Why will the dollar rally?

[gonebroke2]

[ QUOTE ]
Because it is the mighty, mighty dollar!

Seriously though, the dollar is not going to become worthless. It might continue to slide a bit more but I think most of you are severly understimating the strength of the U.S. Economy and the strength of the country in general, long-term.

Get greedy when others are fearful.

[/ QUOTE ]

It is not going to become worthless. Just worth about 40-50% less than current values on the USDX. A short lived dollar rally is probably around the corner, but I am not changing my positions. Short CFC, WM, puts on GS and long on gold and silver related assets. Liquid cash currently in Canadian Dollars ETF (+20% on the year) and might be moved to Swiss Franc ETF.

[tolbiny]

[ QUOTE ]
the US is a very attractive place to invest in terms of the stock market

[/ QUOTE ]

Linking things not on Mises for you barron

The US market has been one of the worst places to invest for the past five years, I wouldn't be on nominal highs fooling people forever.

[ QUOTE ]

the good news is that the dollar is still viewed as a reserve currency

[/ QUOTE ]

This will not continue if the dollar continues to fall, switching over to the Euro or basket of currencies looks more attractive every day to those who do hold masses of dollars. China's sovereign wealth fund I believe is funded with US treasuries, other such slow burns are likely IMO over the next few years.

[ QUOTE ]

further, the most recent GDP number (though very likely to be revised down) showed a huge increase in exports (in part thanks to the weak dollar obv).

[/ QUOTE ]

I keep hearing this and have not seen any attempts to calculate how much of the increase is from a weaker exchange rate, have you?

[DcifrThs]

[ QUOTE ]
[ QUOTE ]
the US is a very attractive place to invest in terms of the stock market

[/ QUOTE ]

Linking things not on Mises for you barron

The US market has been one of the worst places to invest for the past five years, I wouldn't be on nominal highs fooling people forever.

[/ QUOTE ]

you misunderstand my point. i don't care abuot the returns of the US stock market, only the flows to it as it reflects upon the strength fo the dollar. this last TIC report did show huge outflows from US equities, but those coincided with the august credit crunch where equities allocations worldwide were seriously reduced. the point here is that even if the US has a bad year, or bad 3 years, it is still a huge compenent of global stock allocations.

the amount of money flowing to the US ('s equity markets) is still very large and helps prop up the dollar.

[ QUOTE ]

[ QUOTE ]

the good news is that the dollar is still viewed as a reserve currency

[/ QUOTE ]

This will not continue if the dollar continues to fall, switching over to the Euro or basket of currencies looks more attractive every day to those who do hold masses of dollars. China's sovereign wealth fund I believe is funded with US treasuries, other such slow burns are likely IMO over the next few years.

[/ QUOTE ]

that is true but as of right now it is viewed as the world reserve currency and despite the "ease" of transition, the likelihood is another thing. care to make a wager as to whether the US will be the world reserve currency as of Jan 1, 2009?

[ QUOTE ]


[ QUOTE ]

further, the most recent GDP number (though very likely to be revised down) showed a huge increase in exports (in part thanks to the weak dollar obv).

[/ QUOTE ]

I keep hearing this and have not seen any attempts to calculate how much of the increase is from a weaker exchange rate, have you?

[/ QUOTE ]

there are many studies that show when a currency weakens its exports increase in the same or following quarter relative to imports.

you can see vestiges of this in the import price index and export price index for our major trading partners.

a weak dollar definitely increases the relative demand for US exports.

with that being said, the relative amount attributed SOLELY to the weakness fo the US dollar is very hard to tease out and i haven't seen any well done papers/reports parsing the increase in export revenue as a % of GDP from a weakening of the dollar. so the amount i cannot quote.

but i can say with very high degree of confidence that "...huge increase in exports (in part thanks to the weak dollar obv)"

Barron

[tolbiny]

[ QUOTE ]

you misunderstand my point. i don't care abuot the returns of the US stock market, only the flows to it as it reflects upon the strength fo the dollar. this last TIC report did show huge outflows from US equities, but those coincided with the august credit crunch where equities allocations worldwide were seriously reduced. the point here is that even if the US has a bad year, or bad 3 years, it is still a huge compenent of global stock allocations.


