The US is dedicated to debasing its currency. Are you ready?
There is a risk in holding cash in an environment of asset price inflation – a condition that usually occurs when governments create large fiscal deficits and inflate the money supply. The practice is endemic to banana republics and declining empires…and it is happening in the US at this very moment.
The global recession and financial crisis have refocused attention on government stimulus packages. These packages typically emphasize spending, predicated on the view that the expenditure ‘multipliers’ are greater than one – so that gross domestic product expands by more than government spending itself. Stimulus packages typically also feature tax reductions, designed partly to boost consumer demand (by raising disposable income) and partly to stimulate work effort, production and investment (by lowering rates).
The existing empirical evidence on the response of real gross domestic product to added government spending and tax changes is thin… But the evidence is quite strong that these policy responses usually trigger inflation.
I suppose that even someone without any common sense might understand that a “strong currency” over longer periods of time reflects a high degree of prosperity and economic success, whereas a chronically weak currency is symptomatic of economic imbalances, such as a lack of competitiveness or overconsumption, arising usually from excessive supply of money and credit.
I would also suppose that even if someone never travels overseas, he would understand that if the US dollar loses 50% of its value against all the other world currencies (everything else being equal), it means the US is 50% poorer relative to the rest of the world. (Now, this is not entirely correct, since the US has overseas assets that would appreciate in value in USD terms).
Moreover, stock price movements become extremely volatile and erratic in countries with a depreciating currency. In the long run, the depreciation of the currency will usually more than eliminate the gains in local currency terms. So, whereas in 2007 both the Dow Jones and the S&P 500 exceeded their previous highs reached in 2000 in US dollar terms, these indices failed to make new highs in Euro terms. In addition, whereas the US economy expanded in US dollar terms between 2001 and 2007, in Euro terms it actually contracted!
Even with the S&P 500 having shot up since the beginning of the year by over 25%, it has merely kept pace with the price of gold. And during the last 10 years, the S&P has lagged behind the official US inflation rate…while lagging VERY far behind both the euro and gold. Sine the end of 1999, the S&P 500 has delivered a total return after inflation of about MINUS 25%.
Unfortunately, the US is not the only country that is busily debasing its currency. “Everyone” is doing it. Because of the current collective debasement of all paper currencies by central bankers, I believe that precious metals and mining companies will maintain their purchasing power.
In the 1980s the US dollar was a very strong paper currency compared to the Mexican Peso. Today, there is no paper currency that is as strong relative to the US dollar as the US dollar was relative to the Peso in the 1980s! The only “currencies” that have a chance of becoming as strong against the US dollar as the US dollar was against the Peso between 1979 and 1988 are precious metals such as gold, silver, platinum, and palladium.
Also, I should add that precious metals could appreciate even if the US dollar miraculously recovered strongly against foreign currencies for an extended period of time. Such dollar strength would probably be a symptom of some horrible economic or political problems around the world, which could be friendly to precious metals.
Central bankers and pundits seem to believe that they have averted the second Great Depression, while ignoring the fact that more and more debt produces less and less GDP and fewer and fewer jobs.
For now, though, the low ten-year bond yield is the lifeline from which all support flows. Much of the investment universe holds together because money can still be had for cheap – not by the volition of a cooperative private sector, rather induced by a US government that simply distributes money for free. Such an ill-conceived idea could only have been born in the test tube of a central banker.
Private lenders comprehend the difficulty of making profits when being forced to lend for nothing, so the government increasingly finds itself to be the interest-free lender of last resort.
Ultimately, if central bankers continue this process for long enough, it is the dollar, and any currency or economy still pegged to it, that could eventually crash. Therefore, we investors find ourselves in the precarious position of having to maintain sufficient liquidity, but not too much in case the real value of these liquid reserves is wiped out by politicians and central bankers gone mad.
/wallstreetpit.com/1
среда, 11 ноября 2009 г.
