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  1. gojeda's Avatar
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       #1  
    Investor's Business Daily
    Don't Fear The Weaker Dollar -- It's Keeping The Economy Afloat
    Friday November 30, 6:58 pm ET
    Ibd Staff


    The plunge in the dollar has turned normally calm voices strident and fearful. A weak currency, they say, spells catastrophe for the U.S. economy.
    But like much conventional wisdom, this isn't true. Nor is it true that the dollar, to use one favorite recent word, has "collapsed."

    You wouldn't know it, however, from recent headlines. This week's Economist magazine, known for its cool-headed discussion of economic events, has this on its cover: "The Panic About the Dollar."

    Others see in the dollar's slump a metaphor for America's future -- one of decline and waning influence in the world.

    To be sure, the dollar is down almost 40% against the euro since 2001. Against the pound, it's off almost 44%. It's even down against the yen, by nearly 13%.

    But put in perspective, these declines are neither dangerous nor even undesirable. Over the long-term, the dollar is well within normal bounds. After years of rallying due to massive flows of investment into the U.S., the dollar has simply come down to Earth.

    To say it has "collapsed" or "plunged" is simply wrong -- as the chart above shows.

    Look at the dollar weighted against all its trading partners, not just a cherry-picked few, and you see the dollar hasn't plunged at all. It's about where it was 10 years ago -- during the Internet boom.

    It rose sharply in the late 1990s, thanks to the outsized returns offered in the U.S. markets compared with elsewhere. Today, after the Nasdaq meltdown in 1999 and 2000, a recession and 9/11, the flood of investment isn't as great.

    True, the dollar has weakened against specific currencies -- the euro and yen are recent standouts -- but that weakness must also be put into context.

    The dollar strengthened in the late 1990s due to Mexico's peso crisis, the Asian financial crisis and Russia's market meltdown and ruble collapse. All of these sent capital fleeing to the U.S.

    Meanwhile, U.S. stock markets were roaring. Anyone anywhere with surplus cash protected it by investing in America.

    Those who think a strong dollar means a strong economy have to explain why, from 1997 to 2002, a time of record dollar strength, the U.S. economy experienced a number of problems -- including a stock collapse and recession. Those conditions no longer prevail today.

    Reccently, the U.S. also has been cutting interest rates, while the central banks of Europe and Japan barely have budged. So far this year, the Fed has cut its benchmark rate by 75 basis points. By contrast, the European Central Bank has raised rates by 50 basis points. So the spread has widened by 125 basis points in just 11 months.

    This means, all things equal, dollar-based returns on interest-bearing investments are lower. Surprised the dollar's dropping?

    Add to this concerns over a crumbling U.S. housing market, a shaky bank system and foreign central-bank rebalancing of dollar-heavy investment portfolios and the dollar's relative decline isn't surprising.

    Nor is it unwelcome.

    The weak dollar already has led to a powerful surge in industrial activity across America's heartland. In fact, if the U.S. avoids falling into a recession in 2008, we may have the much-maligned dollar to thank.

    Recent revisions to third-quarter GDP data showed growth of 4.9% vs. an initial estimate of 3.9%. The reason was an 18.9% annualized jump in net exports, which boosted GDP by a full 1.4 percentage points. That more than offset the decline in housing.

    Fueled by the weaker dollar, exports were much stronger than expected. Goods exports alone increased a whopping 25% -- while imports rose just 4.3%.

    Those who fret about the trade deficit -- which will exceed $700 billion this year -- will get to watch it shrink in coming years as this export boom continues.

    What's more, this will continue to feed through to the U.S. economy, boosting domestic activity. The dollar's drop already has had an enormous hidden impact on the factory sector and corporate profits.

    Most economists today believe that U.S. economic growth will be far weaker in the fourth quarter of this year and the first quarter of 2008.

    But there already are signs of weakness, such as corporate domestic profits, which actually fell 4.2% during the third period, according to data from the Bureau of Economic Analysis.