[/ QUOTE ]

Were talking about why the dollar will rally, its position can only be taken relative to other currencies or commodities. It may still be a "huge component of global stock allocations" in three years, and still decline in value as the massive component turns into merely a huge one, turns into a large one...

[ QUOTE ]

the amount of money flowing to the US ('s equity markets) is still very large and helps prop up the dollar.

[/ QUOTE ]

The weak dollar is what is allowing much of this money flow into these markets since they are relatively cheaper. This can slow the dollars descent, but cannot stop or reverse it.

[ QUOTE ]

that is true but as of right now it is viewed as the world reserve currency and despite the "ease" of transition, the likelihood is another thing. care to make a wager as to whether the US will be the world reserve currency as of Jan 1, 2009?

[/ QUOTE ]

Again all that matters is its relative strength. Will the us dollar be at least as strong in terms of its use as a reserve as it is now? I'll take the under on that bet.

[ QUOTE ]

with that being said, the relative amount attributed SOLELY to the weakness fo the US dollar is very hard to tease out and i haven't seen any well done papers/reports parsing the increase in export revenue as a % of GDP from a weakening of the dollar. so the amount i cannot quote.

[/ QUOTE ]

Shame, I would definitely be interested in that. Any info on how much just the exchange rate has? ie a TV exported to europe for 500 euros at 1.2 $/E would be 600$ on the books for the US company while the same TV at 1.4 $/E would be $700, without any increase in physical goods.

[Maulik]

Giselle fights back: http://news.bbc.co.uk/2/hi/business/7078612.stm

[DcifrThs]

[ QUOTE ]
[ QUOTE ]

you misunderstand my point. i don't care abuot the returns of the US stock market, only the flows to it as it reflects upon the strength fo the dollar. this last TIC report did show huge outflows from US equities, but those coincided with the august credit crunch where equities allocations worldwide were seriously reduced. the point here is that even if the US has a bad year, or bad 3 years, it is still a huge compenent of global stock allocations.


[/ QUOTE ]

Were talking about why the dollar will rally, its position can only be taken relative to other currencies or commodities. It may still be a "huge component of global stock allocations" in three years, and still decline in value as the massive component turns into merely a huge one, turns into a large one...

[/ QUOTE ]

Tolbiny,

i was responding to your link. to be very clear, i don't think the dollar is going to rally long term vs. any major currency. short term it will likely rally vs. the pound and possibly euro as relative interest rate and growth diffs converge.

the link you provided specifically dealt with the returns of US equities vs. the world. your point that its value is determined relative to XYZ is valid but my point is that US equities remain a significant location for foreign investors to put money. this flow of money to US equities helps prop up the value of the dollar vs. whereever the money is flowing from.

also, prop up != increase in value. i meant it as "slow the fall of" rather than "increase the value of"

[ QUOTE ]


[ QUOTE ]

the amount of money flowing to the US ('s equity markets) is still very large and helps prop up the dollar.

[/ QUOTE ]

The weak dollar is what is allowing much of this money flow into these markets since they are relatively cheaper. This can slow the dollars descent, but cannot stop or reverse it.

[/ QUOTE ]

i dealt with this point direcetly above.

[ QUOTE ]
[ QUOTE ]

that is true but as of right now it is viewed as the world reserve currency and despite the "ease" of transition, the likelihood is another thing. care to make a wager as to whether the US will be the world reserve currency as of Jan 1, 2009?

[/ QUOTE ]

Again all that matters is its relative strength. Will the us dollar be at least as strong in terms of its use as a reserve as it is now? I'll take the under on that bet.

