I too have to agree with Stunt. He makes some very valid points.
It's just hard as an American to not feel sold out by our politicians when it comes to globalization. Most of us (working class) have not seen more money in our pockets. In fact we have seen less. We also can't help thinking there had to be a better way to accomplish globalization. One that did not require us (the U.S.) workers to bear the brunt of the problems. Meanwhile we see record profits in many industries and millionaires becoming billionaires by benefiting from the effects of globalization. As a working class we feel lied to and manipulated. Cost of living is higher and income is lower. The promises by our politicians were completely the opposite.
It's just hard as an American to not feel sold out by our politicians when it comes to globalization. Most of us (working class) have not seen more money in our pockets. In fact we have seen less. We also can't help thinking there had to be a better way to accomplish globalization. One that did not require us (the U.S.) workers to bear the brunt of the problems. Meanwhile we see record profits in many industries and millionaires becoming billionaires by benefiting from the effects of globalization. As a working class we feel lied to and manipulated. Cost of living is higher and income is lower. The promises by our politicians were completely the opposite.
From Stunt-
Or the rest of the country, minus those at the top, will have their standard of living driven down to the same level as the immigrants...
Most likely, some middle ground will be reached, which doesn't speak well for the future of the middle class.
Or the rest of the country, minus those at the top, will have their standard of living driven down to the same level as the immigrants...
Most likely, some middle ground will be reached, which doesn't speak well for the future of the middle class.
Aye, that is what has happened in Japan after the Japanese rulers killed the Yen to keep it far beneath the dropping dollar. The Japanese economy has been roaring along for 66 months. Exports are booming and the big exporters are making enormous profits. At the same time the wages for the workers are dropping. The workers see nothing of the profits or the booming economy. On the contrary they are hard pressed to make ends meet. In effect they workers are living in a decade long depression.
DivideBYZero
Lifer
- May 18, 2001
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remember boys and girls, perry is telling you the support is 0.8, not 0.79, or 0.81, 0.8 - the number obviously is special, this is unrealed to economics remember.
dave thinks a falling dollar is orchestrated by the republics, except it makes the value of US assets less in the world.....
for the record my job involves investing into hedge funds, and most of them think the usd is undervalued against the EUR, CAD and JPY. but it takes time and interest rate differentials for currencies to mean revert around 'fair value'.
What is the reason do you think for the curious fact that the two strongest economies in the world have the weakest currencies compared to other major economies?
Finally. Well that's as close as I would expect for a confession from you.
In one half of a breath you say you don't support the Republicans yet then the other half of your breath and all of your posts show clearly that you support them.
You certainly don't support anything Democrats might suggest.
Notice I did not bold "American" in your first line of your comment supporting Corporations.
Because of "Globalization" you so conveniently featured for me (Thank You), the so called "American" corporations are not "American" at all.
They use the piece of paper to take advantage of the American taxpayers and profits but that is the only thing "American" about them. Most of them are now skeleton companies, where they reside on the U.S. on paper only with all manufacturing taking place where they can destroy the land and environment without consequence.
I've said many times strip those phoney American Companies of their American charter and watch how quickly those bogus profits on American taxpayers backs dissapear.
So again thank you for coming close to disclosing the Republican agenda for the destruction of the U.S. that you support.
- Jun 11, 2004
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Relative to itself.
.8 is a level of support. If it breaks below .08 it is a sign of weakness in which case it will find a new support level. If it bounces off .8 it is a sign of strength and will likely move higher.
See Understanding support & resistance.
WhipperSnapper
Lifer
- Oct 30, 2004
- 11,442
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In the very long run interest rate differentials should hold. However, in the last 5 years higher interest rates in the US compared to the EU and the UK didn't prevent the dollar fall. In the short run, no-arbitrage models predict in fact that higher interest rates will be matched by devaluation.
The US dollar gets its inherent value from the fact that many commodities must be paid in dollars. 94% of all Forex transactions have the dollar as one side of the transaction, often as a pivot between two other currencies.
