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Well I suppose that depends on ones believes, for me the market leads the economy(ie predicts the future direction of economy)

It is despite the economy sliding deeper into recession.

The Japanese economy contracted by 1.2 per cent in the final three months of 2001, a worse performance than expected.

Despite that many economists believe that Japan will improve from here on the back of stronger growth in the United States.

That optimism has helped fuel Japan's financial markets.

On the stockmarket, the Nikkei average posted its biggest weekly gain since 1997, jumping 10 per cent.

The yen also strengthened rising around 4 per cent over the week


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Despite that many economists believe that Japan will improve from here on the back of stronger growth in the United States.

The only reason they think that is based on the hope of a falling yen - but, it is predicted that the US dollar will also fall at some time in the future.
Until Japan writes its massive bank loans off and gets it's house in order (something it's failed to do so far) the economy will simply carry on the way it's been going for years - nowhere !!!
Regards
Harmy
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The only reason they think that is based on the hope of a falling yen - but, it is predicted that the US dollar will also fall at some time in the future.

You may be right Harmy but, The massive downtrend line in the Nikkei has been broken. You can clearly see a double base with the most recent rises closing above the base(range) highs, so from TA point it looks over & could well(depending on the correction of the latest move), be the begining of a new bull in Jap markets.

Until Japan writes its massive bank loans off and gets it's house in order (something it's failed to do so far) the economy will simply carry on the way it's been going for years - nowhere !!!

Well Harmy again you could be right but as is always the case the market leads the economy, in other words by the time the Japs fix the banking bad loans, the stockmarket will already have been in a bull move. I don't believe that the market will wait until that happens, I feel that the market is telling us that those problems will be fixed or at least it anticipates that those problems will be better going forward.

It just depends on you prespective, if you believe the stock market leads or if you believe that economic news leads, I'm well & truley in the market leads camp.


JR

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The only reason they think that is based on the hope of a falling yen

HUH? the yen was up 4% the market 10%

I can't agree with this statement also.
It would be completly in divergence to history for the jap market(or any world market) to recover & for the yen to fall in value. A falling yen will not create a bullish move but rather a bearish one.

If the US dollar falls then thier markets will follow it.
A strong currancey is good , it makes no sence IMO & is completely
at odds with historical evidence to suggest otherwise.


JR
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A falling yen will not create a bullish move but rather a bearish one.

JR
I think they hope that a falling yen will allow their goods to become cheaper and therefore easier to sell on the world markets - this in turn will kick start their economy.
That's the hope anyway !!
Regards
Harmy
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I think they hope that a falling yen will allow their goods to become cheaper and therefore easier to sell on the world markets - this in turn will kick start their economy.

Yep I'm sure thats what some see as a solution, but reality bites, Japan of cause is a huge importer of raw materials & a lower yen means they pay more for those raw materials. Kind of a catch 22 if you ask me.
Maybe a low yen would act as a spur if they had no need to import nearly everything(raw materials) but as thats not the case I have trouble accepting the low yen theory.

JR
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..... but as thats not the case I have trouble accepting the low yen theory.

As we all know JR you have trouble accepting the low "any currency" theory.
But as you have given a valid reason why this might not apply to Japan are you prepared to look at the other side of the same coin and concede that it could apply to a high exporting country.
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concede that it could apply to a high exporting country.

No I doubt that could happen, historic evidence dosn't suggest that is possible over the long term.

Barcoo Japan is a high exporting country.

Which country are you thinking about in your question? & I'll have a look at for you Or is this just a hypothetical question?

JR
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Let's see what JR has said in this thread.
Japan of cause is a huge importer of raw materials & a lower yen means they pay more for those raw materials

Yet he doesn't see the advantage in an exporter recieving more money because of a lower currency.

Duplicity at its' finest.

Which country are you thinking about in your question?
I am thinking about a country which exports four times as much as it imports. Most of what it needs is produced at home in local dollars.It doesn't have to have a name.
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Yet he doesn't see the advantage in an exporter recieving more money because of a lower currency

No not right, not what I said, we were talking about Japan.
I never said that their are no advantages to exporters when a currency is low.You have replied to what you thought I said rather to what was said.
I am thinking about a country which exports four times as much as it imports. Most of what it needs is produced at home in local dollars.It doesn't have to have a name.

So this country has no name & doesn't exist? If thats the case then were not dealing with a real situation , rather your talking about a imaginary situation not really worth trying to debate something that isn't real.

JR


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Barcoo, a point to consider is that even if your imaginary situation was true it wouldn't stay true for long. If you think about it this phantom country would be raking in currency from it's exports, this would push up the value of their own currency, hence as I said it would not be possible to maintain a low currency under those conditions, it just can't work that way long term.

JR
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No not right, not what I said, we were talking about Japan.
I never said that their are no advantages to exporters when a currency is low.


That's not really true JR is it. In this and a previous thread you have said that it is more advantageous to have a high currency than low. You will not say that in some cases the reverse may be true, in fact you argue when anyone else says it. This implies that you think it is ALWAYS more advantageous to have a high currency than a lower one. Is this the case or not?