Dollar trouble, oil's bubble could derail recovery
NEW YORK (Reuters) - The weakness in the U.S. dollar risks inflating a bubble in the oil market, which could threaten consumer spending and potentially cause a double dip recession.
The greenback's decline this year has been lauded as good for America as it benefits earnings, stimulates exports and helps rebalance the U.S. economy. But runaway oil prices could be the Achilles' heel to the thesis that sees only a benign impact of a weak dollar.
This year, when the dollar has been weak, oil has been strong; a weaker dollar supports oil because dollar-priced commodities become cheaper for buyers using other currencies. The inverse relationship between the dollar and crude has been remarkably tight: the 200-day correlation coefficient between the dollar index and oil is -0.94, Reuters data showed
www.reuters.com/
The greenback's decline this year has been lauded as good for America as it benefits earnings, stimulates exports and helps rebalance the U.S. economy. But runaway oil prices could be the Achilles' heel to the thesis that sees only a benign impact of a weak dollar.
This year, when the dollar has been weak, oil has been strong; a weaker dollar supports oil because dollar-priced commodities become cheaper for buyers using other currencies. The inverse relationship between the dollar and crude has been remarkably tight: the 200-day correlation coefficient between the dollar index and oil is -0.94, Reuters data showed
www.reuters.com/
понедельник, 9 ноября 2009 г.
Citigroup Says Stop Bets Euro, Pound to Rise Against Dollar
Nov. 9 (Bloomberg) -- Investors should end bets that the euro and the pound will rise against the dollar, according to Citigroup Inc.
“Given the speed of the short-term moves here, we have decided to take profit on our long euro-dollar and pound-dollar positions,” Tom Fitzpatrick, chief technical analyst at Citigroup in New York, wrote in a research report today. “Overall, we maintain a bullish view on both pairs and may look for further opportunities later.”
The pound rose 1 percent to $1.6773 as of 1:23 p.m. in London, its fifth straight increase. The euro gained 1 percent to $1.4990.
“Given the speed of the short-term moves here, we have decided to take profit on our long euro-dollar and pound-dollar positions,” Tom Fitzpatrick, chief technical analyst at Citigroup in New York, wrote in a research report today. “Overall, we maintain a bullish view on both pairs and may look for further opportunities later.”
The pound rose 1 percent to $1.6773 as of 1:23 p.m. in London, its fifth straight increase. The euro gained 1 percent to $1.4990.
IMF Signals Low U.S. Rates Funding ‘Carry Trade’
Nov. 9 (Bloomberg) -- The International Monetary Fund signaled record low U.S. interest rates are funding global “carry trades” and the dollar is still overvalued as concerns mount that new financial imbalances are forming.
“There are indications that the U.S. dollar is now serving as the funding currency for carry trades,” the IMF said in a report published on Nov. 7. “These trades may be contributing to upward pressure on the euro and some emerging-economy currencies.” While the dollar “has moved closer to medium-run equilibrium,” it is still “on the strong side.”
With investors able to borrow at near-zero rates in the U.S., some economists are concerned that markets may become distorted as traders plow those funds into riskier assets. Nouriel Roubini, the economist who forecast the financial crisis in 2006, said Nov. 4 that investors are milking the “mother of all carry trades.”
“U.S. interest rates look to remain near zero through the first half of 2010 at the very least, which provides traders plenty of time to continue with carry trades,” said Boris Schlossberg, director of currency research at the online currency trader GFT Forex in New York. “Labor-market conditions are still very challenging in the U.S., and the rest of the world is improving faster. The dollar remains the weakest link.”
Dollar’s Slide
The dollar has dropped about 13 percent against a basket of currencies from its major trading partners in the past seven months. Meanwhile, the MSCI All-Countries World Index of global equities has gained about two-thirds since March and sugar has soared 90 percent this year. The euro has risen 15 percent against the dollar in the past nine months and traded today at $1.4996 at 10:41 a.m. in London, up 1 percent on the day.
