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One of the reasons I intend to reduce my US holdings. A falling dollar frightens me !!
Regards
Harmy

http://www.morganstanley.com/GEFdata/digests/20020111-fri.html

The first thing I did when I arrived in Frankfurt this week was to get some euros. There's nothing like the look and feel of newly minted coins -- especially of a currency that heretofore existed only on our screens. When I emptied my pocket at the end of the day, it was not too difficult to separate the euros from my American currency. Shiny and sleek, they stood in sharp contrast to the worn and wrinkled greenbacks. My mind started racing.

I have long felt the strong dollar is an accident waiting to happen. If anything, my conviction is deepening. The reason: America's external imbalance has plunged into the danger zone and is about to get worse. The current-account deficit -- the broadest measure of any nation's international financial position -- hit a record 4.6% of nominal GDP in late 2000. That was more than a full percentage point wider than the previous record deficit of 3.5% hit in late 1986. While the deficit narrowed a bit in 3Q01 (to 3.7%), that was an aberration traceable largely to foreign insurance payments associated with the destruction of the World Trade Center. The bad news is that the current-account deficit appears set to get a good deal worse in the years ahead. Our baseline scenario for the US economy has America's external shortfall rising to the astronomical 6.2% share of GDP by late 2003. Such a deficit would bear an eerie resemblance to those that plagued a pre-crisis Asia in the mid-1990s.

This is a stunning and worrisome development for a US economy in recession. Normally, cyclical downturns are just what the doctor orders for current-account deficit economies. The resulting slowdown of domestic demand produces a concomitant reduction in imports, whereas resilience elsewhere in the world allows exports to keep on expanding. That's exactly the way it worked in the recessions of the mid-1970s, the early 1980s, and again in the early 1990s -- as the business cycle transformed external deficits into balance. Not so this time. The synchronicity of this world recession has prevented such an outcome. With the rest of the world marching quickly to the beat of the US economy, exports plunged by 11.5% (in real terms) over the four quarters of 2001. And with a relatively contained shortfall in domestic demand, imports were down an estimated 6% over the same period. With the dollar value of imports of goods and services fully one-third larger than exports, the normal cyclical math of the current-account adjustment simply doesn't add up; it would have taken a much larger reduction in imports -- or an even greater export offset -- to take the external gap toward balance.

This same math -- a by-product of the so-called current-account legacy effect -- produces the even more dire outcome of our recovery scenario. The value of imports is simply too large to allow the likely rebound in exports to put a dent in the external imbalance. Nor does America's high import propensity help matters any. Our baseline case for 2003 calls for export growth (13.9%) to be more than 50% faster than import growth (9.0%). And yet because imports are so much larger than exports, the current-account gap is still projected to go from 4.9% of GDP in 2002 to 6.1% in 2003.

This would leave America more dependent than ever on foreign capital to finance the ongoing operations of the US economy. The capital account is, of course, the flip side of the balance of payments. And if our baseline estimates come to pass, the United States will have to attract some $664 billion of foreign capital in 2003 in order to finance its current-account deficit. That's nearly $2 billion per day, close to double the daily financing requirements in 2001 (about $1.1 billion per day). Therein lies the great conundrum for the heretofore Teflon-like dollar. History is utterly devoid of examples when such a massive external financing requirement did not result in a sharp depreciation of the currency and/or a concession in the price of other assets -- namely stocks or bonds.


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History is utterly devoid of examples when such a massive external financing requirement did not result in a sharp depreciation of the currency and/or a concession in the price of other assets -- namely stocks or bonds.

This last sentence taken from the previous post is the meat in the article. Anybody like to predict what effect this would have on other economies - notably Oz !!
Regards
Harmy
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Harmy.
Re the Euro.. It is being very well received apparently.
saw this on another board, perhaps you may find it of interest.


http://news.telegraph.co.uk/money/main.jhtml?xml=/money/2002/01/07/cneuro07.xml&sSheet=/news/2002/01/07/ixnewstop.html




I think there has been a lot of concern recently about the
US dollar losing value, but I dont know anything about economics,
so I will be reading all comments with interest.


