Value of the dollar?

[cat man do]

Originally Posted by rickm505

So what happens next?

Mad Max 2: The Road Warrior - Wikipedia, the free encyclopedia


athough I liked Waterworld better Waterworld - Wikipedia, the free encyclopedia

(Same story)

[jdoe71]

Yes! The first two MadMax movies were awesome! Then came the third one, not so much. What kinda car is that anyway? A Holden or Ford or something else?
Liked Waterworld too.

[Gator81]

Is anyone on here aware of a good resource for watching long-term trends in the dollar say 6- 12 months?

Here's one site I check regularly, "The Financial Forecast Center", although I only access the free part which is usually a couple of weeks out of date. For example, you'll see here that they projected the 1-Oct-07 Euro/US$ rate to be about 1.37, whereas it hit 1.424 today. Their more up-to-date stuff is for subscribers, and I don't know how good it is.

Euro to U.S. Dollar Currency Exchange Rate Forecast

IMO, as long as the US central bank is in a rate-dropping mode, trying to stave off recession, and the rest of the world is holding rates steady or even raising them, then the US$ logically must trend downward in exchange rates against those other currencies. Dropping US interest rates and increasing liquidity means more dollars floating against the same (or relatively fewer, perhaps) Euros, Pounds-sterling, Yen, etc. So I expect to see a continued decline in the US$ vs. European and Asian currencies.

Note that this view of mine does in fact conflict with the view of the site I referenced above. They expect the dollar's drop to end any day now.

I've put my money where my opinion is, by moving 100% of my retirement funds into European-, British-, Japanese-, and Australian/NZ-based funds. Get on any website that does stock charts, and compare the 3-year growth of the EAFE (Europe, Austral-Asia, and Far East) index against the US S&P500. The S&P is up about 38%, while the EAFE is ab out twice that, at over 75%. I can't ignore performance numbers like that.

Anyway, that's my $.02 (or 0.014 Euros. Today anyway.)

[44'cruisingcat]

Originally Posted by jdoe71

Yes! The first two MadMax movies were awesome! Then came the third one, not so much. What kinda car is that anyway? A Holden or Ford or something else?
Liked Waterworld too.

An old XC Ford Falcon hardtop.

[TaoJones]

Originally Posted by Gator81

I've put my money where my opinion is, by moving 100% of my retirement funds into European-, British-, Japanese-, and Australian/NZ-based funds. Get on any website that does stock charts, and compare the 3-year growth of the EAFE (Europe, Austral-Asia, and Far East) index against the US S&P500. The S&P is up about 38%, while the EAFE is ab out twice that, at over 75%. I can't ignore performance numbers like that.

Anyway, that's my $.02 (or 0.014 Euros. Today anyway.)

It is also important to understand that while the performance numbers favor the EAFE Index over the S&P 500, there is an additional "lift" being provided by investing outside the dollar. That is, by investing in currencies that appreciated against the dollar, the devaluation the dollar incurred in just the last two years (-22% to the Euro) is avoided.

Similarly, while the S&P 500 gained 38% over the last three years, the dollar lost 22% against the Euro in just the last two, and inflation and taxes ate up more than the remaining 16%. Pretty dispiriting.

So if foreigners invested their capital in $US-denominated markets, even if the markets advanced, it was insufficient to cover the loss taken by investing in dollar-denominated equities.

And if those with American dollars invested them outside their currency in equities denominated in, say, Euros, they gained the increase in the price of the equity plus the lift provided by the 22% increase in the value of the Euro to the $US since late 2005.

It's not unlike what happens on the race course - a header increases the distance one must sail to the upwind mark, while a lift decreases the distance. It is therefore vital to have picked the correct side of the course.

It is no less vital to pick the correct side of the currency trade.

When foreigners decide it makes no sense to invest in the US, thereby pulling an important prop out from under the $US, it will fall further, faster than many now think possible.

TaoJones

[Intentional Drifter]

Wasn't it Yogi Berra that said, "It's tough to make predictions, especially about the future"? Yet, that's what we all want to do.

I thought the science in my profession (psychology) was pretty dismal, but it can't compare to "The Dismal Science." Maybe it is just my own denial, but I find myself just wanting to throw up my hands in frustration. One of the reasons for going for a nice, long, sailing trip.

I can offer this, though. It seems that there is some sort of connection between how people are feeling about the future, on a broad, societal level; and the general economic status. When people are feeling optimistic and looking ahead with positive anticipation, the economy seems to do better; and vice-versa. In the US over the last six years, we've been in a hunker-down, fearful, the sky-is-falling, mood. And, the current economic situation certainly reflects that. If that was all we attended to, then things indeed look bad.

Yet, there is this rather major groundswell of anticipation that the future will be better. Sure, the politicians can't do anything to "make it" be better -- no government and certainly no individual has that sort of powerful leverage. But, they do tend to reflect our collective unconscious. (One of the reasons I enjoy TaoJones' comments so much and pay more careful attention to them is his use of Jung in his sig line.)