[/ QUOTE ]

you would have won that bet in every single year from 2003-2007. in every year the dollar was weaker and weaker. yet we still have oil, gold and many other things denominated in dollars and the dollar is still the world's reseve currency.

as i mentioned earlier, i'm in 100% agreement with you that the dollar will continue to decline in value, mostly against asian countries (& commodity exporters) and not so much vs. other developed world countries (specifically EUR & UK)

the fact is though that the dollar, by convention or pressure or otherwise, is still used as the world reserve currency. the fact that this role may decline in relative terms or the value of the dollar decline in relative terms doesn't change the point that i want to bet on: that the dollar will be the world's reserve currency by the date i mentioned. that is to say the majority of foreign currency reserves of the Rest of the World (ROW) will be denominated in dollars and the major commodity exporters will still (in a vast majority) accept/require payment in dollars from both the US & ROW.

[ QUOTE ]
[ QUOTE ]

with that being said, the relative amount attributed SOLELY to the weakness fo the US dollar is very hard to tease out and i haven't seen any well done papers/reports parsing the increase in export revenue as a % of GDP from a weakening of the dollar. so the amount i cannot quote.

[/ QUOTE ]

Shame, I would definitely be interested in that. Any info on how much just the exchange rate has? ie a TV exported to europe for 500 euros at 1.2 $/E would be 600$ on the books for the US company while the same TV at 1.4 $/E would be $700, without any increase in physical goods.

[/ QUOTE ]

i don't think it works like that. i may be wrong but what you are getting at here is an accounting change of the value of exports in US dollars that are exported denominated in other countries' currencies.

in reality, US goods are valued in US dollars and a stronger dollar means that it costs more euros to buy the same good (assuming exporters keep prices identical in dollar terms) than it does when the dollar is weak.

so the TV you speak of would be quoted at $600 and if the dollar was 1.2$/E the importing european company would have to pay E500 for it. if the dollar was weaker, the importer would pay fewer euros and if the dollar was stronger the importer would pay more euros for the same good.

either way, the exporter's revenue is $600. again, i may be wrong. and if i am please show me where US companies (the vast majority of them in any case) quote their exports in foreign currency terms.

so overall, i don't think there is an accounting change in export prices. there IS however, definitely an accounting change in import prices. a weaker dollar pushes up import prices (albeit by less than the change in the dollar though due to reduced demand for the more costly imports)

Barron

[Orlando Salazar]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]

i'll now offer even money on those terms that goldman sachs does not report 1 quarter of negative earnings in the next 5 quarters.

Barron

[/ QUOTE ]

I changed my mind. I will take that bet. Same amount as our gold bet. Reply to confirm.

[/ QUOTE ]

confirmed.

bet is that goldman sachs will not post 1 quarter of negative earnings (i.e. a quarterly loss) for the next 1.25 years (5 quarters) starting Q42007-Q42008.

same terms as our gold bet.

Barron

[/ QUOTE ]

This is a vvvv bad bet. GS MD's retain high equity share in the co, teamwork/consensus is super important, and they are *very* politically connected. This helps them avoid many big errors of ego/politcal uncertainty. This is like betting/playing against Patrik Antonius, you are burning money.

[tolbiny]

Ok, great, sounds like we're pretty much in agreement.

[ QUOTE ]

i don't think it works like that. i may be wrong but what you are getting at here is an accounting change of the value of exports in US dollars that are exported denominated in other countries' currencies.

in reality, US goods are valued in US dollars and a stronger dollar means that it costs more euros to buy the same good (assuming exporters keep prices identical in dollar terms) than it does when the dollar is weak.

so the TV you speak of would be quoted at $600 and if the dollar was 1.2$/E the importing european company would have to pay E500 for it. if the dollar was weaker, the importer would pay fewer euros and if the dollar was stronger the importer would pay more euros for the same good.

either way, the exporter's revenue is $600. again, i may be wrong. and if i am please show me where US companies (the vast majority of them in any case) quote their exports in foreign currency terms.


