Is the Euro doing well because countries are buying it as a reserve currency?

wrong, the euro is doing well because euro bills and coins are nicer :D

boscoe
19-11-2004, 18:00
Originally posted by kniga
Boscoe,

Why do foreigners continue to buy U.S. dollars? Because they know the U.S. is the safest place in the world to invest. If this were not true, they would invest elsewhere.

No really!!! – Here’s me thinking it was the lovely green colour ;) It’s a fact that the US also holds large amounts of Euro’s and other major currencies… A crash in the USD will do (as others have said) nobody any good, but the fact is that the Euro is becoming a competitor for a reserve currency.

I think Ghost quoted Snow above "Our Currency, Your Problem." that is what worries me… because it may not end up just our problem!

kniga
19-11-2004, 19:27
Boscoe,

America sneezes, the rest of the world catches pneumonia...

Ghost
19-11-2004, 22:38
If you listened to Greenspan talk today with Trichet, you'd have heard him basically say that the dollar needs to fall and Asian/Euro economies dependant on it need to break away from their dependancy. China and other Asian currencies need to stop pegging themselves to the dollar to get unfair trade advantages. One could think that the dollar's decline is being forced so that China comes undone.

I couldn't believe - the yen fell to 102.70 today! Haven't seen that in a long time.

trebor
20-11-2004, 00:48
Originally posted by Ghost
I couldn't believe - the yen fell to 102.70 today! Haven't seen that in a long time.

After all the false dawns surrounding a Japanese recovery over the last 14 years a weaker Yen along with painfull restructuring (along with the effects of deflation) should deliver the growth the world economy needs to take the emphasis and focus of the US.
A weaker Yen will help this process.

Ghost
20-11-2004, 11:01
Not sure what you're getting at. Are you trying to insinuate that the Japanese economy is quite strong? Or are you simply saying that a lower USD/JPY is better for the US?

I agree with the second point - but not sure I can agree with the first. Neither can the Bank of Japan.

trebor
20-11-2004, 11:29
Ghost
i came home more than a little pissed last night and shouldn't realy have posted. It all seemed to make sense last night!
I was reading somewhere that the world is too dependant on the US economy at the moment with Euro zone and Japan in the dumps. A weaker Yen is helping japanese exports (as is a weaker US$ for America) and the BOJ are unlikely to want it to rise.
Asian currencies are undervalued and give China (especialy) a big trading advantage. Also, because the Yuan is cheap the world is being flooded with low cost Chinese goods and this is keeping inflation in check (good for us all) in spite of a very high oil price.
What do you think?

Ghost
20-11-2004, 23:12
The Yuan being pegged is good for American consumers in that - as long as it stays pegged - costs of all those Chinese products Americans buy will stay what they are. The minute they revalue, the minute about 75% of that stuff goes up in price. However, it also causes Chinese goods to be purchased all over the world instead of American goods (or Euro ones, etc). In that case, it's unfair.

Regarding the yen, it's going to have to come up. If it doesn't, you will likely see BoJ intervention to the tune of several billion yen sold. They will force the market to go the way they want, just like they did earlier in the year.

Lastly, if you've read any of the G20 commentary coming out of this weekend's summit, you'll see that the dollar fall isn't going to be "tolerated" much longer by most of the world's economies. Many of them are seriously hurt from this latest decline, and the ones who aren't, simply aren't yet. So that means central banks (the operators) against the traders. Let's see who wins next week. My bet is on the CBs.

-Ghost

trebor
20-11-2004, 23:56
[QUOTE]Originally posted by Ghost
[B]The Yuan being pegged is good for American consumers in that - as long as it stays pegged - costs of all those Chinese products Americans buy will stay what they are. The minute they revalue, the minute about 75% of that stuff goes up in price. However, it also causes Chinese goods to be purchased all over the world instead of American goods (or Euro ones, etc). In that case, it's unfair.