U.S. Federal Reserve policy makers, at the end of a two-day policy meeting on Nov. 4, reiterated their intention to keep interest rates “exceptionally low” for “an extended period.”
Speculation that the Fed will keep rates on hold into next year was further fueled by U.S. Labor Department figures on Nov. 6 that showed the nation’s unemployment rate jumped to 10.2 percent in October, exceeding 10 percent for the first time since 1983.
In a carry trade, investors borrow in countries with low interest rates to invest in higher-yielding assets. Benchmark interest rates of 0.1 percent in Japan and as low as zero in the U.S. compare with 7 percent in South Africa and 2.5 percent in New Zealand, making the yen and dollar favored targets for investors seeking to fund carry trades.
Risk Appetite
Marc Chandler, global head of currency strategy for Brown Brothers Harriman & Co. in New York, said the dollar carry trade is likely to continue in coming months, and he expects the U.S. currency will decline further.
“The key wildcard to dollar carry trades is whether people continue to show an appetite for risk,” Chandler said. “That’ll weigh on the dollar.”
The euro’s exchange rate “is on the strong side of its equilibrium,” the Washington-based IMF said.
The fund, which published the report as officials from the Group of 20 nations gathered in St. Andrews, Scotland, also said that China’s yuan is “significantly undervalued.”
The Chinese currency “has depreciated in real effective terms in tandem with the U.S. dollar and remains significantly undervalued from a medium-term perspective,” the IMF said.
Exchange Rate
China has kept the exchange rate at about 6.83 to the dollar since July 2008, after letting the currency strengthen 21 percent in the previous three years. Appreciation was halted to help sustain exports amid a global recession.
Chinese central bank Governor Zhou Xiaochuan told Bloomberg News on Nov. 6 that “the pressure from the international community to allow yuan appreciation is not that big,” deflecting calls from Europe and Japan to let it rise.
Since President Barack Obama took office this year, “the U.S. hasn’t been as vocal” about the Chinese currency as it was previously, Brown Brothers’ Chandler said.
“There are indications that the U.S. dollar is now serving as the funding currency for carry trades,” the IMF said in a report published on Nov. 7. “These trades may be contributing to upward pressure on the euro and some emerging-economy currencies.” While the dollar “has moved closer to medium-run equilibrium,” it is still “on the strong side.”
With investors able to borrow at near-zero rates in the U.S., some economists are concerned that markets may become distorted as traders plow those funds into riskier assets. Nouriel Roubini, the economist who forecast the financial crisis in 2006, said Nov. 4 that investors are milking the “mother of all carry trades.”
“U.S. interest rates look to remain near zero through the first half of 2010 at the very least, which provides traders plenty of time to continue with carry trades,” said Boris Schlossberg, director of currency research at the online currency trader GFT Forex in New York. “Labor-market conditions are still very challenging in the U.S., and the rest of the world is improving faster. The dollar remains the weakest link.”
Dollar’s Slide
The dollar has dropped about 13 percent against a basket of currencies from its major trading partners in the past seven months. Meanwhile, the MSCI All-Countries World Index of global equities has gained about two-thirds since March and sugar has soared 90 percent this year. The euro has risen 15 percent against the dollar in the past nine months and traded today at $1.4996 at 10:41 a.m. in London, up 1 percent on the day.
U.S. Federal Reserve policy makers, at the end of a two-day policy meeting on Nov. 4, reiterated their intention to keep interest rates “exceptionally low” for “an extended period.”
Speculation that the Fed will keep rates on hold into next year was further fueled by U.S. Labor Department figures on Nov. 6 that showed the nation’s unemployment rate jumped to 10.2 percent in October, exceeding 10 percent for the first time since 1983.
In a carry trade, investors borrow in countries with low interest rates to invest in higher-yielding assets. Benchmark interest rates of 0.1 percent in Japan and as low as zero in the U.S. compare with 7 percent in South Africa and 2.5 percent in New Zealand, making the yen and dollar favored targets for investors seeking to fund carry trades.
