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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: E_K_S who wrote (45525)	11/16/2011 11:53:50 PM
From: Sergio H	Respond to of 78470

EKS, I think you are on the right track looking at stocks that will benefit from a stronger US dollar and will do my due diligence in this area. On the other hand, commodity issues have an adverse relationship with the US dollar, as I am sure you know. I like the investment angle that you have presented on food supply, as I understand it. I am very worried about the market effect of the upcoming super committee results, as they are unlikely to have an agreement and seem to be pushing responsibility to the voters in the next election cycle. This leadership void is not a bullish signal. Generally, a strong US dollar is good for small caps that are not affected by international issues but in a declining market small caps pose greater risk.

To: E_K_S who wrote (45525)	11/17/2011 12:15:10 AM
From: Spekulatius	Read Replies (3) \| Respond to of 78470

I think you are on the wrong track looking for a stronger US$. For one thing, there is no direct correlation between the federal deficit and the exchange rate. Exchange rates are driven by money streams from investments (driven by interest rate differentials or opportunity for investments) and trade balances. Looks for example to Japan - the Yen is at an historic high against the US$ and Euro but the Japanese federal deficit is extremely high. The latter does not matter because it is financed internally and the strong export surplus creates a steady stream for forex reserves that keeps the yen high. What makes you think that the US$ will grow stronger if the federal deficit is reduced. There are secondary effects - the federal deficit is 8.5-9% of GNP in the US$, representing excess spending that will be evaporate if the deficit is cut to zero - take this spending away all of a sudden and you have the mother of all recessions. This of course would reduce imports and reduce the trade deficit for the US somewhat strengthen the US$. However my moniker states already that Mr. Bubbles will pull all levers available and then some to make sure that this does not happen. in any case if this were to happen, all the stocks that you are looking at are going to be much much cheaper. Sadly enough, I think that exactly this is going to happen, except in slow dribbles rather than in one big chunk. This means that we are going to have a 1% negative GNP growth headwind for roughly a decade and possibly more if you believe in multiplier effects as Keynes did. This is the semi optimistic view - the pessimistic view is that the bond vigilantes will go to the US after they are done with Italy and we get a heavy dose of austerity with all the nasty side effects will be forced upon us in a hurry. There is an optimistic scenario too - that Mr. Bubbles can play tricks with the Fed balance sheet forever and we can print our way into prosperity after all we own the printing press for the worlds reserve currency!