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Strategies & Market Trends : Currencies and the Global Capital Markets -- Ignore unavailable to you. Want to Upgrade?

To: Frodo Baxter who wrote (593)	9/7/1998 8:26:00 AM
From: Robert Douglas	Read Replies (1) \| Respond to of 3536

Lawrence, I'm not at my office today, so I don't have my books to look at, but let me just clarify what you are saying. You are saying that the dollar/yen exchange rate back in 1985 was a "correct" rate and the Plaza Accord was a wrongheaded policy that has resulted in 13 years of wrongly valued currency rates. Hummm, that's one I'll have to stew on. You make some good points to consider. You further state: The rate was 250 back then. Factor in a dozen years of awesome economic growth in the U.S., and not much of anything from Japan, and you realize that equilibrium will be restored when dollar-yen hits 300 or so. Right??? I believe it is here your thinking takes a wrong turn. The pertinent numbers to compare wouldn't be growth rates but rather rates of inflation. I'll look up the numbers later, but I'm almost certain that during this time frame Japan ran much lower rates of inflation than did the U.S. This would mean that even if 250 was correct back in 85 that the correct exchange rate today would be less than 250 and not more. Of course such an analysis is fraught with perils since each country uses different methods of calculating inflation, both of which are probably flawed. I'm not quite the critic of government numbers that say, Jimmy Rogers is, but I know how crude they are. More later. -Robert

To: Frodo Baxter who wrote (593)	9/7/1998 9:22:00 AM
From: Henry Volquardsen	Read Replies (1) \| Respond to of 3536

Couple of points. The fx markets don't always move to reflect economic realities. The rally to $/yen 250 in the mid 80s also saw $/DM going to 3.48. Neither reflected economic fundamentals. There were several factors associated with very tight monetary policy coupled with a huge selloff in global commodity prices that create an effective short squeeze on the dollar that became self perpetuating. But those levels were unsustainable and would have eventually reversed on their own. I remember trading thosr markets vividly. Also it is tougher to determine an appropriate exchange rate for yen than it is for the more open European economies. It depends what segment of the Japanese economy you look at. I saw a study a few years ago that suggested, at that time, that there were multiple equilibrium levels for yen. 110, I believe, was appropriate for electronic, 130 for autos and so on for the various export oriented sectors. But the protected sectors of the economy such as agriculture were all well over 200. Henry

To: Frodo Baxter who wrote (593)	9/7/1998 12:47:00 PM
From: X Y Zebra	Respond to of 3536

The rate was 250 back then. Factor in a dozen years of awesome economic growth in the U.S., and not much of anything from Japan, and you realize that equilibrium will be restored when dollar-yen hits 300 or so. Right??? yes, and in addition: 1). at the time (1980's), fiscal restraint by the US Congress was nearly non-existent. Today, there has been a turn for a more responsible policy, which as far as I can tell may continue, given further strength to the US Dollar. 2). Japanese mismanagement of their own currency strength translated (in part), to a buying frenzy of overvalued US Real Estate, which since then has experienced a re-evaluation (at lower levels). In the process, causing some head-aches to those owners.... (or former owners in some instances). 3) a couple of experiences with Latin American currency devaluations (1982 & 1984), have given additional demand to the US Dollar, as a certain safe haven. Same thing for SE Asia in 1997. 4) the slow discovery of mismanagement in Japanese banks/insurance companies, triggering further weakness in the Yen. Making the Japanese typhoon..... a gentle breeze. To the point of realizing that "the emperor had no clothes...." In my eyes, yet another proof that free markets, and [I assume] honest dealings, seem to be the best medicine, against economic disease.... However, I could not give a specific number to the exchange rate, that is what markets do. imo. Please feel free to correct my faulty [and lengthy] thinking.