Eur 1.7 , Yen 65 , Aud 1.2

DionysusToast said:

Not sure what to think.

If the dollar goes down dramatically, then some US stocks will benefit, especially those that export.

In terms of emerging markets, why would they do better if the dollar drops, their domestic markets will continue to develop but so many are about cheap bodies and that market will be less attractive as US labour rates become cheaper because of the currency.

I can see the dollar dropping but I don't think all of the other things are in any way guaranteed if it does drop.

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arabianights said:

I think the euro is a piece of ****.

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DionysusToast said:

Not sure what to think.

If the dollar goes down dramatically, then some US stocks will benefit, especially those that export.

In terms of emerging markets, why would they do better if the dollar drops, their domestic markets will continue to develop but so many are about cheap bodies and that market will be less attractive as US labour rates become cheaper because of the currency.

I can see the dollar dropping but I don't think all of the other things are in any way guaranteed if it does drop.

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jsc said:

Consider that Emerging markets, BRIC's particularly, see more parity with the dollar on a long term basis. Consider the likely impact of this on the populations of said countries, as their buying power increases. Suddenly they are no longer just emerging markets, but becoming fully fledged markets to be reckoned with. This is benefitting the emerging middle class, particularly in those BRIC's that are not subject to a communist regime and thus do not have a government controlling wages.
So the impact would be different in different countries, however it would lead to a global boom of the sort the existing first world countries have already enjoyed. Consider all movements are cyclical. As one comes up...

The Brazilian real, for example, is currently considered the most overvalued currency in the world by Goldman Sachs. Surely such confidence in the currency is a sign that investors perceive the country to grow quickly in terms of real wealth, in the same way a stock will trade on a high multiple if investors consider high returns can be made imminently. We see this particularly in small tech stocks for example.

Let us assume we are a year or so down the line and that the above is taking place in the emerging markets against the backdrop of a struggling US economy emerging from recession after QE2. As the US economy strengthens, the dollar rises and investors rush to close positions as the carry trade on the dollar returns to its traditional port, the yen. The dollar rises fast, much faster than the pace of recovery as optimistic Americans anticipate a return to the norm - their nation as a Superpower. Also consider the amount of money that has been printed. We are witnessing all the seeds being sown for an environment of hyper-inflation, the like of which could bring down an entire economy.

Not, I fear, as far fetched as some would have you believe.

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jsc said:

Apologies. I thought my comments regarding the likliehood of hyper-inflation for the dollar should be explained with the rationale behind them put in simple terms. I believe that QE2, should it occur due to continuing competitive devaluation with the renminbi, is a likliehood - and that it will have an effect on the dollar over the coming decade and thats why I mentioned it. I did not mean to take the thread off track.

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jsc said:

QE is used to purchase a range of government assets back from those institutions holding them, thus injecting cash back into those institutions from the compulsory purchase of governemnt debt instruments. Banks are being told both to lend and to rebuild their balance sheets but some of this cash will find its way into the market. Money does not disappear, it just moves around. Huge injections of cash will end in over-supply as things improve and money comes back into the conomy from outside. Inflation is to some extent inevitable, its just a question of where it crops up and how severe it is. Couple it with the unwinding of the dollar carry trade and you have a serious problem in terms of hyper-inflation. In the Uk, we will have inflation but the threat is less severe.

The failure of government to compute the basic economics that you cannot print jobs by injecting cash into the economy is a sad state of affairs. Job creation requires planning and strategy - the governments in the UK and the US are woefully inadequate in these regards. Another bout of QE will give probably be the final nail in the coffin for the US over the longer term. Mass inflation and a failure to create employment opportunities usually leads to what?

I am sure others have their own views and opinions to contribute on the forthcoming decade.

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jsc said:

It may be wise to consider the likely implications of an unwinding of the dollar carry trade in the forthcoming decade. If China refuses to devalue the yuan and we continue in competitive devaluation, QE2 will surely be put into action.

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