Ghost,
surely, the American economy has moved on as has he Uk econ omy and waved the white flag(given up) in the face of Chinese(Indian) and a host of other Asian countries ability to produce what we want for peanuts!
The US economy(and the weat) is not based on cheap stuff rather on technology. This has been the big shift in the last few(?) years. Jeans, shirts etc (Ralf Lauren, Polo............c'mon your probably earing some right now!) are produced out side the west.
BUT there is another interseting comment and if you will allow me to go futher off thread i will explain:
We have open markets right? Markets in the third world are not always the same (some times they don't agree with our politics but they never stop selling to us do they?) Britain, US in Iraq etc etc etc. but they are still trying to sell into out FREE MARKET SYSTEM.
What will happen when China succesfully exploits (do you think they wont some day?) our western markets and they grow rich upon it. Millions of Chinese people instead of being considered "rice eaters" will become consumers and then we will have the ability to sell our consumer goods to them.
It has happened before and it will happen again. We need to keep ahead!

Your views are most welcome!

Halyavshik
21-11-2004, 01:16
Originally posted by trebor
[QUOTE]Originally posted by Ghost
Ghost,
surely, the American economy has moved on as has he Uk econ omy and waved the white flag(given up) in the face of Chinese(Indian) and a host of other Asian countries ability to produce what we want for peanuts!
The US economy(and the weat) is not based on cheap stuff rather on technology. This has been the big shift in the last few(?) years. Jeans, shirts etc (Ralf Lauren, Polo............c'mon your probably earing some right now!) are produced out side the west.
BUT there is another interseting comment and if you will allow me to go futher off thread i will explain:
We have open markets right? Markets in the third world are not always the same (some times they don't agree with our politics but they never stop selling to us do they?) Britain, US in Iraq etc etc etc. but they are still trying to sell into out FREE MARKET SYSTEM.
What will happen when China succesfully exploits (do you think they wont some day?) our western markets and they grow rich upon it. Millions of Chinese people instead of being considered "rice eaters" will become consumers and then we will have the ability to sell our consumer goods to them.
It has happened before and it will happen again. We need to keep ahead!

Your views are most welcome!

Ghost
21-11-2004, 19:03
Heh...bunny with a pancake :)

Treb - I'm not telling you MY views on what needs to happen, I'm telling you what I think the US administration is doing . They sat down one day and said "You know what? We're tired of other countries taking advantage of our trade with their barriers of entry and unfair practices." And then they decided on this massive devaluation process in order to speed up what the rest of the world wanted to happen - just much faster than they wanted it to happen.

I think it's just that simple. The Yuan will come unpegged - though not soon (by soon I mean 6-12 months), but it will. And the rest of Europe will have to get off the 75% dependency on export markets and allow the same freedom to the US companies to have access as well. Otherwise the US administration is just going to continue to allow the dollar to slide. And as it is now public information that the US won't stop it, it WILL slide - out of control if they're not careful.

It's a game of chicken, essentially. We'll see who blinks.

trebor
21-11-2004, 20:43
Thanks, interesting points Ghost.

Ghost
21-11-2004, 22:03
One last thought, though. Everyone who wants to be short dollars is already short. The price of short options are through the roof now, making it no longer profitable to short the dollar. That usually signals a change in trend (after all, it's the options that are the basis of the drive). Trends usually last 3-4 days. I've seen EUR/USD trends last 6, even 9 days. One even lasted 13.

This one at 32 days is positively unheard of.

bagehot
21-11-2004, 23:36
Originally posted by trebor

What will happen when China succesfully exploits (do you think they wont some day?) our western markets and they grow rich upon it. Millions of Chinese people instead of being considered "rice eaters" will become consumers and then we will have the ability to sell our consumer goods to them.
It has happened before and it will happen again. We need to keep ahead!