    Ordinarily that would be a disaster. But today, 31.5% of all corporate earnings come from foreign sources. Thanks to the weak dollar, foreign profits of U.S. companies are healthy. In the third quarter they surged 20%. So despite the decline in domestic profits, U.S. companies' net profits actually rose 1.2% in the July-September stretch.

    The dollar should continue to bolster the economy at least through next year and maybe longer. Many economists expect the domestic economy to falter this quarter and in the first three months of 2008. But the weaker dollar will continue to underpin industrial activity.

    American manufacturing already is booming. Since 2002, despite warnings of "deindustrialization" and a "hollowing out" of U.S. manufacturing, U.S. factory output of durable goods -- the sector most sensitive to changes in the dollar's value -- has surged more than 25%. Overall, factory output is up 16%.

    Even so, some complain that the dollar's decline will lead to our currency being abandoned in favor of the euro. Or the yen. Or some other currency. It is true that central banks are even now selling some of their dollar holdings to balance their portfolios.

    That is a wise and prudent thing to do, given that some of them -- like China, which has almost $1 trillion in dollar-based investments -- have massive exposure to U.S. markets.

    But the world's GDP is about $55 trillion in size, and the U.S. makes up 25% of it. Absent a sudden and inexplicable refusal to trade with the U.S. -- which buys and sells some $4 trillion in goods and services with the rest of the world each year -- other countries will have to keep large amounts of dollar-based reserves.

    As the Times of London's Gerard Baker recently noted, "Between 1985 and 1995, the dollar declined by 43% against the word's big currencies. ... That period was also marked by dire proclamations of the end of U.S. economic power. But it turned out that in those years the foundations were laid for the strongest period of U.S. economic growth in the past 35 years."

    What about the euro, used by 25 nations in Europe? No doubt, it will be increasingly used by others as a reserve currency. But remember, it's only 8 years old. Just four years ago, stories similar to those today about the dollar wondered, "What's wrong with the euro?"

    The weak dollar, by making U.S. goods more competitive overseas, will sow the seeds of future growth through booming exports, more domestic jobs and a new surge in investment from overseas to snap up bargains in the U.S.

    That's not a cause for concern, but of celebration.
  2. #2  


    Everything is FINE!

    Surur
  3. #3  
    Here is the link the article.

    http://www.investors.com/editorial/I...issue=20071130

    Surur, you should post your head in the sand comment on their site. gojeda was just sharing. He didn't write it.
  4. #4  
    Quote Originally Posted by Woof View Post
    Surur, you should post your head in the sand comment on their site. gojeda was just sharing. He didn't write it.
    I'm sure he is posting it because he agrees with it. I of course googled the article, just to see the graph.

    I agree that a weaker dollar has many export benefits, but I believe his defense for the dollar not being at risk of being damaged by not being the default reserve currency is weak.

    I quote:

    Even so, some complain that the dollar's decline will lead to our currency being abandoned in favor of the euro. Or the yen. Or some other currency. It is true that central banks are even now selling some of their dollar holdings to balance their portfolios.

    That is a wise and prudent thing to do, given that some of them -- like China, which has almost $1 trillion in dollar-based investments -- have massive exposure to U.S. markets.

    But the world's GDP is about $55 trillion in size, and the U.S. makes up 25% of it. Absent a sudden and inexplicable refusal to trade with the U.S. -- which buys and sells some $4 trillion in goods and services with the rest of the world each year -- other countries will have to keep large amounts of dollar-based reserves.
    If other countries suddenly demand America pays in Euros (e.g. for oil) the devaluation of the dollar could snowball.

    As you said, the dollar is still up over the last 30 years ... there is still a long way to fall.

    Surur
  5. #5  
    Here's the only reason I hate the weak U.S. dollar:

    Absinthe is so expensive to import now. Gah.

    The rest of the benefits mentioned in that article are irrelevant to the above

    WMExperts: News, Reviews & Podcasts + Twitter
  6. #6  
    The sky of falling, the sky is falling!