Best regards. FC.
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That was the line that also jumped out at me Harmy.

http://www.forbes.com/business/2002/01/09/0108argentina.html

This is an article about Argentina unlinking from the dollar and proposing that all of America should adopt the dollar instead (I think).

This scenario puzzles me. And it would apply equally to the euro as well.

Doesn't a floating currency work as protection against a recession by keeping exports competitive and imports less competitive when the currency falls? This has certainly helped Australia in the last 2 years in my opinion. If a "union" such as Europe or The Americas adopt a common currency they then lose any benefits of a floating currency. This is going to punish some countries that need a floating currency. It could even force their currency to "float" in other ways ie inflation/deflation.

If the US dollar falls against the euro and/or yen it should help their economy by making their exporters more competitive than they currently are. This will help their deficit as it has helped ours recently and should help their companies drag them out of recession. (Yes I do realise that US assets will decrease in OZ dollar terms if this happens and therefore your decision to sell out)

I find it hard to understand why a strong currency is touted as such a positive thing and a weak currency as such a negative thing when both can have important benefits.

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I find it hard to understand why a strong currency is touted as such a positive thing and a weak currency as such a negative thing when both can have important benefits.

Barcoo
I think it depends on which side of the fence your're on. By this I mean that if you have a strong currency it is cheaper to import from countries with weak currencies. This does make your exports more expensive but the US is unique in that it has such a colossal home market exports are probably not as critical as to a country such as Australia which has to export to live.
The devaluation of the NZ dollar is touted as a positive thing because the exporters gain better prices but at the cost of dearer imports. To my mind this is simply a transfer of wealth from J6p to the exporters. The you's and I's of the world pay more for the privilege of buying imported goods so that the exporters can gain higher prices.
I'm sceptical about the theory of the trickle down effect because I haven't seen it happen in practice. I see lots of farmers buying BMW's and buying expensive imported machinery but this is simply a way of exporting money without benefit to J6P.
However, I do think there is a day of reckoning coming for the US dollar which is bound to affect us all but I'm unable to predict whether for good or bad.
Regards
Harmy


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It's simple a strong dollar sucks in dollars , euro's, yens etc in various forms of investment.
It is real wealth coming into the country.
Wealth can only be created in limited ways(printing more of your own currencey aint one of them)like, higher productive workforce, Technology advances, etc
A strong inflow of investment dollars from foreign countries is thus the most important consideration in any debate regarding the benefits of having a strong or weak currencey.

Strong currencey attracks foreign investment & thus is most desirable.

Makes debt easier as well.

JR
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It's simple a strong dollar sucks in dollars ,
That depends on what you mean by a "strong" dollar. Do you mean one which is at high levels but is going to stay at that level or do you mean one that is going to appreciate relative to the currency you are comparing it to. There is a world of difference between the 2.
If you are refering to one at a stable high level there is absolutely no reason why it is more attractive than your base currency. The perception of it might be better but in real terms there is no difference.
But if you are talking about a currency that is going to increase in value then yes it is better to invest in the one expected to increase.

Wealth can only be created in limited ways
And some might argue that the most important way is by exporting more product than you import.

A strong inflow of investment dollars from foreign countries is thus the most important consideration in any debate regarding the benefits of having a strong or weak currencey.
Yes, possibly. Unless of course other factors such as the outflow of dollars because of imports outweighs these benefits. Then you would be attracting the capital in but still exporting the money back out again.
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And some might argue that the most important way is by exporting more product than you import.

Ask Russia & Argentina.
See thats only income, not wealth.
No point increasing exports by 20% when your currencey is depreciating.

JR



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See thats only income, not wealth.

I find this comment so ridiculous it's unbelieveable.

No point increasing exports by 20% when your currencey is depreciating.

If you are getting paid in $US and paying your bills in roubles then their is lots of point to it. If you are getting paid in $US and paying your bills in $US then it is one way to catch up.

I don't believe you don't understand this JR.
The 2 points are not the opposite of each other - except to a compulsive protagonist maybe.
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Harmy as an alternative to selling your US stocks because of the likelihood of currency losses I have had it suggested to me that you could borrow/margin against the US stocks in US dollars to buy your Aussie stocks and try and pick up the gain that way.