Your views are most welcome! [/B]


I tend to agree. The day of reckoning will come when the Euro is a more popular reserve currency than the dollar and the majority of Chinese people are able to get low interest loans. Did anyone really think the Chinese would stop at making cheap plastic toys? According to the Economist, China imports a lot to offset the effect of its exports. Anyone want to guess what it imports? MACHINE COMPONENTS FOR PRODUCTION. China is modernizing, and when 1.2 billion people consume like we do and produce more, the game will be over and we'll all have to learn how to write using those funny little symbols.

trebor
22-11-2004, 03:57
Originally posted by bagehot
I tend to agree. The day of reckoning will come when the Euro is a more popular reserve currency than the dollar and the majority of Chinese people are able to get low interest loans. Did anyone really think the Chinese would stop at making cheap plastic toys? According to the Economist, China imports a lot to offset the effect of its exports. Anyone want to guess what it imports? MACHINE COMPONENTS FOR PRODUCTION. China is modernizing, and when 1.2 billion people consume like we do and produce more, the game will be over and we'll all have to learn how to write using those funny little symbols.

Very true.
I remember in the 60's when i was a kid we used to laugh at stuff made in Hong Kong. Anything cheap and tacky seem to be made there.
Anyone been to Hong Kong lately?! :eek:

Ghost
22-11-2004, 08:11
Actually, I think China imports more oil than anything else. That's why the price of oil exploded like it did (as a fundamental underlying reason). GDP in China was growing at ranges of 7.5% - forcing the market to speculate on their demand for oil for the coming years. When the PRC central bank finally raised interest rates (the first time in over 8 years) to put a break on their runaway economy, the oil futures began to drop.

Anyway, no idea where I'm going with this. :(

On an unrelated note - Trebor - follow the Yen this morning. The Nikkei is down 290 points on strong yen speculation! This is the final straw in the BoJ's tolerance. Unleash the dragon, baby! The last time they intervened, they sold 20 trillion yen! The market moved at lightspeed....

-Ghost

Suzdal
22-11-2004, 18:35
Take a look at a chart which shows the growth of the U.S. deficit and then stick it on top of a dollar chart - see a little correlation there? The dollar will get stronger again when U.S. interest rates begin to rise substantially - it'll be easier to sell their paper.

Ghost
22-11-2004, 22:15
Suzdal,

I could take a chart showing the average temperature of the Earth's oceans and overlay it against the dollar and see a correlation. I do not agree that the deficit is the key to the declining dollar. It may be one aspect, but it is most certainly not the key.

However, I do concur with the statement regarding interest rates. The Fed will bump it a quarter and then the cash flow will be US positive in relation to Europe. Just like you said.

-Ghost

trebor
23-11-2004, 05:20
Originally posted by Ghost
Actually, I think China imports more oil than anything else...............

On an unrelated note - Trebor - follow the Yen this morning. The Nikkei is down 290 points on strong yen speculation! This is the final straw in the BoJ's tolerance. Unleash the dragon, baby! The last time they intervened, they sold 20 trillion yen! The market moved at lightspeed....

-Ghost
For the first part, very true. I bought some mining shares on the advice of a friend early in the year. He's definately on my Christmas card list this year!
China is sucking in a whole lot of commodoties (?). The copper price is at record highs for example.
I don't know a lot about trading currencies, in fact i think its difficult for someone like me to do it even if i wanted to.
So you'r selling yen today?

Ghost
23-11-2004, 09:01
Metals like silver, gold, etc - are havens for investors when the dollar falls - partly because of stability, and partly because since metals are priced in dollars, foreign investors find them cheaper as their own currencies appreciate against the dollar. That's why you usually see correlations like that (metals higher, dollars lower).

As for shorting the Yen, nope. I'm long at 103.75 right now, short Aussie at 76.5, and long euro at 1.2999. The Aussie was a bad move, but unfortunately I gotta sit that one out right now :(

trebor
23-11-2004, 10:26
Originally posted by Ghost
..............As for shorting the Yen, nope. I'm long at 103.75 right now, short Aussie at 76.5, and long euro at 1.2999. The Aussie was a bad move, but unfortunately I gotta sit that one out right now :(

Best of luck Ghost.
Got any stock picks?

Ned Kelly
23-11-2004, 10:29
Originally posted by Ghost
The Aussie was a bad move, but unfortunately I gotta sit that one out right now :(

sorry ghost, but i'm hoping you'll be waiting a while there!....i've suffered through the aussie performing like a south american currency for way too long.