    Every few years, there is always dire prediction about the economy.Yawn.

    I like the "weak" dollar...making a fortune on iPhone arbitrage.
  7. #7  
    Well the housing market is falling badly it seems, so there's something to the sky falling. Once too many people start losing their homes or can't sell their existing ones unless it's at a loss, that's a downturn to me.

    I also don't like to see the dollar fall against other currencies. But hopefully it's temporary and overseas people will buy more from America, for the time being.
    HP has officially ruined it's own platform and kicked webOS loyalists and early TouchPad adopters to the curb. You think after you drop it like a hot potato and mention it made no money and is costing you money, anyone else wants it??? Way to go HP!!

    And some people are fools to keep believing their hype. HP has shown they will throw webOS under the bus and people are still having faith in them??? News flash: if it's own company won't stand behind it, it's finished!
  8. #8  
    Here's a test of the motives of the writer - If the falling dollar is a good thing, is the resurgent dollar a bad thing? Because for example the US Dollar has achieved parity with he Canadian Dollar again this week.

    Anyway, here is an interesting article, written from the outside, that basically says the sky is not falling, but to watch out for long term decline.

    Dollar demise?
    Vivek Sharma
    26 November 2007

    Predictions about the impending death and burial of the mighty US dollar have increased these days. But, it may not happen so soon.


    Jim Rogers, the well known investment guru, is as close to a showman you will get among investment legends. After making his money, roaming around the world first on a bike and then in a car, and re-branding himself as the messiah of commodities, he has now become a born-again Chinese. Like most members of born-again faiths, he is nearly fanatical in his convictions about a future that will be all Chinese.

    In line with his convictions, Rogers recently predicted that the Chinese Yuan can appreciate in value as much as three to four times over the next decade or two. If that prediction turns out to be true, going long on the Yuan - or the Renminbi as it is officially called - will be one of the best investment opportunities of our times. Rogers is backing his words with his deeds - he has already sold off his last dollar and has taken all his assets overseas.

    Rogers is not an exception, though he is probably the most vocal in shunning the dollar. The greenback has steadily lost ground against other major currencies in recent years. The Canadians celebrated recently when their currency, called the loony in currency trading circles, achieved parity with that of their snobbish neighbours. The Europeans maybe complaining publicly about the loss of export competitiveness, but secretly they must be enjoying the increasing influence of the euro.


    But, can we take the demise of the dollar for granted? While weak fundamentals of the US economy and the shift in global economic power to large emerging economies make it likely in the very long term, the dollar decline may not happen as fast as many hope it would be. Here are some reasons why the dollar may survive the doomsday scenarios.

    The US will remain on top for some more decades
    Even if the large emerging economies sustain their high growth rates in the long term, which won't be easy, the US will remain the biggest economy for at least two or three decades more. Going by the most optimistic projections, China will catch up with the US in total economic output only by 2035. Until then, the US will remain the primary driver of global economic growth. All the talk of global growth having decoupled from the US economy is a bit premature and untested so far.

    Yes, the US economy is very likely to go through a rough patch next year and, possibly, the year after that too. But, there is nothing to suggest a prolonged recession and it won't be long before US growth picks up to its long term average of around 3 per cent per annum.

    US trade and fiscal deficits are a problem, no doubt. But there is already some improvement on the trade front, as exports receive a boost from the weak dollar, and may get healthier if imports slow down in line with lower economic growth next year. The fiscal situation is alarming, but not beyond repair. With a Democrat in the White House by next year, which appears to be very likely as of now, some of the Bush tax cuts may be withdrawn - which may bring down the deficit.

    Currency diversification may not be easy for the rest of the world
    The worst scenario one can imagine for the dollar is that, one fine day the Asian central bank heads wake up and decide to dump the dollar-denominated assets they have been hoarding for many years now. Fears of this happening have worsened recently as some Asian countries, especially China, have gradually brought down the proportion of dollar assets in their exchange reserves.