Among the reasons of the devaluation are increased perceived political risk (which is still almost zero, but higher when compared to the Euro or the Swiss frank) and the US increasing debt. Increasing debt means less margin to keep interest rates high thus attracting foreign capital.
The emergence of the Euro provided international institutions with a credible diversification on top of the usual US dollar, british pound and swiss frank. Even small shifts in the composition of foreign reserves countries and big institutional investors keep can cause pressures on the exchange rates. If you have a look at the current foreign reserves of a random asian country and compare them to the reserves they held 15 years ago you would notice how the US dollar share has been lowered considerably in favor of more diversification.
Another reason is the huge increase in money flows to emerging countries. The surge in these flows means less money flowing to buy investments in the US, and thus less need for US dollars.
These are all small phenomena, but summed together along five years they have put quite some pressure on the greenback. If you talk to bankers in Europe or Switzerland (or read their financial press) they still see very little need to buy US dollars today, and remain very bearish for the next year or so, as many investment banks predict it to fall under 1.4 dollars per euro before the end of the year.
Also consider that China has been buying large amounts of dollars (in the form of dollar denominated debt) in order to keep their currency devaluated; but recently they loosened this policy, shifting from a peg to a currency band. This also has (and will in the future) put downward pressure on the dollar.
a few years ago the euro was very weak versus the dollar as the economy was weak and there was not much sign of improvement relative to the US economy and therefore the marginal money flow was to dollars. then the euro rallied because of fears of the double deficit until the end of 2004, then fed tightening and over valuation of the Euro at 1.36 lead to a strong period for the dollar. last year the euro hit around parity at 1.18 or thereabouts, however as the ECB looked to close some of the interest rate differential through rate hikes, and fixed income markets priced in a recession in 2007 in the US and rate cuts, the Euro has rallied in stages to where we are today.
The question is will the USD maintain a carry advantage and is it undervalued? On a PPP basis the USd is massively undervalued versus the Euro, and the CAD, and most economists are predicing a rebound in the US economy later this year driven by wage inflation. this should at a minimum keep a lid on these two cuccencies, and open the door for renewed dollar strength later. on the other hand the eurozone is only now entering a period of economic restructuring that should help it, and the canadian economy is going to benefit from continuing strong commodity prices that may offset the weaker business sector. also a comparatively weak dollar versus the euro and cad will only exacerbate the outsourcing to emering markets in those countries.
also on a technical basis petro dollar states and resource companies keep most of their cash in dollars, and this leaves M1 with a surplus of dollars which in recent years has been relent in Euro and other currencies, leaving the banks with a large under exposure of the dollar.
in terms of the Dollar versus emerging market currencies with healthy economies, i agree its a one way bet on a 3+ year horizon as most of these currencies are also quite undervalued against the dollar.
Looks like the downward slope is really slippery for the dollar.
Goldman and Sachs and others believe oil will hit $ 95 dollars (possibly $ 100) a barrel towards the end of the year. That is bound to put more pressure on the euro and cad to strengthen isn't it, and serious downward pressure on the dollar.
Also China's role as the world's inflation sink is coming to an end. The Chinese know want the Yuan to strengthen and may start to export inflation instead of importing it. China has simply stopped building up their huge dollar forex reserve and will put the new dollars they earn into circulation instead.
- Jun 11, 2004
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Uh-huh
For the record i don't really buy into that at the moment. In my personal opinion, because of an expensive war, i think there is a huge amount of money printing going on behind the scenes. This will result in a great deal of hidden inflation. I fully expect the dollar to seek out new support levels not seen for a very long time(if ever).
But then...what do i know...
A few years ago there was still a lot of people worrying about the long term success of the Euro, so it wasn't really considered a currency to hold your reserves in. The only alternatives to US dollars were the british pound and the swiss frank. The US dollar fall has been matched by an increase in reserves kept in Euros and (very important) gold. Emerging countries are literally swallowing all the gold you can throw at them, both the governments and the people. Most of these investors used US dollars in the past to accomplish the same task (purchasing power preservation).