Risk Appetite
Marc Chandler, global head of currency strategy for Brown Brothers Harriman & Co. in New York, said the dollar carry trade is likely to continue in coming months, and he expects the U.S. currency will decline further.
“The key wildcard to dollar carry trades is whether people continue to show an appetite for risk,” Chandler said. “That’ll weigh on the dollar.”
The euro’s exchange rate “is on the strong side of its equilibrium,” the Washington-based IMF said.
The fund, which published the report as officials from the Group of 20 nations gathered in St. Andrews, Scotland, also said that China’s yuan is “significantly undervalued.”
The Chinese currency “has depreciated in real effective terms in tandem with the U.S. dollar and remains significantly undervalued from a medium-term perspective,” the IMF said.
Exchange Rate
China has kept the exchange rate at about 6.83 to the dollar since July 2008, after letting the currency strengthen 21 percent in the previous three years. Appreciation was halted to help sustain exports amid a global recession.
Chinese central bank Governor Zhou Xiaochuan told Bloomberg News on Nov. 6 that “the pressure from the international community to allow yuan appreciation is not that big,” deflecting calls from Europe and Japan to let it rise.
Since President Barack Obama took office this year, “the U.S. hasn’t been as vocal” about the Chinese currency as it was previously, Brown Brothers’ Chandler said.
воскресенье, 8 ноября 2009 г.
Further Euro Gains Likely as Central Banks Stay Loose
The euro and other higher-yielding currencies are positioned to continue to gain against the dollar this week, even as flagging U.S. jobs data cast doubt on the global economic recovery.
Investors need somewhere to put the cheap money sloshing around their portfolios, courtesy of the ultraloose policies recommitted to last week by the U.S. Federal Reserve and other central banks.
As long as investors remain assured central bankers will keep the cheap money flowing, money will continue to funnel into risk-positive trades, including high-yielding currencies and stocks, analysts said.
"None of the Group of Three central banks is rushing to withdraw liquidity," Steven Englander, chief U.S. currency strategist at Barclays Capital in New York, said of the U.S., euro-zone and Japanese central banks. "Through the rest of the year, markets are going to take comfort in that," sending risk-positive assets higher.
In a report to finance ministers and central-bank governors from the Group of 20 leading economies, the International Monetary Fund said there are indications the U.S. dollar is being used as a funding currency for "carry trades," a strategy in which investors borrow in currencies that are expected to have low interest rates over the medium term to buy currencies that are expected to have higher interest rates.
"These trades may be contributing to upward pressure on the euro and some emerging economy currencies," the IMF said. "The euro has experienced most appreciation among major advanced economy currencies and remains on the strong side of its equilibrium."
But G-20 officials gave no indication that they would take action that would force investors to rethink their carry trades. Their final statement made no mention of currencies, and discussion on foreign-exchange issues on the sidelines of their meeting in St. Andrews, Scotland, appears to have been limited.
The IMF added to pressure on the Chinese government to allow the yuan to appreciate by describing the currency as "significantly undervalued."
But U.S. Treasury Secretary Timothy Geithner said tensions with China over exchange-rate policy aren't escalating, while Chinese officials repeated their call for a stable U.S. dollar.
Friday in New York, the euro was at $1.4847, down from $1.4877 late Thursday. The dollar was at 89.96 yen, down from 90.77, while the euro was at 133.56 yen from 135.04. The U.K. pound was at $1.6610, up from $1.6587. The dollar was at 1.0173 Swiss francs from 1.0162 francs.
/online.ws
The euro and other higher-yielding currencies are positioned to continue to gain against the dollar this week, even as flagging U.S. jobs data cast doubt on the global economic recovery.
Investors need somewhere to put the cheap money sloshing around their portfolios, courtesy of the ultraloose policies recommitted to last week by the U.S. Federal Reserve and other central banks.
As long as investors remain assured central bankers will keep the cheap money flowing, money will continue to funnel into risk-positive trades, including high-yielding currencies and stocks, analysts said.
