Monday, Apr 28, 2008
Morley - the dollar could become fashionable again.
fundstrategy: Dowdy currency will be hip again
The dollar slides and investments in American equities made five years ago are worth 20% less than the same investment in British equities. But the dollar could become fashionable again. Over the past five years, the dollar has fallen badly out of favour with investors; falling 22% in real terms against a basket of currencies containing America's main competitors. The dollar has not experienced such a loss of confidence since the mid 1980s. As the dollar's slide has gathered pace, governments around the world have begun to unhitch their currencies from the dollar - even Jay-Z, the hip-hop star has forsaken fistfuls of dollars in favour of euros in his music videos.
Posted by jack c @ 03:37 PM (472 views) Add Comment
7 Comments
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1. cornishman said...
"Lastly, for investors looking for somewhere to keep their rainy-day savings, America has the deepest, most sophisticated capital markets in the world."
"sophisticated" well that's one way of describing it I suppose.
2. harold said...
You have to remember that when you are comparing fiat currencies, you are basically comparing one dung heap with another. They're all inflating con-tricks.
3. icarus said...
@ cornish - my Longmans dictionary defines 'sophisticated' as deprived of natural simplicity, highly complicated or developed, complex, and a 'sophist' is one employing subtle and often specious reasoning that has a false look of truth. So the word is not out of place in the context quoted.
4. icarus said...
The "US accounts for 15% of world imports" - but can it pay for them? An American and four others - Japanese, Chinese, Indian & Brazilian are all marooned after a shipwreck. One of the four others tracks the game, one shoots it, one carries it back to camp and the other cooks it. The American eats it and tells the others "If it weren't for me you'd all be unemployed".....but you've probably heard that one, so.....
The dollar's special position has enabled it to be cavalier about dollar depreciation and deficits. For weaker countries the depreciation of their currencies is associated with inflation and capital outflows, requiring interest rate hikes to combat both problems. In times of financial crisis their citizens don't trust the central bank to safeguard their deposits by propping up the commercial banks through the printing of money - they fear this will cause inflation / depreciation and they buy dollars for safety. The US on the other hand can run up deficits and not worry about the dollar. This could be changing. Current problems and massive deficits have led to Americans' investing heavily in foreign bonds. Markets are pushing up long-term dollar IRs while the Fed is doing the opposite. The dollar's special position is under pressure. What's the alternative to the dollar? The euro? Big question. Interesting times.
5. symo said...
US heavy engineering firms will be good value, demand for energy business equipment in the Oil & Gas sector will provide good returns. As I have said before the US knew it could not give up it's manufacturing base and has not.
6. plato said...
icarus @4
The difficulty for me to get my head around is : The reason for the strength in the euro. Whatever I look at I come back with the same answer. I can't see one, other than the momentary demise of the Dollar and Sterling. Getting as many countries as possible to join the euro has added to it's 'reputation', but when I look at these countries it doesn't make sense. Just like the property bubble before HPC. It's a relatively new currency and has to make history and we all know what that means --- it can't go up and up and up.
Therefore I can't see it as an alternative. (If it is, it will still have to sustain it's position.)
Short term I accept it's rise as almost inevitable.Obviously this is my intuitive opinion, but I can't see this sustained for more than this year. Mind you I don't hold much hope for Sterling either if they don't sort this mess out in the UK, but then the UK does have history and a remarkable recovery record.
7. lvmreader said...
@Plato -
The Euro is a Sham
The Euro may collapse before too long - perhaps even this year. It makes sense for the Germans to get out of the "Dead Currency Walking"