My personal read on this is that our society has pretty much stopped attending to the doom and gloom. Regardless of your position in the political spectrum, most have simply stopped paying attention to them. The more left-leaning folks are talking about change, change, change and throwing out lots of ideas. (On a practical level, some are interesting, some are stupid, and some are just silly. But, that's another discussion.) They can't wait for the elections. Most of the more right-leaning folks have also relegated the current administration to a position of irrelevancy. You don't hear them saying "let's do more of the same, 'cause hasn't it been great!" They, too, are looking for change and that is, fundamentally, an optimistic position. They are trying to believe that things can be better and are offering suggestions for how to get there.

So, perhaps I am just an unmitigated optimist, but I think we may actually be through the worst of it. That's not to say there won't be some more pain and ups and downs -- nothing is that linear. But, I do think that the overall trend is starting to improve. Therefore, I think that the society is starting to look forward with more hope. That brings with it creativity and new options not realized before.

ID

[cat man do]

Originally Posted by Intentional Drifter

So, perhaps I am just an unmitigated optimist, but I think we may actually be through the worst of it. That's not to say there won't be some more pain and ups and downs -- nothing is that linear. But, I do think that the overall trend is starting to improve. Therefore, I think that the society is starting to look forward with more hope. That brings with it creativity and new options not realized before.

ID

I hope you are correct ID, but this graph would make me think there is worse to come.

Of course the ability for most in the US to be able to walk away from bad debt instead of man'ing up to responsibility does'nt help.


March 08 is a big month for ARM Reset "Batten Down the Hatches" me thinks








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[Intentional Drifter]

OK, so maybe the snake is going to have to stretch those jaws a bit more to swallow the rat, but things start looking more balanced after that.

Do bear in mind, I'm no economist or finance wizard, far from it. Looks like several of you around here are, though. I'm talking about the more semi- to un-conscious stuff going around -- the mass psychology that seems to be occurring. Not all at once, mind you, but the beginnings of the tide changing.

At least, I hope!

ID

[delmarrey]

Originally Posted by Intentional Drifter

Wasn't it Yogi Berra that said, "It's tough to make predictions, especially about the future"? Yet, that's what we all want to do................

ID

Who me worry?

Look at the fortune cookies I've been getting lately.

[Tropic Cat]

I'm kind of wrapped up in the ARM resetting business, and all of this has me scratching my head. The 2/28 and 3/37's you read about with the "teaser rates" are resetting now. As cat man do pointed out, more will reset in the next few months. It's true that a person who has one of these will have to pay more for their mortgage. However, the cap on the first reset is limited to 2%. A fella who has a $240K mortgage will pay $300 a month more, after the ARM resets.

What has me confused is how the heck can a $300 buck increase start an avalanche of foreclosures? There is more to this than just mortgages resetting. I believe more people are losing their jobs. Which means that the unemployment stats are incorrect?

[Intentional Drifter]

Del --

I haven't eaten at the Panda Inn for a few years -- used to love it. I think they're trying to tell you something, but I can't quite figure it out!

ID

[TaoJones]

Originally Posted by rickm505

What has me confused is how the heck can a $300 buck increase start an avalanche of foreclosures?

It's quite a bit more complicated than that, Rick.

The "creative geniuses" in the mortgage industry came up with an almost infinite number of ways to structure an adjustable rate mortgage (ARM) in the last thirty years, and 2005 and 2006 saw a greater number of desperate borrowers latch onto them than in previous years, and at what has proven to have been the top of the real estate market.

As a result, the typical two-year teaser rate periods began to expire in 2007, and the mortgages began to be reset. However, the notion that "real estate only goes up" was proven to be just as absurd as it sounds, and many desperate people who took out ARMs discovered that the reset amount was beyond their means to pay.

While the additional amount was probably only $300 in some cases, in most cases it was much more. In my experience, in California, most homes sell for far more than $417,000, the ceiling amount on a conforming mortgage, and are, therefore, Jumbo loans.

With a typical $500,000 mortgage, a 5% teaser rate would have created a payment of just under $2700/month. If it reset to just 7%, the new payment would be more than $3300/month.

A big factor in the increased rate of foreclosures, but one seldom mentioned, is that many people were stretching to buy the most house they could possibly afford, even if they had to lie to do it. And the qualification standards were reduced to nothing anyway - thus, even the most unqualified people were being approved. NINJA loans, the insiders were calling them, as in No Income, No Job or Assets.

It didn't seem to matter much, either, as long as real estate kept going up. Even complete deadbeats would find a way to make the house payment each month if it kept them on the fast track to easy riches. If someone did lose his house in foreclosure, it could easily be resold to another desperate soul with $ signs dancing in his imagination, so even people who should have known better weren't overly concerned.

