Here is why I could not disagree with you anymore.
First, a weaker dollar translates into a cut in the real spending power of American consumers—in effect, a reduction in real income.
Second, a weaker dollar weakens the role of the U.S. dollar as the world’s reserve currency. Why should investors and central banks around the world invest in US assets when their value is steadily declining?
Third, the chances of a weaker dollar leading to a sharp reduction in America’s trade deficit is highly unlikely since 40% of the current balance is due to oil imports that are denominated in U.S. dollars. An additional 20% is due to trade with China, which is, of course, controlling the value of its own currency.
Fourth, a weaker dollar is inflationary since it increases the cost of imports.
Fifth, business leaders know that discounting prices may bump near-term revenue and profits but at a real cost to long-term profitability, not to mention inflicting damage to the brand name. This is what we are doing to the brand of America by trying to increase exports by lowering their price in the global marketplace. Better to stand firm on price and sell into global markets on the basis of what is great about American products: superior quality, innovation and service.
Sixth, investors seem to like a weaker dollar since the profits of American multinationals get a boost from foreign earnings being translated into U.S. dollars. Again this is short-term thinking and vastly overstated since most multinationals have sophisticated treasury departments that hedge currency exposures.
What a weaker dollar really does is to encourage American and international investors to invest in non-American markets. The more the dollar drops, the more global equities rise. Many Asian currencies are hitting record highs against the U.S. dollar.
The Australian dollar has climbed to a 25-year highs, while the Singapore dollar has touched 10-year highs. The Brazilian real, which has jumped 18% in value against the U.S. dollar this year, and the Indian rupee’s sharp appreciation against the U.S. dollar during the past year, have supercharged U.S. dollar investors’ returns in those markets.
According to EPFR Global, investors are pouring money into global funds—with net inflows of $96.94 billion into world equity funds so far in 2007, while taking out $9.6 billion out of U.S. equity funds. Brazil’s local stock exchange, the Bovespa, reported that investors have injected $1.2 billion into the market in September alone.
Foreign investors slashed their holdings of U.S. securities by a record amount as the credit squeeze intensified, according to the U.S. Treasury Department. The Treasury said net sales of U.S. market assets—including bonds, notes and equities—were $69.3 billion in August after a revised inflow of $19.5 billion during July. The August outflow exceeded the previous record decline of $21.2 billion in March 1990
Last and perhaps most importantly, I view a policy of weakening the U.S. dollar to improve America’s competitive position as the path of least resistance.
My view is that the value of a nation’s currency reflects the perceived value of country in the global marketplace. Maintaining and strengthening the value of our nation’s currency is in the best interest of American consumers, businesses and investors.
Pretty much says it all. This would be my post to you *professional*
Thanks sprite for laying out how the world works
That is something they don’t teach Engineers. Good post. :^)
Very good reply. I don't think that .o1% of Americans have any idea how important your second point will be to their future standard of living.
Thank you for your reply, at least yours is not name calling, and states an articulate opinion. In every case, when I’m stating my opinion, I’m backing it with examples either real or metaphorically, so people can at least understand what I’m talking about.
Two people can have different opinions about the markets. Actually that is what makes a market. The problem here, is that some people have an opinion based only on “it is going up, therefore it will continue to go up”.
I thought, that since I work as a professional in the finance business, and have lots of experience, that some folks might find my opinion not only educational, but might save them from losing a significant part of their life savings.
Not to brag, but people pay me and my team about $600 per hour for our advice. Here I’m just giving the shit away, and I’m bieng called all sorts of nasty namees.
Fine, I’m also working on my communication skills, learning from others, having some fun, so I guess it isn’t a complete loss.
Ok, here is why I disagree with you disagreeing? And again, it is logical that we can have two different opinions.
First: Americans are making more, to offset the weak dollar, so spending power is neutral. They are however encouraged to buy american goods, over imports... I thought this was a good thing?
Second: They invest in US, because they don’t think the trend will last forever, and must protect themselves from a completely correlated financial structure. 100% correlation of a portfolio will kill you if things go the other way. So, the US, no matter how bad things get, still need to be part of the entire portfolio/pool.
Three: Sharp reduction or not, the evaluation of price in goods, favors domestic brands, whether they are being exported or domestically consumed. Ask a farmer how they feel about a new found lack of competition from Mexico or Canada?? The trade imbalance will still be there, but much less, which makes a big diff if you’re in that kind of biz.
Fourth: Weak dollar may be inflationary, but it isn’t yet. Some goods are more expensive, but not beyond any reasonable measure in almost ALL cases.
Fifth: I’m not aware of companies right now, in the US that are selling goods overseas at a break even or loss. Why would they do that, they don’t have to? Price is cheaper, because the dollar has been completely whacked to the Euro and Canuck.
Sixth: Most companies have actually abandoned the really complex hedging you talk about. They found it only added expense, and put the firm at risk of some stupid moron. They just figure some times they win, some times they lose. Again, not all, but most companies don’t play games in this arena due to past losses. My company does do stuff like this, and boy did they lose money a few years ago, fired a whole ton of people over it.
“My view”...
The rest of the world will come back to the US bond and stock market, when the currency recovers. They are incredibly underallocated in the US now, and they know it. But the pain is too much for them...
The currency will recover when absurdity kicks in, and we hear stories of people from Canada nad Mexico coming in droves to buy stuff at our shopping malls. And that is just what is happening, right, now... I’m not buying a French bottle of wine at 80, when I can get a great Cali for 20 bucks, and neither will you, you, or you.
Ok ok ok, so now, if anyone is going to call me names, or other crap like that, at least back it up with WHY you think I’m a stupid idiot. Ok?