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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Little Joe who wrote (234)	7/19/2003 3:24:42 PM
From: Wyätt Gwyön	Read Replies (4) \| Respond to of 110194

It would seem to me that if all countries devalue their currencies it is impossible for "all countries" to devalue their currencies, since the currencies are valued against each other. it makes sense that the one which can devalue easiest is the one with the biggest deficit, and that would be us. in fact, for countries with a secular C/A surplus, it's hard work to keep their currencies from appreciating. that's why Japan and all the Japan wannabes in the Far East keep buying up US assets instead of converting their money back to local currency (and thereby increasing the value of their currency and reducing their export competitiveness). the reason this is "hard work" is that the overseas assets (USTs, agencies, etc.) must be funded by largely domestic liabilities, the creation of which requires various perverse actions such as Japan took in the 80s in creating a bubble and more recently in building up huge government debt through useless public works projects. a number of reasons could be given for why RE prices would be vulnerable, but perhaps most importantly, a devaluation is likely to be accompanied by a serious upswing in interest rates. housing affordability in the US is determined less by principal amount than by monthly payments, so lower principal prices are the likely consequence which would follow from higher interest in monthly payments in excess of real wage growth (if any, which is itself unlikely in a devaluation--in fact a decline in real income could be a secondary contributing factor to a housing decline). when you add into the equation the huge amounts of leverage existing in the economy--and the attendant potential for a vicious spiral of default-induced selling into weakness--the possibility of a serious price bust cannot be dismissed out of hand. thus, imho, some hard assets--such as, ahem, gold--may be the "place to be", because the assets do not "owe" anything to anybody (unlike all the fiat currencies). but the market values of other hard assets like houses are really predicated on the continuation of The Epic American Credit and Bond Bubble. which continuation will be imperiled by said devaluation. or so the theory goes...