When real estate prices stopped appreciating, though, and those holding soon-to-reset-higher ARMs on properties that had even begun to go down in value, they simply quit paying anything. Who wants to break their back to keep up the payments on a depreciating asset?

Thus, the wave of foreclosures. And, as cat man do's chart illustrates, the amount of resets going forward over the next six months, will reach staggering proportions. The number of foreclosures will correspondingly increase at truly astonishing levels.

All of these properties will be dumped into the existing supply of unsold homes (currently there is a 10 month inventory) and the burgeoning supply will swamp demand from those who can still qualify under the newly tightened lending standards. Result: asking prices of real estate must go down to clear the inventory, and it will take years before the market can be said to have normalized.

It's not a pretty picture, I know, but it's where we find ourselves at the moment. The implications for the aging baby boomers who intended to sell their McMansions in order to afford a secure retirement are ominous.

TaoJones

[44'cruisingcat]

Originally Posted by TaoJones

This is correct, as far as it goes, but there are other implications of the dollar devaluation that are ominous, indeed.

In the modern era, a global economy allows manufacturers of durable goods (or any other exportable product) the option of selling anywhere in the world. Thus, to the extent that domestic supply is exported, diminished supply remaining in country costs more if demand remains constant. And because of the decreased purchasing power of the dollar, external currencies that are appreciating against the dollar have greater purchasing power, and it is this that draws the goods into the export market, putting pressure on the domestic supply.


TaoJones

Hang on, are you saying increased export opportunities are a BAD thing?

If production of those goods remained static then yes, prices would rise. But surely you can see that most manufacturers would increase production to meet the increased demand? This would result in LOWER costs-per-unit. It's reasonable to expect jobs would be created by this also.

A lower USD will impact on buyers of imported goods. But it will be beneficial to the US economy in general.

[TaoJones]

Originally Posted by 44'cruisingcat

Hang on, are you saying increased export opportunities are a BAD thing?

Yes . . . and no.

In a thriving economy, increased exports are beneficial. But in an economy heading into a recession, with a depreciating currency, domestic prices for goods that can be sold for more globally will indeed rise. That, as I indicated, is what Americans now face - and it's called Stagflation. That is, prices will rise even as the economy stagnates, just as in the 70s.

It is self-evident, I believe, that unprecedented increases in the supply of money and credit will always result in price increases. Increased prices are not inflation - rather, increased money supply and credit are inflation. Increased prices are merely a symptom of the increase in the supply of money and credit.

From a recent essay by Peter Schiff, I quote a short passage that best illustrates what I'm saying:

~ ~ ~

"Many economists acknowledge that a falling dollar will put upward pressure on import prices, but few consider its effects on domestically produced goods. For one thing, a weak dollar by definition raises the prices of globally traded, dollar-denominated commodities, such as oil, causing raw material costs for domestic manufacturers to rise. Also, as a weaker dollar causes foreigners to demand higher interest rates on the money they lend us, domestic capital cost will rise as well.

"Further, a global market allows domestic producers to sell their products to the highest bidders, wherever they may reside. For example if a lobster fisherman in Maine can get a better price for his catch in Europe, he will sell to Europeans. A weaker dollar simultaneously makes domestically caught lobster more affordable in Europe as it makes them more expensive here. As domestic demand falls, foreign demand picks up. The result is that fewer Americans will eat lobsters, and those who do will be forced to pay more for the privilege.

"In addition, many of the products that we export will not be manufactured, adding little to our GDP and creating few jobs in the process. These products will include used consumer goods, such as cars, appliances, consumer electronics, furniture, etc. Poorer Americans will be forced to sell such possessions so they can afford to buy other goods they will need more, such as food and heating oil. Of course, armed with more valuable currencies, foreigners will have lots of extra purchasing power with which to buy those used consumer goods Americans can no longer afford to keep, as items such as food and heating oil will be a lot cheaper for them. In other words, they will be repossessing all the stuff they sold us on credit."

~ ~ ~

To read the complete essay, go to:

Stagflation Revisited

I hope this helps, 44cc.

TaoJones

[cat1]

Printing money is not an option. The US economy is showing signs of recovery but this is important the recovery will see a stronger dollar over the next 12-18 mths. Gut feel?? Ha! I'm a successful FX dealer with many years experience!! Its important to remember that the FX market is VERY complex. I read the posts on this thread and they are peoples opinons which have little professional experience. While our economy drives fx cross rates other economies globally affect us. Think of this. At no time in the recent past have we been in a position to export our goods so competitively. Money in means a more robust economy. But this is in the mid term NOT short term. If you are considering buying a Euro boat hold off for a couple of years as prices will fall as our dollar strengthens or if you have the money either invest or buy your boat and go sailing. Signing off from this thread as I see we have cars on it now and its no longer relevent.