Ghost
23-11-2004, 10:35
Originally posted by trebor
Best of luck Ghost.
Got any stock picks?

How long term you looking? And what kind of stocks you like? The big thing is always Oil oil oil...


And Ned - somehow I knew in the back of my mind that comment on the Aussie would call out Evil Ned :)

The aussie is hovering around 78 to the dollar, but McFarlaine (I spelled his name wrong probably) is being hawkish - and it's not likely he'll let it get too much higher. The basic call is to plant a few flowers at 78 and watch them grow marginally in the next month or so before seeing a retrace in the dollar.

Ned Kelly
23-11-2004, 10:45
sounds like a pretty sound strategy.

Evil Ned Kelly
23-11-2004, 10:54
Originally posted by Ghost
And Ned - somehow I knew in the back of my mind that comment on the Aussie would call out Evil Ned :)

Actually, it didn't (until now). As you'll undoubtedly see, it brought out 'Good Ned' and his discussions on weak Aussie dollars, blah, blah, blah.

Evil Ned attempts to destroy world currencies with hare-brained and intricate schemes involving atomic bombs, Bruce Willis, man-eating piranhas and lasers.

Ghost
23-11-2004, 11:14
LOL...

I think I could use Evil Ned. Does Evil Ned do "dirty deeds, done dirt cheap"?

Ghost
23-11-2004, 16:58
Treb - closed Euro at 1.3068 baby :) Niiiiice.... *purrrr*

tbill
24-11-2004, 18:47
MOSCOW MOVES
By Tom Dyson

In Friday's edition of the Rude Awakening, titled 'The
Financial Cold War,' your New York correspondent, Eric Fry,
shared a speech by a man named Oleg Mozhaiskov, former
deputy chairman of the Russian Central Bank.

"The world has come to a paradoxical situation in which the
creditor countries are more concerned with the fate of the
dollar than the U.S. authorities themselves are..." said
the former finance minister. "Under these conditions, the
growing interest of investors in real assets, gold in
particular, is more than justified."

As usual, Eric's timing was impeccable. No sooner had we
mentioned Russia's diversification out of dollars than the
Central Bank of Russia does just that.

"Most of our reserves are in dollars and that's a cause for
concern," Senior Deputy Finance Minister Alexey Ulyukayev
told reporters in Moscow yesterday. His comments moved the
forex markets...the dollar immediately sold off against the
euro.

"Looking at the dynamics of the euro-dollar rate, we are
discussing the possibility to change the reserve
structure."

Russia's foreign currency and gold reserves rose to a
record $113.1 billion in the week ended November 12. This
time last year the Russian gold and foreign currency
reserves were just $63.5bn including $58.3bn in foreign
currency. That's a 78% increase.

The Russians aren't the only central bankers acting like
hedge fund managers. The Chinese, the Indians and the
Cubans have all publicly slated the dollar in recent weeks.

China's foreign currency reserves dwarf those of the
Russians. The Chinese hold a total of $474 billion dollars
of which less than $8 billion is held in gold.

But concern for the dollar is not a preserve of the rich
and powerful. Take Ms. Ge, a middle-aged woman waiting with
her elderly mother in the lunch hour queue at a bank in
Shanghai. "The dollar doesn't mean anything anymore," she
complained, while waiting for a wire transfer to hit the
bank's books. They immediately converted their money into
renminbi, Bloomberg reports.

"The U.S. dollar is weakening. The renminbi is the hard
currency now," shouted another middle-aged man. Bloomberg
reports that, the very next moment, he turned $10,000 worth
of stocks into cash and dropped the entire lump sum into a
yuan deposit. "It's the best choice," shrugged the man.
"But I would like to ask the U.S. government to please keep
the dollar stable."

