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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: Hawkmoon who wrote (5078)	6/18/2001 8:46:19 AM
From: TobagoJack	Respond to of 74559

Hi Ron, <<Since oil is denominated in USD, and necessitates the selling of non-USD currencies to pay for energy, this is the double edged sword that comes from engaging in deliberate strategies aimed at undervaluing their currencies, rather than restructuring their economies and unfunded governmental liabilities. The result is stagflation. Now the question will be if the USD continues to surge as capital flows to safe harbors, or whether it will go to gold>> I believe the dollar’s value in other currencies terms can get a lot crazier than it already has, for several reasons: 1. The dollar is still within the extreme limits of its historic value band, and so it has not yet gone where it has not been before; 2. Japan is the largest creditor nation in the world, and as long as its interest rate policy is not reward savers, but to encourage consumption, the dollar deposit interest rate can drop another 250-350 basis before savers are forced to choose; 3. The FED policy of forestalling the implosion of US consumer demand by the only means at its disposal will not be unviable until the last 250-350 basis points are used up, and so it will do the expedient and immediately painless action … continue to drop FED rate; 4. The synchronous nature of the economic downturn worldwide gives a natural advantage to folks able to funds to the US … relatively competitive returns (bond, equity, real estate) with relative safety (aircraft carriers and such); and 5. So, matters can get much more extreme with interest rates, exchange rates, equity values, asset prices, gold price, ‘pent-up inflation’, unemployment, trade deficit, and such. One way to look at the overall situation is that the FED is asking the consumers to sacrifice their balance sheet so as to keep their jobs, and it does not matter where they buy from, as long as they buy. The rest of the world is happy to continue selling, so as to earn something, and is happy to recycle the dollars back to the US so that the consumers can borrow more, save less, and buy. I do not see a good future for a system operated in this manner, but am OK with observing, and staying ready to act in my own best interest. The action called for now is to do very little, except to wait. The bottom line is that our collective system of financial and economic infrastructures will be pushed to the limit of safety tolerances, and not much good can come from such mistreatment of the systems. This is why I make the point that there is no hurry to take sides in this unusual environment, and it is better to accept a small certain loss (opportunity cost, mostly) in lieu of much larger win and then loss, or loss and then win. Chugs, Jay