So this country has no name & doesn't exist?
I didn't say that. I said it is not necessary to make the name of the country known. It is the circumstances that count, not what it is called.
As to this country having a low currency that you say will have to rise because of longer term economic forces- I'm not disputing that outcome in any way whatsoever. The thing is- that is not the issue. The issue is whether it is of value for that country to have a low currency NOW. Not in 5 years time, not in 10 years time, NOW.
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Barcoo I'm getting lost.

I feel that it is more desirable for a country to have/aim for a high relative currency over the long term. That IMO signals that the economy is strong in relative terms to other countrys.

I agree that currencys flucuate in relative terms to other currencys, some more than others , some always trade higher, while some always trade lower. IMO & in with my limited humble observations whether a currency trades to a higher relative or lower relative price to other currencys is directley influenced by that countrys relative competitiveness. Thus as a countrys competitiveness improves the currency is in effect undervalued causing it to rise in value.

Because this improved competitiveness is causing the dollar to rise relative to other world currency the whole worth of that country increases , everyone/every asset is a bit richer relative to the rest of the world.

This rising wealth has a big effect on the value of everything esp those exporters that are able to benefit fully by it, maintain/increase sales at spot prices, IMO it follows that a country should always aim for a high relative exchange rate. The longer you can keep it high in value the better years & years if you can. Always get the best return you can for you output.

Low exchange means what you sell you get less for in return. Even if you had a large amount of produce you'd have to be careful, your produce been released at such low realtive value is apt to push down that markets value, effectivley lowering your exchange rate further.
I say then that I don't see much advantage to aiming for a low exchange rate.

I think that covers my thoughts on this fully ,if I was misleading or wrong before I didn't have that intention.

JR

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Not sure where this new humble JR has come from but hey, I could get to like the guy.

Two things I picked out that might be causing our misunderstanding each other-
Low exchange means what you sell you get less for in return.

Even if you had a large amount of produce you'd have to be careful, your produce been released at such low realtive value is apt to push down that markets value...


My opinion is that low exchange means that what you sell you get more(in local dollars) for in return because most commodities are priced in US$ on the world markets.

The supply and demand effect on prices due to gluts is a separate issue.

Barcoo
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Barcoo,
So this country has no name & doesn't exist?
OK, let's give a couple of names that do exist.
Case 1. USA
World's Strongest currency. Was competitive for a while during the 90's. Now it is either in recession or very close to it. Ballooning national debt. Job layoffs and cutbacks reaching epidemic proportions. Major indices have shown significant deterioration over the past couple of years.

Case 2. Australia.
Weak currency. Currency has fallen from around 80c US in '97 to around 50C now. Inflation low. Interest rates relatively low. Company profitability probably as good as it has ever been. All Ordinaries trading at near record highs. Employment growing. Unemployment is relatively high since growth has yet to absorb the higher unemployment of past years.

Case 3. Malaysia
Currency pegged to the world's strongest currency. KLSE Composite has fallen from 1400 to about 750 now. Interest rates high, about 10%. Unemployment high. Those who are still employed are either on reduced working hours or have taken significant pay cuts. That's in a country whose major trading partner is the US. If it's major trading partners had currencies that fell relative to the Malaysian ringgit, its plight would be even worse.

Case 4 Japan:
Not sure about the strength of its currency -- probably somewhere in the middle of this group. Runs government and trade supluses. Most imports are used for processing (value adding) and exporting, not for loocal consumption. As a result low currency value would increase cost of raw materials, reduce operating expenses, and increase returns from exports sales. A high currency would do the opposite. It is squeezed either way. Economy has been flat for a decade because better return on investment was available in non-productive resource -- land speculation. Now banks especially have a dilemma. If they foreclose on bad and doubtful debts, they will bankrupt themselves. If they do not, they maintain large accounts of non performing loans.

jono:
Low exchange means what you sell you get less for in return.
How can that be? Except for trade between European nations, almost all world trade is conducted in $US. When Australia sells beef to Korea or iron ore to Japan, the deals are done in $US. A low local currency allows you to sell at alower price in $US, but still a higher price in the local currency. Since the business pays its costs in Australian dollars, those costs are reduced. Doesn't that mean exporters will get more at lower cost? Importers who sell on the local market are disadvantaged, thereby reducing the national debt.

Obviously if you are very successful at his over a long time, your country would accumulate greater values of foreign currencies. Thgat would allow you to exchange it, and force up the price of the local currency (ie strengthen it). If the local currency got too strong, it would turn off the international competitiveness that started the process.

An economy with a strong currency is good for individuals within it. Their standard of living is high. They can more easily afford foreign goods. This has the result of increasing the national debt, as well as reducing demand for local product. If that continues, the relative value of the currency will fall, until it turns off the easy affordability of foreign goods that started the process.



chrischalkley

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Chris,
Some points that I think need to be made,

None of those counrtys mentioned qualify as par Barcoo's post,
I am thinking about a country which exports four times as much as it imports. Most of what it needs is produced at home in local dollars

Yes all those countrys have probs but not really the point I used the word relative & thats important.It matters not whether all your competitors are sick if they are miles in front, so far in front that even if they need hospitlisation you still aint goin catch them in the race. The only thing that really matters is that in relative price terms your up with the pack the closer to the front the better.