Back in 1992, The Bank of England tried to keep Sterling
stable by raising interest rates twice in one day, from 10%
to 12% and then to 15%. Short sellers like George Soros
were attacking the pound, and the Bank of England thought
higher interest rates would deter them. They were wrong,
and the short selling continued...to the point where the
authorities cut the pound from its fixing, and let it crash
back down to its true free market level.

The same evening, the Chancellor cut interest rates all the
way back down to 10% again.

George Soros looked pretty tough after that...but compared
to the carnage that'll be released when our central banking
friends, including Mr. Greenspan who has already given his
blessing to the scheme, decide to attack the dollar's
exchange rate with their forex reserves, Soros' sterling
adventure will look like the weekly game of penny poker.

Ghost
24-11-2004, 19:02
Two very interesting points to that -

1. The Russian CB said it was going to review it's amount of Euro reserves, but - interestingly - not it's amount of USD reserves. That's odd, because other currencies make up 5% of it's reserve. So what's that, moving 30 to 35% in Euro?

2. The dollar can crash down until the cows come home. In a 75% dependant export market (like places in Europe and asia), having a stronger currency will completely devastate them. This will not bode well for the future of the EU or Asia, mark my words.

tbill
24-11-2004, 19:21
Originally posted by Ghost
Two very interesting points to that -

1. The Russian CB said it was going to review it's amount of Euro reserves, but - interestingly - not it's amount of USD reserves. That's odd, because other currencies make up 5% of it's reserve. So what's that, moving 30 to 35% in Euro?

2. The dollar can crash down until the cows come home. In a 75% dependant export market (like places in Europe and asia), having a stronger currency will completely devastate them. This will not bode well for the future of the EU or Asia, mark my words.

Ghost,

The status quo of the world economy cannot be maintained. The US cannot absorb the world's production. One problem is the tax policies make it so saving in the US and consumption for many of the worlds economies is punished. The US needs to switch to consumption taxes and the rest of the world needs to build up their consumer base. This transition is going to be tricky and there is a real danger of deflation getting out of control. That is, greater and greater productivity continually driving prices lower. The falling dollar is a side show to this bigger problem.

Ghost
24-11-2004, 20:14
Indirectly, we're saying the same thing. Europe and Asia are export dependant, and everyone wants to export to the US. By knocking the dollar off it's rocker, the US administration (which I'm almost positive is behind the original stir in this) has forced the hand. The problem is, it's like playing "chicken". Whoever blinks first loses.

And if no one blinks, there's a big freaking collision.

Suzdal
27-11-2004, 09:28
Ghost - take a look at this and tell me you still think there is no correlation between the U.S. debt and the sinking dollar!

http://www.nytimes.com/2004/11/27/business/27dollar.html

tbill
27-11-2004, 11:24
Originally posted by Suzdal
Ghost - take a look at this and tell me you still think there is no correlation between the U.S. debt and the sinking dollar!

http://www.nytimes.com/2004/11/27/business/27dollar.html

Can you copy and post it, the article requires registration.

Suzdal
27-11-2004, 11:44
Foreign Interest Appears to Flag as Dollar Falls
By EDMUND L. ANDREWS

Published: November 27, 2004


ASHINGTON, Nov. 26 - Investors and market analysts are increasingly worried that the last big source of support for the American dollar - heavy buying by foreign central banks - is fading.

The anxiety was on full display Friday, when the dollar abruptly slid to a record low against the euro after a report suggesting that the Chinese central bank might start to reduce its holdings in the American currency.

Though Chinese officials later denied the report, and the dollar recovered, analysts say the broader trend is that foreign governments are becoming less willing to finance the growing debt of the United States government.

On Tuesday, a top official with the Russian central bank said his government had become worried about the sinking value of the dollar and might switch some foreign reserves to euros.

A day later, India's central bank hinted that it was worried about the same issue and might shift some reserves into other currencies.

Japan and China, which together have amassed nearly $900 billion in United States Treasury securities, have both slowed their buying sharply from the frenetic pace in February and March.

"There is an emerging consensus that banks around the world are moving to expand their reserves of euros at the expense of dollars," said Laidi Ashraf, chief currency analyst at MG Financial Group in New York.

