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The Dollar 101

lordofdelusion
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ray23 Platinum Member

ray23

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Interesting article. The dollar has been falling for a very long time now. At some point it has to hit bottom and then grow again. The question is are we there yet, maybe.

Euro failing I doubt that it has been bailed out before and I think that would happen again. Interesting that G-7 didn't step in for the dollar maybe they saw this trend coming and it wasn't needed.

It appears that the slow down is catching up and effecting economies world wide, but that seems to be in the infant stages.

Time will tell.

Tomkagai Advanced Member

Tomkagai

Posted
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The link is gone. How about a synopsis? Does this guy say the dollar has hit its lows and is on the way back up? Will my pension double, or triple? :o

Dream on....

lordofdelusion Advanced Member

lordofdelusion

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Dollar bull

Commentary: U.S. doing a better job restraining money growth than euro zone

By John Dessauer

Last update: 12:01 a.m. EDT June 2, 2008Print E-mail RSS Disable Live Quotes

NAPLES, Fla. (MarketWatch) -- Currency traders know Albert Einstein was right: All things -- especially in the currency market -- are relative.

You can't talk about one currency in isolation. Headlines tell us that the dollar is down. That means other currencies are up. But do they deserve to be up? Are those other economies that much better than the United States? And does the dollar deserve to be down? Is the United States making more serious fiscal- or monetary-policy mistakes?

The answer is no. Popular dollar bashing shows that crowd's ignorance of Europe and Japan. For example, one popular, but completely wrong, notion is that the U.S. is flooding the world with dollars. In fact, the U.S. has been doing a much better job restraining money growth than the euro region.

Money supply growth rates

Country/region Broad Narrow

United States + 7% + 0.2%

Euro zone + 10.3% + 2.9%

Source: The Economist.

If money-supply growth were the main driver of the world's currency market, the dollar would have been going up versus the euro. Instead the euro has been very strong. The common answer to this point is that interest-rate differentials are currently more important than money growth.

That sounds good at first. Three-month interest rates are 4.86% in the euro region and only 1.96% in the United States. That makes the euro more attractive for interest income. But if interest-rate differentials work for the euro, they should work for the Japanese yen as well.

They don't. At 0.75%, three-month interest rates are lower in Japan than in the United States. If rate differentials were that important, the dollar would be rising versus the yen. Neither money growth nor interest rates explain the dollar's recent decline.

In spite of widely differing interest rates and monetary policies, the euro and the yen have marched in the same direction versus the dollar. From roughly June 2007 until March 2008, both the yen and the euro rose 19% versus the U.S. dollar. The reasons run from diversification by oil producers and China to outright momentum-based speculation.

Recently, the dollar has rallied; it's up roughly 3% from the March lows. This rally has sparked the debate: Which way next for the dollar? My opinion is the dollar is headed higher, to 1.30 versus the euro and to 120 versus the Japanese yen. The reason: The dollar has fallen so far that both Europe and Japan are suffering. Their pain is our gain. We can see that in the recent strong growth in U.S. exports. Our gain leads to a stronger dollar.

A strong argument can be made that the euro is not a sustainable currency. Separating monetary and fiscal policy just can't work for long. To me it is a wonder the euro has lasted this long. But strains are building.

Spain desperately needs lower interest rates to prevent a real-estate collapse from dragging the whole economy down. Germany, a major exporter, likewise wants lower rates to bring the euro down. The strong euro is taking a bite out of German profit margins. But the euro-zone central bankers are focused on inflation and rapid money growth. They refuse to come to the aid of Germany or weakening economies such as Spain and Italy.

Trading Strategies: June 2008

"It is only a matter of time, probably less than three years, until the euro experiment meets its end," said Avi Tiomkin, a currency expert and adviser to hedge funds.

Japan is in worse shape. It's almost 100% dependent on imports of raw materials -- especially oil. The surge in oil and other commodities has cut deeply into Japanese corporate profits and consumers' buying power. The strong yen on top of the commodity-price surge is a major blow to the short-term outlook for the Japanese economy. The long-term record is no better. It has been 19 years since Japan's Nikkei Dow stock index peaked near 40,000. It recently stood at 14,000. Meanwhile, the U.S. Dow Jones Industrial Average has climbed from 2,800 to more than 12,000.

The dollar, the euro and the yen are the world's three major currencies, and, the more you know about Europe and Japan, the more you like the dollar. Thirty-five years ago, the dollar was falling versus the currencies of Europe. It was widely expected to fall to 1-to-1 against the legendary Swiss franc. It finally did that on March 8, 2008.

And this dollar plunge, down 19% in nine months, looks a lot like the overshoot in the late 1970s. The dollar rose in the early 1980s.

The dollar will rise again.

John P. Dessauer is the author of two books on global investing and writes the monthly value-investing newsletter John Dessauer's Investor's World. He also manages portfolios for private clients.

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Naam Star Member

Naam

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My guess is end of the year 40-42 range. :D Euro will be down to 1.16.

wouldn't it be prudent for you to buy rubber sheets to protect your mattress from the result of wet dreams? :o

PeaceBlondie Star Member

PeaceBlondie

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More or less on topic, this statement in the quoted article jumps out like a Japanese tsunami: "It has been 19 years since Japan's Nikkei Dow stock index peaked near 40,000. It recently stood at 14,000. Meanwhile, the U.S. Dow Jones Industrial Average has climbed from 2,800 to more than 12,000."

How did the Japanese economy survive that plunge in their stock index? How soon we forget such plunges.

Of course, I like the arguments for a strong dollar, but I will never be as much of a Texas Maverick :o for the dollar as britmaveric is. :D

Tomkagai Advanced Member

Tomkagai

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Just wait until barrels of oil start getting priced in Euro's....then you will see the $ plummet...

An interesting quote from the Documentary "Peak Oil".... No self respecting drug dealer wants US$ anymore....they want Euro's these days

ray23 Platinum Member

ray23

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Well the dollar has been up against the baht for about ten days now. Will it last don't know. It will take time to find out if it's the dead cat bounce.

Tomkagai Advanced Member

Tomkagai

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The dates of July 9, July 15 and July 30 will bring positive momentum for the US dollar which will spark a new trend upwards.

I would suggest people buy amulets and hold them over their heads to protect them from the further decline of the dollar, tattoo's are an optional extra...

jumnien Platinum Member

jumnien

Posted
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The dates of July 9, July 15 and July 30 will bring positive momentum for the US dollar which will spark a new trend upwards.

I would suggest people buy amulets and hold them over their heads to protect them from the further decline of the dollar, tattoo's are an optional extra...

Quite right! Remember the dollar's plunge during the Jatukarn Ramathep craze?

LaoPo Star Member

LaoPo

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The dollar will rise again.

when? :D

""It is only a matter of time, probably less than three years, until the euro experiment meets its end," said Avi Tiomkin, a currency expert and adviser to hedge funds."

And Avi* knows.................doesn't he ? :o

I remember this chap from previous articles. He's a self proclaimed expert:

"Avi Tiomkin likes to read newspapers. Most working days he spends between 12-16 hours absorbing information from a wide range of international news sources, ..."

BTW, that comment is in every article one can read about this chap... :D

He also wrote an interesting comment, back in 1993...:

http://findarticles.com/p/articles/mi_hb48...09/ai_n17441095

LaoPo

Edited by LaoPo

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