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Like being between a dog and a fire hydrant


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It's tough being a patriotic American these days with all the media sensationalism putting the good 'ole USA down.

 

IN THE CONFUSING WORLD OF CURRENCY MARKETS, THINGS ARE NOT ALWAYS AS THEY APPEAR.

 

The U.S. dollar fell to an all-time low on Wednesday and very little chat has spread over our local forums.

 

IS THE FALLING $ OLD NEWS NOT WORTHY OF SENSATIONALISM ?

 

Supposedly, it was pushed over the edge by some off-the-cuff comments from Chinese officials. The dollar's plunge started when some Chinese central bank officials were quoted suggesting China would be diversifying its $1.4 trillion in foreign currency reserves, moving away from dollar holdings.

 

Those Chinese officials shouldn't have been taken seriously because they have little power:

 

IT'S LIKE THE MAYOR OF SAN JOSE COMMENTING ABOUT THE WAR IN IRAQ.

 

The dollar represents a single G8 economy. The euro represents three G8 economies, and could be four if Britain adopted the euro. America's also halfway across the world from the Middle East, whereas Europe's only a puddle jump. How long do you think it will take commodities markets to realize this?

 

While a dollar in the dumps might look like a stain on U.S. pride and prestige, it might also be good news for American consumers, workers, and companies. Being a patriotic American these days is:

 

LIKE BEING BETWEEN A DOG AND A FIRE HYDRANT

 

The dollar has been hitting record lows against the euro for years, but those records aren't very surprising because the euro is a new kid on the block, only created in 1999. On Nov. 7, the dollar hit a true milestone when it surpassed the spring of 1995 low against the Deutsche Mark, the equivalent of about $1.455 to $1.457

 

On Nov. 7 the euro hit a high of $1.473 before pulling back a bit by the end of the day. At the end of the day, the euro was up 0.57%, to $1.4641.

 

TALK IS CHEAP AND WE MUST LOOK BEYOND THE MEDIA TO UNDERSTAND WHAT'S HAPPENING GLOBALLY.

 

Many already assumed China and other Asian central banks were diversifying their holdings, but they're not necessarily selling dollars, just buying extra euros. It's a question of psychology. The Chinese comments "gave market participants an excuse to do what they wanted to do.

 

Standard & Poor's European economist Jean-Michel Six, "There is a bit of political posturing here." China is pushing back on U.S. demands that it revalue its currency.

 

One Chinese official was quoted saying the dollar is "losing its status as the world currency." There's not a lot of evidence for this contention.

 

Despite the drop in the dollar's value, commodities such as oil and wheat are still traded all around the world in U.S. currency. U.S. Treasury bills are still a popular safe haven for investors all over the world. Treasury prices actually rose on Nov. 7.

 

SO WHY IS THE US $ CONSISTENTLY FALLING ?

 

Look at economic fundamentals. Money moves across borders, chasing extra returns. So currencies tend to rise when the markets expect strong economic growth and to fall when a slowdown may be coming.

 

This economic strength or weakness is reflected in yields on bonds and interest rates. Right now, the bond markets seem to expect many more interest rate cuts from the Federal Reserve in the next several months. That means the markets also are expecting a deep slowdown in the U.S. So it's no surprise that investors are moving money out of dollars and into other currencies that will give them better returns.

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Tom, interesting post....but, I'm not sure I like the idea of equating patriotism with the value of the dollar. Economy/finance is one thing, but I don't think it should be linked to patriotism. I mean, I like to think that I am as patriotic as the next person. Hell, I'm a veteran! But, what does that have to do with the price of a cup of tea in China? (Or, a bowl of rice)? The dollar's rise or fall against other currencies has to have more to do with fiscal moves, albeit often with political motives, than with my loyalty to my country.

 

I know I'm not saying this well, but while I accept your statement that being a patriotic American is like being between the dog and the hydrant, why should that have anything to do with money? I have long felt this way, because of my position - as a patriotic American - against Dubya and his war...........at first, one didn't dare say anything against him/his war for fear of being labelled a traitor, or worse.......now, it's like maybe people finally get it, but no one has the brass to stand up and say: "Why don't we just get the hell on out of the Middle East entirely, let them kill each other, and then let God sort it out?"

Look at the latest developments in Pakistan, our supposed ally. Here we have been dumping how many trillions of dollars into that sorry place, and what happens? The government is powerless against the terrorists in their midst, and has been all along! So, stop the pouring of good money into that place, put it to use back home.

Oh, Lord, don't get me started. "Somebody stop me!"

Edited by jdocop
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Posted by Len Cranky on CRCVL.

Currency speculation is a wonderful thing. You can find an equal number of opinions on both sides of every issue -- each argued equally cogently.

 

But the facts are the facts. It is no longer true that the US dollar is the only international curerency for oil purchases. A few years ago, a few countries started to use EUROs as the currency of choice for buying oil. WHile the US dollar was the only currency used for international purchases, its value was propped up by this automatic demand. As this automatic demand declines, other factors will weigh more heavily on the value of the dollar, such as the perrenial US trade deficit. You cannot run a country consistently spending more than you earn without paying the price some time.

 

But the slumping dollar is curing the problem that contributed to the slump. The trade gap is narrowing as US exports become more attractively priced.

 

Many speculators have gone broke betting against the US dollar. I can think of at least two recent times: in the early nineties, and back in the eighties when Japan seemed poised to buy all of New York. Remember? The dollar recovered well each time, but it took a few years.

 

The point is not to worry too much about the eventual value of the dollar, but also to be aware that in the short term, Euros are a good currency to hold as well. Don't bet on one or the other currency; hold both currencies. Chinese Yuan are too much controlled by the Chinese government, so that way lies trouble for diversifiers.

 

Now, let's see .... maybe we should short Colones and go long on Yen? ^_^

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