    But, beyond a point, currency diversification may prove to be difficult for one simple reason - absorption capacity of competing assets. It is likely that rapidly growing Asian economies will continue to see huge accretions to their forex reserves and they may struggle to find enough non-dollar assets to park the funds. Even if they can find other assets, huge flows will push up the prices of those assets and, beyond a point, make them unattractive to buyers. It is more like large institutional equity investors sticking to large cap stocks as small caps do not have sufficient liquidity.

    Another threat to the dollar is the possibility of large oil exporters switching to billing in euros. Earlier this month, Saudi Arabia - a strong US ally - had to fight off a proposal to do so from other OPEC members like Venezuela and Iran. But this move is unlikely to succeed easily as long as the US remains the biggest importer of oil. Surely, the Americans will not pay in euros for imported oil. Why would other large importers like China and India agree to billing in other currencies, when the cheaper dollar has helped them to lower the pain of record oil prices? Venezuela and Iran may continue to make noises, but the dollar billing is likely to remain.

    Americans won't surrender the crown easily
    Imagine a situation where you can print your own currency, put your signature on it and buy whatever you want from the glitzy new mall that has come up in your neighbourhood. Yes, that is what counterfeiters do and not law abiding citizens like us. But, for a moment assume that it is perfectly legal to do so. The cost of printing a Rs1,000 note should not be more than a hundredth of its face value as these days even small laser printers will give you excellent quality prints. Bartering your currency note for stuff worth a hundred times the cost of producing that note should make you happy, even if you may wonder what a fool your counter-party to the trade is.

    This is similar to what the Americans have been doing for many years - before them the British and before the British, whoever. It is one of the many privileges enjoyed by the dominant nation as its currency is the natural choice as the world's reserve currency. The rest of the world will readily accept that paper and give away the fruits of their sweat and toil. It is this exalted position which helped Americans to sustain their consumption binge in recent years, as foreigners chased US treasuries and lapped up the dollar in the process.

    The trouble with most of the perks that come with power is that they are all addictive; it is too difficult to make a down shift when the tide turns. It would be na´ve to expect the Americans to stand back and watch their currency lose its pre-eminence. Even if they fully know that it is a losing battle in the long run, they will not allow the dollar to be slain and buried without a fight. They may allow a short to medium term dollar decline if it suits them, but surrendering the reserve currency crown is an entirely different ball game.

    Peering into the crystal ball
    Warren Buffet is not known for his failures. One of his rare fumbles, and probably the costliest in his long career, happened a couple of years back when he tried to pull off what George Soros is famous for - betting against currencies. Soros' legendary gamble against the British pound nearly broke the Bank of England in the early nineties and is rumoured to have earned him more than a billion dollars. But Buffet was forced to cut his losses and exit his short positions in the US dollar when the greenback held ground even when US deficits worsened.

    If only he had held on to his positions, Buffet would have made a pile for his shareholders by now. It is not that he has changed his view; he continues to believe that the dollar would keep falling. But now, he is betting against the dollar through a different route - by buying non-US stocks, mostly in Asia.

    So, what does the future hold for the still mighty, but weakened and more vulnerable dollar? There is no doubt that the dollar will lose its status as the bully in the currency street and become merely one of the boys. But that decline will be a train wreck in slow motion, not a high speed Formula One crash. The dollar will remain the 'first among equals' among major currencies for many decades. Its burial will only happen when the Discovery channel launches a new programme titled 'The rise and fall of the American empire', probably sometime during the second half of this century.
    http://www.domain-b.com/finance/gene...126_dollar.htm

    Surur
  9. gojeda's Avatar
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       #9  
    Quote Originally Posted by The Phone Diva View Post
    Well the housing market is falling badly it seems, so there's something to the sky falling. Once too many people start losing their homes or can't sell their existing ones unless it's at a loss, that's a downturn to me.