Except for trade between European nations, almost all world trade is conducted in $US. When Australia sells beef to Korea or iron ore to Japan, the deals are done in $US
Yes those deal are negotiated over months & for extened time frames at set rates.

A low local currency allows you to sell at alower price in $US, but still a higher price in the local currency.
Yes good, but lets follow that a bit further because it matters little what the exchange medium currency is at some point you have to convert that income into your local currency. So that income will depreciate in value as your local currency reduces in value over time.

Since the business pays its costs in Australian dollars, those costs are reduced
That I think long term is not right because of two factors,

1)A low dollar would increase exports because of the low returns for producers of selling products in the Aust market. Higher exports leaves less product for local markets less product means less competition, means higher prices.Higher prices leads to pressure on wages , leads to pressure on unemployment levels, leads to less dispossable income.

2)The income is not all disbursed in one day, a % will be profit. That profit will depreciate in value along with the dollar, meaning when it is used whatever it is used for will likley cost more than when first that income was made(less buying power).Because of the twofold effect of reduced relative value * & higher domestic prices. Higher prices are caused because all imported product/produce would cost more & local produce/products are less abundant because higher returns can be got exporting.


If the local currency got too strong, it would turn off the international competitiveness that started the process.
Yes, I did say relative & I think that is really what I mean not excessivley high, your aim should always be for a high relative currancy is the basic thing I'm saying.

I seem to be clearly out voted in my thoughts on this so I restrick any further musings on the subject, which I can imagine is starting to bore most to sleep.

JR


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My final post on the topic.

Page 16 Shares Magazine David Rees "Strategy" - last sentence-

"The third cheer must be reserved for the Australian economy and the policy setters; it was low interest rates, the low exchange rate, low inflation and reductions in company tax that made it all possible."
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The third cheer must be reserved for the Australian economy and the policy setters; it was low interest rates, the low exchange rate, low inflation and reductions in company tax that made it all possible."

Interesting opinion from Rees, but hey you know those politians they will bend the truth to suit them. Policy setters had little to do with lowering the exchange rate thats for sure the dollar went down in value with commodity prices nothing to do with policy setters.

Still I suppose it just depends on your opinion.

Me I don't believe all I read.

Oh by the by what were the other two cheers?

JR

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"Two cheers for Australian management for producing solid ,if unspectacular, results during a global recession and a downturn in the domestic economy."
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"Two cheers for Australian management for producing solid ,if unspectacular, results during a global recession and a downturn in the domestic economy."

Amazing thought's from the head of CBA research.
He must have tunnel vision, or he pays no attention to the strongest sectors v's the weak ones, fluffy stuff IMO.The fact is the gold , paper , chemecal & engineering sectors have been the leading sectors over the last 6 months, signaling a change of investment flow. Thats nothing to do with Australian managers. Geez a people listen to this joker.

Two cheers for Ansett Management or HIH or onetel or pasminco I think not.

JR
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Two cheers for Ansett Management or HIH or onetel or pasminco I think not.
Totally agree with you on this.

The fact is the gold , paper , chemecal & engineering sectors have been the leading sectors over the last 6 months, signaling a change of
investment flow.


He is not talking about stock market performance, he is not talking about investment flow of dollars in.
He is talking about the performance of the underlying businesses. You really have trouble separating these issues don't you. And they ARE separate issues JR.
I would say that it was generally a good reporting period with a lot of good news from a lot of companies but then again I might be biased by my own stocks.
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He is not talking about stock market performance, he is not talking about investment flow of dollars in.
He is talking about the performance of the underlying businesses. You really have trouble separating these issues don't you. And they ARE separate issues JR.

So your saying that stock performance has nothing to do with underlying business performance, conditions?
Without been able to read the article you quoted makes it hard.I can only go on what you posted.

The fact is the gold , paper , chemecal & engineering sectors have been the leading sectors
They are leading not just in the stock market but also the economy, thats why business performance is holding up well is what I'm suggesting.

I would say that it was generally a good reporting period with a lot of good news from a lot of companies but then again I might be biased by my own stocks.

Good onya Barcoo you must be nailing this Buffett system your playing very well I'm sure you'll get real good at it.

JR

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Good onya Barcoo you must be nailing this Buffett system your playing very well I'm sure you'll get real good at it.

Thanks for the kind thoughts. I don't know if I am "nailing it" or not and won't know for sure for another 5 years. Things seem to be fitting into place though. Only long term performance will tell.

Actually you must have done very well out of one of my "dogs" - MAH. Still holding? Been in and out a few times or had a continuous hold?

Barcoo.
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one of my "dogs" - MAH

Nah I sold , I may buy the correction decide this weekend.

Pil is one I'm in at the minute.

JR
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