Seems a bit risky to me but if you have significant capital gains you don't wish to crystalise just yet it may be an alternative. Not sure of the actual process but might be worth a question to your bank/broker.


Regards
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If you are getting paid in $US and paying your bills in roubles then their is lots of point to it. If you are getting paid in $US and paying your bills in $US then it is one way to catch up.

Look at Argentina it matters very little if they increase exports.
The problem is their currencey has been devalued & no amount of extra exporting will change that. Its just an increase of income for a certain period of time not something that is going to help the currencey revalue.

Any increases in export output may not be possible without first needing improvements of infrastructure without foriegn investment that is unlikley. Don't forget that is why they got in debt in the first place.

The money they owe (the loans they defaulted on) is in USD, thats always the case cause thats what foriegn debt is foriegn. If your a goverment & you owe money to yourself..... big deal.

I find this comment so ridiculous it's unbelieveable.
You always struggle with these cashflow posts.

JR




JR
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You really don't get it.
You see the 2 issues as being on different sides of the coin when they are different pieces on the same side of the coin.
That is why you are struggling with this and will never get it.
But keep learning. Someday you might understand.
Alternatively you could just keep going down the same path you are going (meanwhile, still thinking you are at journeys' end) and end up lining the pockets of investors like wayjo and I.
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Barcoo

You really don't get it.
Whatever you think you might have I'm glad I've failed to catch it.

You see the 2 issues as being on different sides of the coin when they are different pieces on the same side of the coin.

What a stupid thing to say.

Foreign investment is always welcome in this country. This country owes a lot to foreign investment and those who market the proposition that in some way foreign investment is a threat to Australia do not understand the economic history of this country and do not understand what the best interests of this country represent. We have great resources, we can generate a certain amount of capital domestically to develop those resources but we will always need the investment of people from other countries, our friends and partners in friendly investing countries such as Korea to help along the process of that development.
From the prime minister.
http://www.pm.gov.au/news/speeches/2000/address1605.htm

You see investment is not the same as export income.
Foreign countrys will not invest in a low currencey esp one that is unstable, they need to be sure that their return on investment is certain.
Australia would be nothing without it, we could never have had enough capital to build the infrastructure needed to produce our export income.

From Rubin
Modifying our strong dollar policy could adversely affect inflation, interest rates and capital inflows and would lessen the favorability of our terms of exchange with the rest of the world.

Now read the below slowly.
Another consequence of the net capital inflows has been a strong dollar, which has lowered costs to consumers and producers for what we buy abroad, and more favorable terms of exchange between what we sell and buy abroad. The result is lower inflation, lower interest rates, higher standards of living, and greater productivity. The strong dollar has also helped attract capital from abroad.


The imbalance between exports and imports has occurred because of vast net capital inflows from around the world into the United States, motivated by the relative attractiveness of the United States for investment and as a repository for capital. That vast net inflow has allowed our consumption plus our investment to exceed what we produce. The consequence has been a lower cost of capital in our country and greater investment, which helped increase the rate of productivity growth.

http://banking.senate.gov/01_07hrg/072501/rubin.htm

end up lining the pockets of investors like wayjo and I.
Well a nice fantasy. You always seem to need to hold anothers hand to help you through & given your lack of understanding regarding cashflows I think it is very wise for you to do that.

Wealth is not income.

JR









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Little man,
You pretend that I have disagreed with so many things written above that it's ridiculous.
You are making points that I have made no comment on to bolster your argument. You can't even keep track of a discussion, you are perpetually bringing up totally bogus bullshit. Take the John Howard quote for instance. There is absolutely NOTHING in there that I have commented on negatively. Yet you spout it out as if I have ventured an opinion to the negative.
Try and keep track can you sport?

As to needing another hand to hold - not needed, not asked for.

As for cashflow - read the dictionary.

By the way - did you read Kerr Nielson's opinion of the Japanese economy little man?
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Little man

MMM well I suppose I'll be playing as a follower this year.
Bloomin easier than being a ruckman anyways.
Bloomin easier to get clothes & shoes in right size as well.
Best of all no more cold toes at night.

