April 25, 2006

When this man talks, you should listen - here comes the dollar collapse

I know a lot of folks don't think the dollar's collapse effects them. They couldn't be more wrong. But like losing everything in the housing collapse, it'll just have to kick 'em in the head, then maybe they'll understand.

You have been warned. PIMCO's Bill Gross in his April report:

But with the U.S. Fed now almost done and the BOJ removing quantitative easing and threatening a tightening cycle of their own, the carry trade and importantly the existing level of the U.S. dollar vs. the Yen and almost all currencies is at risk.

As global real interest rates converge, the export potential of comparative economies should begin to dominate exchange values and it is there, of course, where the U.S. is so critically deficient.

Japan as we all know is an export powerhouse. Less well known is the ongoing ability of Germany as the center of Euroland to command global market share. The ascendancy of China’s production for export is of course unquestionable. That leaves the U.S. with its increasingly hollowed out manufacturing core as the near certain loser in currency valuations going forward. To be blunt, the dollar must go down as it loses its carry.


David said...

fully agree. That is why I trade currency to protect my financial assets against a declining dollar.

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desbear said...

A lot of central banks would like to lighten up on their dollar holdings.

A US attack on Iran with nuclear bunker-busters would give a lot of those people the cover they need to dump a few billion of those dollars....

If enough dumping occurred, the dollar could start into a powerful decline which would create a rationale for even more dollar dumping...

Before you know, we are back to double-digit interest rates.

And yet another serious screw-up for W.

twib said...

Silver lining regarding a weak dollar:

A weaker dollar will make US manufacturing more attractive, as it will become more expensive to outsource jobs overseas.

It will also encourage US manufacturing because foreign products will be more expensive to buy. This is why the US is clamoring for China to float its currency.


Taking that overseas vacation just got a lot more expensive.

Anonymous said...

"A weaker dollar will make US manufacturing more attractive, as it will become more expensive to outsource jobs overseas."

Utter nonsense. Stop watching CNBC and do some critical thinking of your own. Chindians make about 1/10 the wages Americans do..even if they cut the dollar in half the manufacturing base is not going to be rebuilt in the U.S.

Anonymous said...

Truth: Many major high-tech venture capitalists now are REFUSING to fund startup companies, unless at least half or more of their technical companies are *already* pre-outsourced. (almost always to China + India).

Not surprisingly a large fraction of the executives and managers of these companies are originally from China or India (as well as the venture capitalists themselves) and have many connections "back home" to make this easy.

autofx in Phx said...

The US dollar will be going down much more to be sure. But exactly how much and when is anyone's guess.

Those who think they're going to do well in the forex market, be very careful. This is the world's largest financial market and is teeming with sharks like never before. This includes those who promise you quick riches with "neural net" or simple indicate-based systems. As for forecasting based on fundamental or hybrid fundamental-technical analysis -- well, there are some good guys out there, but they aren't accessible to most people.

I'm a private forex trader and I use a high-frequency reactive-mechanical hedging technique. It's very sophisticated and took five dedicated trader-programmers to perfect.

If you aren't at least this savvy, you could get eaten alive.

Please be careful of promises of quick riches in the fx market!

autofx in Phx said...

indictor-based systems, sorry

desbear said...

A weaker dollar will make US manufacturing more attractive, as it will become more expensive to outsource jobs overseas.

What US manufacturing?

Our manufacturing sector is hollowed out and dying a slow death...

Anonymous said...

That's a basic misconception - manufacturing has grown as a percentage of overall GDP (compared with service) in the last few years.