Skip to comments.After a decade of decline, itís time for the dollar to have its day
Posted on 05/13/2013 9:01:15 AM PDT by SeekAndFind
Everyone knows that a weak yen is good for Japans big exporters like Toyota. Plot a chart of the exchange rate and the car-makers share price and the lines are barely distinguishable, so great is the correlation between the two.
Whats more interesting to me is whether the flip side of this trade, dollar strength, is more than a short-term blip. The dollar has been falling against a basket of other currencies for 10 years now. If that process has run its course and the dollar is stabilising or even set to appreciate again, that could have big implications for investors asset allocation decisions.
The last 10 years was a period in which the US government spent heavily on costly military adventures abroad and cut taxes at home. The resultant deterioration in Americas fiscal position unsurprisingly weighed on the value of the dollar, helped commodity prices surge and drove investors into alternative homes for their savings, such as emerging markets.
Ten years earlier things looked very different. President Bill Clinton benefited from tax rises and a peace dividend after the fall of the Berlin Wall. The fiscal deficit, albeit briefly, became a surplus. Coupled with positive real interest rates, the dollar rallied during the 1990s, commodities slumped and equities, especially US stocks, were the best-performing asset class by far.
The current situation feels a lot more like the Nineties than the Noughties. One reason is the real progress being made on both the budget and trade deficits. Withdrawing from Iraq and Afghanistan and the strongest economic recovery in the developed world has cut the gap between tax receipts and expenditure from $1.5 trillion (£980bn) to less than $1 trillion. The deficit is heading back to just 3pc to 4pc of GDP.
(Excerpt) Read more at telegraph.co.uk ...
IMPLICATIONS FOR INVESTMENTS:
* The commodity super-cycle has finally hit the buffers. The usual lag between higher prices and new supply coming on stream was already bad news for commodities. A slowing in growth in China and a strengthening dollar will complete the bear case for resources.
* The relationship between the dollar and share valuations in the US is quite different from that in Japan. Less dependent on exports than Japan, the US actually benefits from a stronger currency. A stabilising dollar could therefore add impetus to the recent re-rating of the US market.
* A strengthening dollar could also have implications for the relative performance of US and emerging market stocks.
The Leper with most fingers.
I’ve been buying up all the USD I can get for a long time. It’s still a bargain vs the Euro the Ozzie dollar and the CDN.
Don’t tell this to the morons who are waiting for the next big conspiracy, I mean, crisis to happen. The dollar won’t be the standard currency for trading! Oh no! It’s gonna be the Weimar Republic all over again!
I should be happy that we’re losing to other countries in the race to devalue paper currencies.
Gee! No bias here. Just typical Liberal fact-picking.
Maybe this rag should first look at the enormous expenditures on unconstitutional activities and the virtually criminal manipulation of our scrip, excuse me, money by the Federal Reserve (another unconstitutional entity) before it declares military expenditures (a constitutional function) and cutting taxes (always desired) is why the dollar declined.
Not if the Chinese pump the Yuan.
Here's the plot:
They actually think we can't plot this stuff for ourselves? They think they can get away with this? The article's worthless.