As to needing another hand to hold - not needed, not asked for.

Nothin to be ashamed of Barcoo, no man is an Island.

did you read Kerr Nielson's opinion of the Japanese economy little man?

Err no Mr Bully. But why not enlighten the board with the reasons for Nielson's comment?
I'm sure it's because of the Japs failure to fix the banking sector.
Something they should have done first but have not yet sorted.


My thoughts on post 3368

Mark Twain
Autobiography of Eve

Absolute twaddle.
Ya right on.......Gee you must have a gigantic ego Mr Bully.

I'm not saying these guys you quoted are wrong.
I'm saying that winning the Nobel Prize for Economics does not mean that EVERYTHING you say about economics is right


Ya right.....sure suggests that they got a lot more things right than not.
As par normal you failed to read the subject matter & instead & as par normal only bothered attacking me, failing to make any useful comments on the articles just shows how ignorant & pathetic you are.
Your really funny thanks mate whenever I need a laugh I can count on ya.

JR




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MMM well I suppose I'll be playing as a follower this year.
Bloomin easier than being a ruckman anyways.

That sucks. If you have mobility as well get them to switch you to CHB if you can. It's a heaps better position to play.

Nothin to be ashamed of Barcoo, no man is an Island.
Let me get this straight- you deride me for "needing a hand to hold" then when I say I don't, you answer with this line. Youv'e lost me.

But why not enlighten the board with the reasons for Nielson's comment? I'm sure it's because of the Japs failure to fix the banking sector. Something they should have done first but have not yet sorted.
I thought we were talking about your opinion that a strong currency is always better than a weak currency. These are the sweeping statements that you make JR and if you are going to make these sweeping statements then you should be able to back them up. The problem with you is that you make these statements to the exclusion of all other avenues of opinion. I am not a bully, I am just holding you accountable to the dribble you come out with. Any way here is what Kerr Nielson said.
...........Simultaneously, the yen continues to weaken and we see a weak yen and falling aggregate income as the principal solutions to the country's problems............. So obviously Kerr doesn't agree with you.

Ya right on.......Gee you must have a gigantic ego Mr Bully.
No, just prepared to voice my opinion. The comment by Twain may have some value as a throwaway dinner party line but as for it being correct- as I said twaddle.

....failing to make any useful comments on the articles...
I think you mean "failing to swallow the articles hook, line and sinker" as for useful comment, I think my first post in this thread might qualify as that. The rest of my posts in this thread are probably attempting to hold you accountable for your sweeping statements.

Your really funny thanks mate whenever I need a laugh I can count on ya.
Pity I couldn't say the same about you.
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Barcoo

Refresh your memory old fellow.

You said:
I find it hard to understand why a strong currency is touted as such a positive thing and a weak currency as such a negative thing when both can have important benefits.
http://boards.fool.com/Message.asp?mid=16451437

I said:
A strong inflow of investment dollars from foreign countries is thus the most important consideration in any debate regarding the benefits of having a strong or weak currencey
http://boards.fool.com/Message.asp?mid=16492447

The Howard & Rubin speaches backed up my statements.

Do you still find it hard to understand why a strong currency is touted as so positive?



JR

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Time for yet another English lesson for you little JR.
You asked - Do you still find it hard to understand why a strong currency is touted as so positive?

But what I said was (as you so helpfully pointed out) I find it hard to understand why a strong currency is touted as such a positive thing and a weak currency as such a negative thing when both can have important benefits.

You see JR and means in conjunction with. It means take the sentence as a whole. So therefore the sentence doesn't mean I am saying a strong dollar has no benefits. It doesn't mean I am saying to have a weak dollar is more important. There are "horses for courses."
Your command of the English language is only exceeded by your powers of rationality.

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MR Bully

There are "horses for courses.

With the most desired course being a strong currency long term.
Foreign investment is the most important motivator.
Even if in the short term a currency becomes weak it is only with the thought of achieving a higher relative long term currency.

Thats why a strong currency is touted as better than a weaker on.


Understand???

JR

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Oh I understand JR.
It's just that I don't necessarily agree.
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