The Bush administration has essentially condoned the dollar's decline. At meetings with foreign ministers last week, the Treasury secretary, John W. Snow, repeated the American mantra of support for a "strong dollar" but also for letting "market forces" determine exchange rates.

A continued decline of the dollar would be good for American manufacturers, because it would make exports cheaper in foreign markets and push up the cost of imports.

But a diminished foreign appetite for dollars could push up interest rates. The Federal Reserve has already raised short-term rates four times this year, but the shift in the sentiment of foreign investors may soon seriously affect long-term rates that influence the cost of home mortgages.

"Sell U.S., buy Europe," summed up Richard Berner, chief United States economist at Morgan Stanley, in a report last week. Mr. Berner noted that investors have begun demanding higher yields for 10-year Treasury securities than for comparable European bonds, and he predicted that the spread would widen.

Recent data from the Treasury Department indicated that foreign governments had sharply slowed their purchases of Treasury securities. The question is whether those purchases will continue to slow or start to increase again as countries try to shore up the American currency to help maintain their own industries' competitiveness.

Japanese purchases of Treasury securities, which ballooned by about $100 billion from October 2003 to March of this year, have slowed sharply and actually declined slightly in September.

Largely as a result, the dollar has sunk to its lowest level against the Japanese yen, about 102.5 yen to the dollar on Friday, in four and a half years.

Chinese purchases of Treasury securities slowed to a crawl, increasing just $2 billion in September, to $174 billion.

On Friday, a top Chinese central bank official denied reports in a Chinese newspaper that the government planned to reduce its holdings of Treasury bonds.

But Chinese officials, under prodding from the Bush administration, have repeatedly said they want to gradually relax their 10-year-old policy of locking its currency, the yuan, at a fixed exchange rate to the dollar. Any move to a more flexible exchange rate for China would probably cause the dollar to drop in value and allow the Chinese central bank to stop buying United States debt securities.

America's current account deficit, the broadest measure of its indebtedness to other countries, is on track to exceed $600 billion next year, about 6 percent of its gross domestic product. The United States needs to attract about $2 billion a day to keep its spending at current levels.

The nation attracted enormous sums of foreign money in the late 1990's as well, but the character of that money has changed. Back then, a big part of the inflow was through foreign direct investment and purchases of American stocks.

This year, by contrast, foreigners have been net sellers of stocks. The big growth has been in foreign purchases of Treasury securities, and the big buyers have been foreign central banks that wanted to prevent their own currencies from rising too much against the dollar.

Tony Norfield, currency strategist for ABN Amro in London, said he was convinced that central banks were trying to scale back their purchase of dollar assets, a move that could push the euro, already up about 30 percent in the last years, even higher.

"You do not need the central banks to sell Treasuries for the dollar to go down," Mr. Norfield said. "All they have to do is buy less and the dollar is going to be in trouble."

The euro hit a new high of $1.3329 on Friday in light trading, before settling back about a half-penny.

European leaders are alarmed about the potential damage of a sinking dollar to their exports.

"Recent moves on exchange markets of the dollar versus the euro are unwelcome," said Jean-Claude Trichet, president of the European Central Bank, at a banking seminar on Friday in Rio de Janeiro.

"I want to underline the importance of recent statements by the Treasury secretary of the United States on his determination to pursue a strong dollar policy," Mr. Trichet added.

But Mr. Snow and Alan Greenspan, the chairman of the Federal Reserve, offered no hint that they would intervene in currency markets to prop up the dollar.

"The market for U.S. Treasury securities is deep and liquid and continues to be attractive to a broad and diverse pool of investors," a spokesman for Mr. Snow, Robert Nichols, said.

That remains to be seen. According to the most recent Treasury data, the biggest source of growth in securities came not from China, Japan or Europe but from Caribbean banking centers.

Ghost
27-11-2004, 12:13
Originally posted by Suzdal
Ghost - take a look at this and tell me you still think there is no correlation between the U.S. debt and the sinking dollar!

http://www.nytimes.com/2004/11/27/business/27dollar.html

Once again, I did not say that there was no correlation. Please allow me to quote myself:


I do not agree that the deficit is the key to the declining dollar. It may be one aspect, but it is most certainly not the key.