[/ QUOTE ]

This can't work for anything that relies heavily on imports to produce, or anything that can be exported with relative ease.

[DcifrThs]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
[ QUOTE ]

i'll now offer even money on those terms that goldman sachs does not report 1 quarter of negative earnings in the next 5 quarters.

Barron

[/ QUOTE ]

I changed my mind. I will take that bet. Same amount as our gold bet. Reply to confirm.

[/ QUOTE ]

confirmed.

bet is that goldman sachs will not post 1 quarter of negative earnings (i.e. a quarterly loss) for the next 1.25 years (5 quarters) starting Q42007-Q42008.

same terms as our gold bet.

Barron

[/ QUOTE ]

This is a vvvv bad bet. GS MD's retain high equity share in the co, teamwork/consensus is super important, and they are *very* politically connected. This helps them avoid many big errors of ego/politcal uncertainty. This is like betting/playing against Patrik Antonius, you are burning money.

[/ QUOTE ]

who made the bad bet in your opinion? i'm betting for goldman sachs not posting 1 Q of negative earnings from now till end '08.

gonebroke2 bet that GS would post at least 1 Q of negative aernings from now until '08

which is the bad bet do you think?

personally i'm very happy w/ my side ofthe bet.

Barron

[DcifrThs]

[ QUOTE ]
Ok, great, sounds like we're pretty much in agreement.

[ QUOTE ]

i don't think it works like that. i may be wrong but what you are getting at here is an accounting change of the value of exports in US dollars that are exported denominated in other countries' currencies.

in reality, US goods are valued in US dollars and a stronger dollar means that it costs more euros to buy the same good (assuming exporters keep prices identical in dollar terms) than it does when the dollar is weak.

so the TV you speak of would be quoted at $600 and if the dollar was 1.2$/E the importing european company would have to pay E500 for it. if the dollar was weaker, the importer would pay fewer euros and if the dollar was stronger the importer would pay more euros for the same good.

either way, the exporter's revenue is $600. again, i may be wrong. and if i am please show me where US companies (the vast majority of them in any case) quote their exports in foreign currency terms.


[/ QUOTE ]

This can't work for anything that relies heavily on imports to produce, or anything that can be exported with relative ease.

[/ QUOTE ]

first off, what does exporting w/ relative ease have anything to do w/ that? if it is a tanker of say american produced liquid or a box of american sheeps wool it still only depends on pricing considerations.

basically i understand your point about the first one (and will expand in a moment) but i don't get why export prices would necessarily increase (or just change) in dollar terms if a product is relatively easy to export? an explanation here would be appreciated. thanks.

now as to your first one, there needs to also be some qualifiers there in terms of export prices. the main one being the tradeoff between three things a) the elasticity of demand for the good/service being exported b) the market share of the exporter/overall market size and c) the margin on the good/service being exported.

it also would depend on the degree to which the exporting firm has already hedged away currency exposure.

if there is a huge elasticity of demand (very price sensitive customers) and mkt share is a major consideration (i.e. short term mkt share loss costs more to make back than short term losses on currency changes) then it is likely the export price will not rise at all. and if it did rise it would be by an amount far less than the amount of increase of costs of production.

obviously if a firm already hedged away most/all of its future sales exposure then it isn't likely to raise prices by any major degree (or anywhere close to the change in value of the dollar) since the loss of customers might cost more than the S-T gains from net revenues.

i guess it also depends on the degree to which import prices are hedged as well...

anyways, those are just some thoughts on comments. let me know if i missed the boat on what you were trying to get accross. and if you have a second i'd appreciate an explanation as to why easily exported goods/services would be more likely to be denominated in foreign currencies or more subject to cost changes being passsed on in the form of price changes

thanks,
Barron