"None of the Group of Three central banks is rushing to withdraw liquidity," Steven Englander, chief U.S. currency strategist at Barclays Capital in New York, said of the U.S., euro-zone and Japanese central banks. "Through the rest of the year, markets are going to take comfort in that," sending risk-positive assets higher.
In a report to finance ministers and central-bank governors from the Group of 20 leading economies, the International Monetary Fund said there are indications the U.S. dollar is being used as a funding currency for "carry trades," a strategy in which investors borrow in currencies that are expected to have low interest rates over the medium term to buy currencies that are expected to have higher interest rates.
"These trades may be contributing to upward pressure on the euro and some emerging economy currencies," the IMF said. "The euro has experienced most appreciation among major advanced economy currencies and remains on the strong side of its equilibrium."
But G-20 officials gave no indication that they would take action that would force investors to rethink their carry trades. Their final statement made no mention of currencies, and discussion on foreign-exchange issues on the sidelines of their meeting in St. Andrews, Scotland, appears to have been limited.
The IMF added to pressure on the Chinese government to allow the yuan to appreciate by describing the currency as "significantly undervalued."
But U.S. Treasury Secretary Timothy Geithner said tensions with China over exchange-rate policy aren't escalating, while Chinese officials repeated their call for a stable U.S. dollar.
Friday in New York, the euro was at $1.4847, down from $1.4877 late Thursday. The dollar was at 89.96 yen, down from 90.77, while the euro was at 133.56 yen from 135.04. The U.K. pound was at $1.6610, up from $1.6587. The dollar was at 1.0173 Swiss francs from 1.0162 francs.
/online.ws
вторник, 3 ноября 2009 г.
Australia first to raise interest rates twice
Citigroup Inc., Calyon, Barclays Capital and National Australia Bank Ltd. forecast it will trade at 1 U.S. dollar next year, implying an additional 11 percent gain. Hedge funds and other large traders have more bets than any time since July 15, 2008, that the rally will continue, data from the Washington- based Commodity Futures Trading Commission show.
Citigroup Inc., Calyon, Barclays Capital and National Australia Bank Ltd. forecast it will trade at 1 U.S. dollar next year, implying an additional 11 percent gain. Hedge funds and other large traders have more bets than any time since July 15, 2008, that the rally will continue, data from the Washington- based Commodity Futures Trading Commission show.
пятница, 17 апреля 2009 г.
вторник, 14 апреля 2009 г.
Japan Stocks Fall After U.S. Retail Sales Drop, Yen Strengthens
April 15 (Bloomberg) -- Japanese stocks dropped after U.S. retail sales unexpectedly declined and the stronger yen dimmed the earnings outlook for Japan’s electronics and auto companies.
Canon Inc., the world’s largest seller of digital cameras, declined 2.6 percent. Honda Motor Co., Japan’s second-biggest carmaker, fell 1.5 percent. Tokyo Electron Ltd., the world’s second-largest supplier of semiconductor production equipment, lost 1.9 percent after chipmaker Intel Corp. said profit plunged.
“The situation in the U.S., combined with the stronger yen point to losses in the local market today,” said Hiroichi Nishi, general manager at Nikko Cordial Securities Co., in an interview with Bloomberg Television. “From a technical perspective, investors may be thinking now is a good time to sell.” .bloomberg.com
Canon Inc., the world’s largest seller of digital cameras, declined 2.6 percent. Honda Motor Co., Japan’s second-biggest carmaker, fell 1.5 percent. Tokyo Electron Ltd., the world’s second-largest supplier of semiconductor production equipment, lost 1.9 percent after chipmaker Intel Corp. said profit plunged.
“The situation in the U.S., combined with the stronger yen point to losses in the local market today,” said Hiroichi Nishi, general manager at Nikko Cordial Securities Co., in an interview with Bloomberg Television. “From a technical perspective, investors may be thinking now is a good time to sell.” .bloomberg.com
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