If Snow or Bush or Greenspan came out and said "We are taking active steps to pursue the continued - balanced - changes in forex." then the dollar would stabilize. The reason it is not stablizing is because they haven't said a damned thing, nor will they. This is about breaking the deadlock between the US and Asia, and the US and Europe in regards to trade and barriers of entry. For a long time, the US has stupidly allowed it's trading partners to get a "one up" on them. Heavy, cheap exports with barriers to prevent mutual equality in return have prompted US officials to give Europe and Asia exactly what they want. Stronger currencies. But they're doing it faster than the EU and Asia want, thereby putting them under a lot of burden in return.

The twin deficits are a problem. Of course they are. But sentiment and panic are driving this degree of dollar selling. So I do agree that one can overlay graphs and find a correlation. But I do not agree that the deficit is the "key". It is merely the "excuse".

Regards.

Ghost
27-11-2004, 18:13
Oh, and one other point that occured to me. Your article says that Japan and China...


which together have amassed nearly $900 billion in United States Treasury securities, have both slowed their buying sharply from the frenetic pace in February and March.

First of all, this is misleading. China has slowed it's buying, and actually has talked of selling to (which caused the uproar in the market last Friday). But Japan is maintaining. Honestly, when it comes to treasuries, I don't really care too much what China does unless it's drastic. It's what Japan does that concerns me, and right now they show no intention of selling any securities.

bagehot
28-11-2004, 16:33
It's amazing how low they keep interest rates in Japan. How do they manage? I don't understand why there isn't rampant smuggling there with the exorbitant cost of food.

tbill
28-11-2004, 17:11
Ghost,

An anecdote about Japanese buying of US treasury securities. When they bought, they would buy everything on the screen. Prices just flew higher. I imagine if they sell, the same will be true. The trouble is, who do they sell to?

Bagehot, the Japanese created such a huge bubble in the eighties that assets (real estate and stocks in particular) are still overpriced. I don't know when that will end. The problem is that the gov't protected banks who made stupid loans and they were never forced to liquidate. Their economy has been stuck in limbo because the holders of expensive real estate are not forced to sell because the banks are not forced to write off bad loans.

By the way, I think the US is in the same position Japan was in the late eighties. When the US bubble pops, look out, everybody is going down.

Suzdal
28-11-2004, 17:52
In the U.S., the low interest rate bubble is about to pop and it's not going to be pretty.

tbill
28-11-2004, 18:18
Originally posted by Suzdal
In the U.S., the low interest rate bubble is about to pop and it's not going to be pretty.

Suzdal,

I tend to agree with you. I think low interest rates for housing are going higher. I am not so sure about US treasuries. The reason is that the risk premium is going higher if the housing bubble bursts. But a bursting housing bubble will drag on the economy, this is what happened in Japan. The point I am trying to make is that interest rates can be low but there might be no one willing to loan money to anyone but the best credits. Low interest rates in Japan reflect the stagnant real estate market. If the gov't had let prices fall to a market clearing level, then interest rates would not have stayed low as that real estate would be put into productive use.

trebor
28-11-2004, 20:37
Originally posted by Suzdal
In the U.S., the low interest rate bubble is about to pop and it's not going to be pretty.

Interest rates are still historicaly low. A gradual tightening by the fed should not create many too many problems. As long as its "easy does it" and no big suprises.

Ghost
29-11-2004, 00:18
Consensus is that you'll see a hike of .25% in December - some believe it'll be a full half point, but I rather doubt it. But you'll see sustained hikes, with the Fed targeting 4.5 by the end of next year. Still historically low. But yes, the one worry about the future from the American point of view is the amount of debt everyone has. That will be tough to manage.

With the US taking hikes, and the EU talking cuts or at the most, holding, you'll begin to see foreign investment flow back into the US, as investors will get more for their yield there. That will righten the current account over a period of 6 months.

