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

To: mishedlo who wrote (4307)	1/3/2004 12:08:12 AM
From: TobagoJack	Respond to of 110194

Mish, <<Starting somewhere early to mid-Jan, there is as weak period and usually big dip in metals>> ... this year may be an exception, if ... Message 19649112

To: mishedlo who wrote (4307)	1/3/2004 3:12:54 AM
From: EL KABONG!!!	Respond to of 110194

Hi mishedlo, What makes you think the US does not WANT the US $ to fall. All this talk about "strong $" when in fact their policies have been anti-USD. One argument for a strong US$ is that this particular scenario keeps the global economy (and the fiat currency comparisons) US-centric. In other words, oil is quoted in US$s, international trade is conducted in US$s, etcetera... One argument for a weakened US$ is that US products, services and especially exports become more price competitive with products, goods and services manufactured or assembled abroad. Part of the upside to a strong US$ is that a strong dollar supports strong financial markets, and hence, lots of investment capital from foreigners, either in the form of direct investment or in financial plays likes equities and debts. Part of the downside to a weak US$ is the loss of foreign investment, as foreign investors seek higher returns in foreign markets. The equation is relatively simple, with a few more pieces than I've offered up in this post. But nonetheless, it's easy to understand; Economics 101... What has been happening recently is the weak US$ scenario, where US exports have become more price competitive and foreign investors appear to be fleeing the US markets for better returns elsewhere. But, consider for a moment how the scenario might be changed should the non-US countries start lowering the interest rates they pay on debt? Or perhaps lowering the prices of their exports? Or perhaps lowering the manufacturing costs of their exports so as to achieve price parity with the US$ denominated products, services or exports? What then? Will the foreign markets look as good to foreign investors when every country is paying less than 1% interest on short term debt? I think that this may be the exact scenario that the Fed may be aiming for, a world where no one has any pricing power (and therefore an economic advantage in marketing exports), where currency trading is relatively useless (because devaluation will quickly negate any gains) and a world where inflation is extremely low, yet positive (to avoid the deflation scenario). If the Fed could successfully maneuver the US$ through this type of maze, then they could (in your words) have their cake and eat it too... Just speculation on my part though... KJC