    I also don't like to see the dollar fall against other currencies. But hopefully it's temporary and overseas people will buy more from America, for the time being.
    The obvious answer here is that the housing market is going through the correction it has been in sore need of from the last 15 years-long feeding frenzy.
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       #10  
    Quote Originally Posted by surur View Post
    I'm sure he is posting it because he agrees with it. I of course googled the article, just to see the graph.

    I agree that a weaker dollar has many export benefits, but I believe his defense for the dollar not being at risk of being damaged by not being the default reserve currency is weak.

    I quote:



    If other countries suddenly demand America pays in Euros (e.g. for oil) the devaluation of the dollar could snowball.

    As you said, the dollar is still up over the last 30 years ... there is still a long way to fall.

    Surur
    Sounds like you are playing both sides of the fence here. First you say the dollar is in danger of being damaged, then you say it still has a long way to fall to go outside of historical norms.

    So lets cut down on the doublespeak please and stick to a story...OK?
  11. #11  
    Quote Originally Posted by gojeda View Post
    Sounds like you are playing both sides of the fence here. First you say the dollar is in danger of being damaged, then you say it still has a long way to fall to go outside of historical norms.

    So lets cut down on the doublespeak please and stick to a story...OK?
    Just because something is historical does not mean its good. The Black Death was also historical, but I would not want conditions to return to those times either.

    Surur
  12. gatorray's Avatar
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    #12  
    The glut of homes is biting us in the ****. Just like the dot-coms and day traders, everyone wanted to flip some houses and make money.

    It always frustrated me that they are building houses so close together and people are buying them. I miss the days of getting some yard with my house, not a peep show of the house next door.
  13. #13  
    Quote Originally Posted by surur View Post
    ...Imagine a situation where you can print your own currency, put your signature on it and buy whatever you want from the glitzy new mall that has come up in your neighbourhood. Yes, that is what counterfeiters do and not law abiding citizens like us. But, for a moment assume that it is perfectly legal to do so. The cost of printing a Rs1,000 note should not be more than a hundredth of its face value as these days even small laser printers will give you excellent quality prints. Bartering your currency note for stuff worth a hundred times the cost of producing that note should make you happy, even if you may wonder what a fool your counter-party to the trade is.

    This is similar to what the Americans have been doing for many years - before them the British and before the British, whoever. It is one of the many privileges enjoyed by the dominant nation as its currency is the natural choice as the world's reserve currency. The rest of the world will readily accept that paper and give away the fruits of their sweat and toil. It is this exalted position which helped Americans to sustain their consumption binge in recent years, as foreigners chased US treasuries and lapped up the dollar in the process...

    Surur

    Quote Originally Posted by BARYE View Post
    as a result of the Fed's (much needed) cut in interest rates, the dollar has plummeted in value against most other currencies -- especially the Euro and the Yen.

    At some point the dollar's role as the "reserve" currency, as the safe instrument into which assets can be warehoused and international trade conducted, will be threatened.

    OPEC oil trade is priced everywhere in dollars. Nations who are already unhappy with american policies are being further upset by the dollars discounting effect upon their wealth. The dollar's drop means that they get less value for everything they sell.

    China -- with its stupendous trade imbalance with the US, has been largely investing in dollar denominated assets to warehouse its huge dollar surplus. As the dollar falls in value, those assets fall as well -- increasing their anxiety, and natural desire to diversify where they store their money.

    The "carry trade", where hedge funds had borrowed gigantic amounts of yen (because of low interest rates and a stable or appreciating dollar), has been reversed -- and now hedge funds have had to pay back these gigantic loans because the yen has been rising so aggressively versus the dollar.

    The US benefits immeasurably from the "float" of our currency that exists in the world: the billions and billions of dollars stuffed in mattresses, passed between foreign banks, held in dollar denominated assets, and used as an international trading currency. One of our biggest and most valuable exports is all this green paper.

    If oil markets, international traders, and asian exporters begin to reverse their reliance on dollars, a tipping point can occur overnight that could take the dollar's value down precipitously.

    The potential effects on the US could be profound.