John Bear
30-11-2004, 14:09
. . . schmix schmonths. Why is that everyone always thinks that any problem will come right in six months? Six months/two quarters ... always the period when visibility fades and really means "don't know where, don't when ... some sunny day".

Ghost
30-11-2004, 15:04
If you have a better estimate, please feel free to give it. Then we can share why we believe it's either one. Unless, of course, you're just here to troll.

If your answer was one trying to be informative, I apologize.

tbill
30-11-2004, 15:35
Originally posted by Ghost
Consensus is that you'll see a hike of .25% in December - some believe it'll be a full half point, but I rather doubt it. But you'll see sustained hikes, with the Fed targeting 4.5 by the end of next year. Still historically low. But yes, the one worry about the future from the American point of view is the amount of debt everyone has. That will be tough to manage.

With the US taking hikes, and the EU talking cuts or at the most, holding, you'll begin to see foreign investment flow back into the US, as investors will get more for their yield there. That will righten the current account over a period of 6 months.

Ghost,

I think you are a little off on the motivation. They are hiking short term rates with an eye on inflation. They want to keep long term rates from going through the roof. Of course, the truth is that the Fed is reactive. The market is signaling higher short erm rates. As long as they are still making money available for borrowing is what matters. The currency problem the world is facing has to do with the structure of the worlds economies. The current paradigm is starting to weigh on the financial system.

Current paradigm=

US imports, provides investment safe haven...
Europe exports and imports, holds dollars, unproductive living off of wealth...
Asia exports, saves, holds dollars, very productive...

So the US is going to have to start saving to keep its house of cards financial system from toppling.

Europe and Asia are going to have to cut its tax rates to encourage domestic demand because they cannot live by exports alone. Asia has a lot less restructuring to do but, also, a lot less wealth to finance these changes.

The US is playing the black sheriff in Blazing Saddles. We are pointing a gun at the dollar and saying "nobody move or the n***** gets it." Why? Because we are debtors and what to debtors always want? INFLATION. A falling dollar is inflationary and it encourages our export business and erodes the value of the debt that the rest of the world holds. The danger is that the rest of the world says screw you and dumps US assets. But that is not likely, they would be screwing themselves because they hold a lot of dollars. And the market is not big enough for them to dump such large holdings. The bigger danger is that the US investor will start to dump US assets. That is why the Fed is worried about long term rates. A little inflation is good but a lot would cream the bond market.

It is all about confidence. That's right, the US stock and real estate markets are a confidence game. :agree: The dollar will fall but it won't matter unless it somehow spooks the bond and stock markets.:eek:

Ghost
30-11-2004, 15:55
I'm curious. What motivation am I off on?

I know why the Fed raises interest rates, Tbill. I understand the whole "curb inflation" concept. I looked, and I didn't say anything to the contrary.

And bonds go up as the dollar falls. So it's unlikely the dollar going down will spook the bond market.

From a technical standpoint:

Dollar: Down Bonds: Up Stocks: Mixed (tendency up)
Dollar: UP Bonds: Down Stocks: Mixed (tendency down)

Interest Rates: Up dollar: up Bonds: Down Stocks: Down

You get the picture.

tbill
30-11-2004, 16:24
There is no relationship between the dollar and bond prices unless the dollar goes into freefall then all US assets get sold.

What happened in 87 was the dollar started down and so did bonds and stocks. When it became apparent the stock market was crashing, the bond market started up.

Also, you have to distinguish between long term and short term interst rates. If the Fed is raising the Fed funds rate it usually causes long term rates to come down because it means the Fed is fighting inflation in the present. It has to do with the different factors that influence interest rates along the yield curve.

I am off to the US, happy hollidays.

Ghost
30-11-2004, 16:45
"There is no relationship between the dollar and bond prices" (http://www.gold-eagle.com/editorials_03/milhouse072503.html)

Ok, Bill. Whatever you say.

As for your argument on interest rates, you're still arguing with yourself. I said nothing to the contrary.

Enjoy your holiday.