A weak dollar is a problem when inflation goes high, and the cost of govt borrowing goes high. Neither is the case now, or yet.
Some would argue that we are seeing inflation, especially with energy costs. Unfortunatley that is a weakness of weak dollar, but not actually an inflaitonary problem as the cost is more about the dollar and lack of refining. Gold too is appearing to be “much higher” but only when viewed in usd denominations...
It is hard to understand, and has been since the 1700’s, that trade is always fair at inception, even when gold was the standard, or so according to Adam Smith, Wealth of Nations. His premise was that trade at inception was fair, or it would not have been originated. This same argument was very heated in “Import England” of late 1700s.
A great example of how this works despite face value logic is with Japan. They shipped us goods, and left with empty boats. Actually, the boat was not technically empty, it was carrying a cargo: One envelope with cash in it.
The cash had to be turned around right? Either dump it in the currency market and discount it, buy american goods, buy american companies, or american property. They chose r/e and some biz ventures, and when it worked, they piled on, creating a bubble in cali and hi r/e.
Meanwhile, their currency kept increasing in value. This created a scenario that made bank loans more and more expensive, eventually making their banks insolvent.
So, in the end, it is obvious now that the US got the better deal? Their stock market is less than half peak value of nearly 20 yrs ago!
With all due respect, you and others are so incredibly wrong about the state of US financial affairs. We are literally on the verge of a perfect scenario for American growth, not demise by any means! Granted, not all will be winners, but the aggregate will bring our market higher, much higher.
I would not want to be highly invested in foreign equities right now, especially Asia where a bubble that will be viewed later as rivaled by none, is currently in the latter stages. The devastation there will be mind boggling, make Japan look like nothing.
US treasuries, most likely, are doing reasonabley well now for a number of reasons, but one that I’m interested in, is the fact that many foreign investors and govts are buying them as a hedge against a rising dollar and weakening of their own currency. If for example, an invetor buys 1m of 30 yr us tres, and the dollar recovers 30% over the next X years, they wind up not only gettting the coupon, but a higher valued coupon over time, and principal of 1m+30%.
I simply find it fascinating that everyone thinks this time is different, the USD will never recover, and that current economic trends will continue forever. That is the best way to lose money ever.
At some point DoughtyOne, the dollar becomes so cheap, as to become ridiculous to Canadians, Japanese, Brits, etc... They will then travel here, buy stuff here, get R/E, buy out US companies on the market etc. At some point, it gets too extreme right? And at that time, very large financial institutions overseas will realize that they are woefully short allocation in the US bond and equities market, need to make up the gap by buying US securities. The same will hapeen to US investors that are heavily overseas. When they realize they are losing overseas, gaining here, they will repatriate their money, at the expense of the foreign markets.
Ok, hope that wasn’t boring, cuz my wrists are killing me.
Great thoughts. Thanks
I appreciate the response, so don’t take this the wrong way. Is there no scenario that causes the U.S. to be unable to sustain it’s continued deficit spending? I see foreign investment drying up, and there seems to be no down side that you can see at all.
That sounds excessively optimistic to me. We can’t just print money without there being a down side.
Inflation is already here by way of oil.
I like the Profs scenario better.
Chicken little was hollering during the S&L scam. LongTermCapital was the original hedge fund fiasco that was supposed to ruin the world economy. DotCom bubble was the end of the world. Enron and energy futures frauds ruined the country. 80 dollar oil is unbearable. Real estate bubble burst. Unsecured debt is hurting the little guy.
It appears the US economy is huge for a reason and relatively stable over the long haul. Ooh, ooh, ooh. Long term, diversified, balanced, dollar cost averaged investments sounds like a winning plan in the U.S.A.
The discussions of the intricacies of the economy, I find, are facinating.
yitbos
ping
Awesome post Pro. So it seems to go long dollars big time, unleveraged, so you can hold for the long haul.
“Buy dollars young man...”
In dollars, yes, but in oz gold, or other currencies, no. If this were good, then we would be looking at Mexico and New Zealand as being in good shape right now.
No, actually that was pretty interesting. I'm into foreign equities at the moment. Obviously, we're looking at bubble conditions in many places, but the way I see it, with the Fed prone to lower rates further, that will keep things going this way for the foreseeable future.
When do you reckon this bubble will burst?
Thanks for the summary.
###The cash had to be turned around right? Either dump it in the currency market and discount it, buy american goods, buy american companies, or american property. They chose r/e and some biz ventures, and when it worked, they piled on, creating a bubble in cali and hi r/e.####
POOP!
Take a stop in Shanghai some time and you will gasp at the scale of construction and development, Historic, unimaginable in scale and in breadth and scope. Take a ride on their maglev and wonder why we have nothing comparable.
The big lie here is that they can spend it anyway they want and with whoever they want. Finance their miltary, hire a german construction company, finance new factories etc.