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

To: marginmike who wrote (31519)	5/1/2005 1:17:18 PM
From: gregor_us	Read Replies (1) \| Respond to of 110194

Perhaps China Will Offer a Revaluation Schedule, rather than a Revaluation, this week. revalue within 3o days from multiple sources. take it to the bank I'd maintain that no one really has clue. Because I think the Chinese are still hashing it over, themselves. LP

To: marginmike who wrote (31519)	5/1/2005 2:01:41 PM
From: mishedlo	Read Replies (3) \| Respond to of 110194

The China Factor and the US$ by Frank Shostak This article is from Novemeber but the concepts are timeless. Here are a few snips from a long article....... If according to the underlying exchange rate the dollar is not too expensive (not overvalued), the fall in the dollar on account of non-USD asset allocation by China will be of short duration. The reason for that, as we have seen, will be actions on behalf of buyers and sellers that will bring the rate of exchange in line with the relative purchasing power of respective monies. On this score between 1994 to 2004 the Euro-zone money printer has been working much faster than its American counterpart (see chart). In other words, money growth in the Euro-zone relative to the growth of real goods and services has been much larger than in the US. This in turn raises the likelihood that the US dollar is not overvalued against the Euro, implying that the Chinese factor can only have a short-lived effect, all other things being equal. Thus a fall in the dollar against the Euro will make it advantageous to sell goods for Euro's, then exchange Euro's for US dollar. Then with more dollars one will be able to secure more goods and services. Obviously this will set in motion corrective forces until the rate of exchange gravitates toward the underlying rate of exchange. What about interest rate differentials? According to popular thinking a relative rise in interest rate in Europe against the US will prompt investors to sell US assets in favor of European assets, i.e., selling dollars and buying euros thus raising the euro rate of exchange versus the dollar. Again, if at a given point in time the emerging exchange rate on account of the interest rate differential doesn't correspond to the underlying rate of exchange, arbitrage activities will be set in motion, which in turn will bring the market rate of exchange in line with fundamentals. With respect to the interest rate factor the latest data is actually favorable for the dollar. For the past eight months the yield on the US 10-year T-Bond has been higher than the yield on the 10-year Euro-zone government bond. For instance, in October the US yield stood at 4.025% against 3.87% in the Euro-zone. So far in November in the US, the yield stood at 4.24% against the Euro-zone rate of 3.77%. ..... We suggest this raises the likelihood that the US dollar is not overvalued (not too expensive) against the Euro. Consequently, the Chinese factor can only have a short-lived effect on the dollar, all other things being equal. A fall in the US dollar on account of the Chinese factor against the Euro will set in motion corrective actions on behalf of buyers and sellers, which will bring the US dollar toward its underlying rate of exchange. mises.org