The performance of the Euro economies compared to the US is (in my humble opinion) not really a big part of this story. While the Euro surged many concerns on European countries' economies remained. In fact, the Euro has not appreciated that much against the Swiss frank or the British pound, largely because the reasons for the success of the European currency in the last few years apply to these other currencies too. The story here is the US dollar falling against a basket of other currencies much more than the Euro appreciating.
Carry trades from the US should actually sustain the dollar, as the trademark carry trade in the last year has been short yen/long dollars. The more exotic ones you always read about on the press (short yen/long turkish lira for example) get their importance from the spectacular yields they return, but in terms of volume they are in fact quite insignificant.
There is still quite a lot of people who think the FED will cut interest rates much sooner than the BCE. Economic growth in the Eurozone is very strong, and actually accelerating (this quarter, for the first time in years the Eurozone grew faster than the US). This is causing a lot of people to bet on a falling dollar in the near future, and of course, in the short term, these are self-fulfilling prophecies. Remember that a year ago the US yield curve was clearly downward sloping, and as you said the markets clearly perceived a recession was coming in the US. But right now many many economists are puzzled, as many things looks the opposite of what they expected, especially in Europe where high energy costs and the strong Euro should put a big strain on the general state of their economy, while in fact countries that were supposed to have the biggest problems are doing very fine (Italy, Spain, Germany). A lot of people were expecting a disaster that never came.
In my opinion part of this can be explained by consumers patterns in emerging countries. If you have a look at what EU countries export and where, you'll see a lot of luxury goods going to East Asia, India, Russia or Brazil; completely non-existent markets just a few years ago. Italy, Germany and France have positive export/import balances against China and India for example, as more and more people in those countries can afford luxury items while European domestic consumers appear to be willing to pay a premium and not abandon their own products in favor of cheaper imports. After a decade of whining and crying about impossible competition against China, Italian textile producers and German car-makers are not realizing they are exporting much more than what they lose to Asian imports. Now, if this will be just a transition or is in fact sustainable I don't know... but what I like about some European companies is the fact that they get most of their appeal from the soft-power derived by brand image for example, something it is in some case virtually unaffected by foreign competition. We might wait 100 years before a Chinese firm achieves the brand power of Armani, Louis-Vuitton or BMW.
Predictions based on the PPP parity are tricky. Frankly, I see many problems applying them to Euro vs. US currency markets. Many things have always been more expensive in Europe, and always will be, and there are structural reasons for that.
From an European perspective real estate in the US in still pretty undervalued, and that's why you see so many investors coming to new york to buy an apartment while the dollar is so low. Even after the crazy surge in real estate prices, most of the country has very good prices compared to those in Europe. The fact is: Europe is overpopulated, while the US is sharply underpopulated, and the price of land reflects this, together with the much higher costs of constructions in Europe. The basket used to make these PPP comparisons is often (at least it seems to me) build expressly to support an idea. When you factor in things like distance to the origin of goods (think of Asian imports), economies of scale, consumer tastes and total cost of the labor force... there isn't that much left out to say things in the US are too cheap.
What you say about cash reserves being held in dollars is very true, but it's always been true. I remember a few year ago some economist made the point that the informal economy (and organized crime as well) all over the world used dollars, thus giving the US a certain advantage in terms of monetary policy. His claim was that part of the money never actually circulated on the open markets, thus permitting the FED with the possibility to print more money with less inflationary concerns.
What would be interesting is to know if companies around the world hold now comparatively more or less of their cash in dollars, compared to 15 years ago. I feel (but have no knowledge of this) that many Japanese companies for example, now hold quite a lot of cash in Chinese currency, as they both need it more to operate and know it will invariably appreciate.
The emergence of the BRIC economies is the real story of this decade, and will in my opinion be the big story of this century. It is affecting every aspect of the world economy, with and intensity and speed hardly imaginable a decade ago. After many years in which I was the most fervent believer in EMs I have now a few concerns on China in the short term. I see weird valuations and I think we are quite close to a serious market crash. This of course doesn't change my view on their economy in the medium term.
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