    All that green paper festooned with images of dead presidents has been an enormous blessing to this country -- it was one of the props that supported america’s prosperity, that allowed it to finance unimaginable trade and budget deficits, that facilitated it having the planet’s largest and most expensive military, and that enabled it to waste itself in ignorant adventures of predatory arrogance at the cost of stupendous amount of unfunded treasure and unjustified blood.

    More than 2 months ago, before the screaming headlines, before the neo-conned apologists rationalized it as another of the blessings that junior’s reign has left us, I wrote about the dollar’s collapse.

    The straw that finally breaks the camel’s back, the point of inflection that tips over the dollar as the international common currency -- is likely to be both abrupt and very disruptive.

    As I have said before, OPEC countries are as a group angry with junior’s foreign policies, and unhappy with the effect the dollar’s ongoing collapse has had on their currency reserves and oil profits.

    China is unhappy about Taiwan, about us pressuring them on Darfur -- and they are nervous about the devalued dollars effect on their trillions of dollars in reserves.

    Russia is angry at junior’s determination to install his billion dollar Star Wars boondoggle in Russia’s backyard.

    Venezuela’s Chavez hates junior for attempting to recruit a coup against him.

    Around the world and at home we are witnessing the perfect storm of hubris, avarice, arrogance, and ignorance.

    America’s housing market securitization debacle has compelled the Fed to (finally) lower interest rates irrespective of the effect on the dollar. This has had the predictable effect of removing the last artificial support to the dollar’s strength

    The credit depression that is likely to befall us irrespective of the Fed’s belated efforts, will further sap america’s economic strength.

    America has allowed its manufacturing base to be hollowed out over the last 3 decades. Whole factories have been disassembled and sold to China. Entire industries (like furniture, toys, and clothing for example) have been allowed to be eviscerated by cheaper imports. Those industries are not likely to resurrect themselves very rapidly despite the higher costs for imports.

    Yes some companies and some sectors are likely to profit from the collapse. I own shares of Boeing and Corning in the expectation that they will benefit from the falling dollar. (Coke and MacDonalds probably will gain too.

    Surfur’s article is dead-on in talking about how valuable it is to be the country whose currency is the planet’s common denominator of exchange.

    I’ve heard that on Wall St. players there joke that money is just a way to keep score.

    For nations it’s almost the same thing.

    The currency of a country reflects the totality of a that nation’s strength. It’s a projection in some ways as to how much it is respected, even envied.

    Like an option only subprime mortgage, America’s prosperity has been borrowed these last 7 years. Devaluation is in effect a statement by the world of their disregard for us -- a form of collective foreclosure, if you will...
    Last edited by BARYE; 12/02/2007 at 03:26 AM.
    755P Sprint SERO (upgraded from unlocked GSM 650 on T-Mobile)
  14. gojeda's Avatar
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       #14  
    Quote Originally Posted by surur View Post
    Just because something is historical does not mean its good. The Black Death was also historical, but I would not want conditions to return to those times either.

    Surur
    Don't you think it is a little ridiculous to attempt to draw some correlation between the falling dollar and the Black Death?
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       #15  
    Quote Originally Posted by gatorray View Post
    The glut of homes is biting us in the ****. Just like the dot-coms and day traders, everyone wanted to flip some houses and make money.
    Absolutely....what I like to call our "unsustainable, masturbatorial feeding frenzy".

    It always frustrated me that they are building houses so close together and people are buying them. I miss the days of getting some yard with my house, not a peep show of the house next door.
    "Zero lot" $1 million dollar homes nauseate me.
  16. #16  
    Quote Originally Posted by gatorray View Post
    The glut of homes is biting us in the ****. Just like the dot-coms and day traders, everyone wanted to flip some houses and make money.

    It always frustrated me that they are building houses so close together and people are buying them. I miss the days of getting some yard with my house, not a peep show of the house next door.
    Ever notice the hypocricy of those who in one breath bow down and pray (or is it prey) to the Market_Actions_Are_God-Cult then sniffle a tear away at the street-level products their God creates?

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