Stop it you guys you're killing me. There seems to be unanimity of opinion in favor of a strong dollar. If just one person would agree with me it would sure help calm my contrarian impulses. This is starting to remind me of 1995 when the dollar was 20% lower and there was nary a bull to be found. I was shorting yen futures around 110 (reciprocal of 90 yen to dollar) and getting my hat handed to me as the yen peaked at 126. I still remember reading Merrill Lynch's expert at the time saying that 150 was just around the corner. Everyone was so confident then, what happened? Fortunately, I was stubborn and held on. Do you realize that every contract position shorted at 110 and rolled over to today would have netted close to $60,000 profit?-35 points on the drop and another 13 on the roll-over pickups. The margin on one contract is about $3 thousand.
Please someone, wackos excluded, agree with me so I can relax and quit bothering the folks at Lind-Waldock.
Paul, you wrote:
It is next to impossible for us to export more than we import - regardless of the $'s strength. No other nation can match our demand for goods and commodities. Thus, U.S. trade deficit discussion is not only a waste of time but theoretically wrong... So throw away those ECO textbooks
While I agree with you on the value of most textbooks, I can't agree that you can dismiss the simple laws of supply and demand and how prices are determined. These forces determine the external value of any currency. The supply of dollars on FOREX markets is the sum of what we pay for goods, services, travel, bonds, stocks, land etc. that ends up in the hands of foreign companies, governments or ordinary people. The demand for dollars is the sum that foreigners desire of those same U.S. items. The price of the dollar is the level where the market clears, because as Henry points out these two must equal. If one category, like goods trade, is in deficit, then another must be in surplus to compensate.
If you are correct, and it is impossible for the U.S. to have a balanced trade account then something else must always be positive. For years the U.S. relied on services to help balance the accounts plus America always received a positive flow on interest and dividends. Not any more! Now the U.S. relies almost solely on new investment, a good deal of which carries the label "hot money". I think you will be surprised how quickly this hot money ignores the common wisdom that the United States is the only place for investment money to land. As I mentioned at the start of this post, the sentiment was very different just three years ago. At the present rates of growth, it will take about 5 years to increase this investment account by 1 trillion dollars, a sizeable sum even for the U.S. economy. Sooner or later the demand for diversification will limit the inflow of money. Unless the laws of supply and demand have been repealed, I can't see how your assertion can be correct. How is this "theoretically wrong"?
-Robert
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