Posts Tagged The United States Dollar

Either the prospect of a stabilizing and recovering world economy or the prospect of rising interest rates in the USA are supporting the dollar. Effectively, the dollar rallied a bit as gold declined a bit. The dollar touched a three-month high against the currencies of major U.S. trading partners as the Federal Reserve said the economy improved while reiterating it will keep borrowing costs low for an “extended period.”

What does this mean? Nothing. Our investors are long term and CR Capital´s long term assessment is that the dollar will either devalue abruptly at some point as its position as the world´s reserve currency slips or gradually but it will continue to devalue because of the macroeconomic situation, most notably US federal debt. We recommend “cost averaging” slowly out of dollar and into a basket of competing hard currencies, most notably the Euro. Remember, we sit on cash as a mechanism to store value that is waiting to be cost averaged into emerging market equities. Cash and short term deposits are not the investment per say but the storer of value. The dollar is a long term declining storer of that value which is why we cost average away from it.

http://www.bloomberg.com/apps/news?pid=20601087&sid=asvIculEQsI0&pos=5

Long term vision will appreciate your capital over the next 3,.5,7 and 10 years.  Stay the course with discipline and patience.

This is a fantastic insight from Buttonwood’s and I post it verbatim because it is an excellent articulation of why the US dollar is “all hat and no cattle”.  Folks, the fat lady is getting ready to sing.

                         THE Wall Street Journal has a story today about the attempts of some emerging countries to prevent their currencies from rising too fast against the dollar. And it refers to the ritual statements from Tim Geithner, the Treasury secretary, about the administration’s belief in a strong dollar.

Yeah, right. I have a “strong man” policy under which I intend to become world heavweight champion. I’m just not planning to do anything about it, like train or fight someone. When Geithner told Chinese students that America was safeguarding the value of China’s investments in Treasury bonds, they laughed.

I’ve always liked the Texan phrase “All hat and no cattle” referring to a rancher who exaggerates his wealth; in Britain, the equivalent would be “All mouth and no trousers”. What, apart from talk, will America do to support its currency?

Raise interest rates? Well, that’s not up to Geithner but to the Fed, which is talking of an extended period of low rates. Raise taxes and cut spending to slash the deficit? Not going to happen anytime soon. Intervene to boost the dollar? That would involve the Fed in yet more meddling in the market, which might be politically unpopular, especially as Congress thinks the dollar is too strong against the Chinese currency.

Gold’s rise (and there’s more on this in this week’s column) is in part driven by the conviction that the Americans can and will do nothing to support their currency.

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Offshore Banking

What a joke. More Lip Service out of the White House Light Weight.
Treasury Secretary Timothy F. Geithner offered fresh reassurances to Asian nations that the Obama administration was committed to a strong dollar and to actions aimed at bolstering its value.  The Treasury secretary Timothy F. Geithner at a news conference during the APEC summit meeting in Singapore on Thursday.
Geithner at APEC meeting (CNBC) “It’s very important to the United States that we have a strong dollar,” he said at a news conference at the Asia-Pacific Economic Cooperation forum, or APEC, in Singapore on Thursday.
http://www.nytimes.com/2009/11/13/business/economy/13geithner.html?_r=1&hpw

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Private Banking

The question is not if, but when. There is a big debate about whether risk aversion or supply and demand or a weak yuan or low interest rates or quantitative easing are pulling the dollar down and threatening its status as the world’s reserve currency. CR Capital acknowledges that those may all be factors but the elephant in the room is that the United States is heavily in debt to foreign countries and is failing to control the expansion of the federal defecit. An alternative to the US dollars command as the world’s reserve currency will appear. The question is simply what and when. There is no reason to panic but there is a reason to plan.

http://www.usdebtclock.org/
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Family Office

The dollar may drop to 50 yen next year and eventually lose its role as the global reserve currency, Sumitomo Mitsui Banking Corp.’s chief strategist said, citing trading patterns and a likely double dip in the U.S. economy.  “The U.S. economy will deteriorate into 2011 as the effects of excess consumption and the financial bubble linger,” said Daisuke Uno at Sumitomo Mitsui, a unit of Japan’s third- biggest bank. “The dollar’s fall won’t stop until there’s a change to the global currency system.”
http://www.bloomberg.com/apps/news?pid=20601109&sid=a_A5nqmw9Dq8
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Swiss Banking

We continue to struggle to convince our clients that there is little time to waste to begin diversifying cash positions and short term fixed income like time deposits into competing hard currencies.  We are also recommending picking up shares in foreign currencies and not just ADR’s on the NYSE.   The signals continue to intensify that the world’s Central Banks as well as investors are taking seriously the notion that the US dollar will cease to be the premier reserve currency. Central banks flush with record reserves are increasingly snubbing dollars in favor of euros and yen, further pressuring the greenback after its biggest two- quarter rout in almost two decades.

Policy makers boosted foreign currency holdings by $413 billion last quarter, the most since at least 2003, to $7.3 trillion, according to data compiled by Bloomberg. Nations reporting currency breakdowns put 63 percent of the new cash into euros and yen in April, May and June, the latest Barclays Capital data show. That’s the highest percentage in any quarter with more than an $80 billion increase.
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Family Office

http://www.bloomberg.com/apps/news?pid=20601087&sid=aA6_py_71g_o

This NY Times article reads like a flack paper against the dollar. It’s a laundry list and is a depressing read for asset holders in dollar. Usually, when everyone starts talking about something too much then the concerns are overblown, but the reserve currency debate and the fears around economic growth in the USA as well as federal debts have a lot of folks scratching their heads.  This notion that China, France, Japan and Russia were in secret talks with Persian Gulf countries to abandon the dollar for international trade in oil and replace it with a basket of currencies plus gold just adds to the panic.  My advice to clients is to take it slow but maybe we’ll start holding a few more cash reserves in Euro currency deposits than I earlier expected.

Ironically, one of the most read articles profiled next to this one on the melting dollar is called “understanding the anxious mind” 

http://www.nytimes.com/2009/10/07/business/07markets.html?_r=1&hp

Dollar Anxiety

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International Equity Advisors

The US has a “special responsibility” to have a strong dollar says Giethner. That special responsibility is to maintain the role as banker to the worlds Central Banks by being the reserve currecy as well as the Alpha Consumer in Chief buying the world’s products. But US debts, trade deficits and China’s role as the purchaser of Treasuries will change that. Unless, Congress finds the will to pay down the federal deficit, the dollar will decline. In other words, the dollar will decline.
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International Investment Advisors
http://www.bloomberg.com/apps/news?pid=20601087&sid=a9yx4QgrOPSk

Pasó la fiebre por el dólar: no sólo dejó de subir sino que baja
Por la menor expectativa de devaluación, cayó a $ 3,85; la venta en bancos, en el nivel más bajo en 2 años
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Wealth Management

Warren Buffett sounded the bell and now everyone ringing it. The dollar will weaken and the U.S. risks seeing a crash of the currency unless it does more to control the deficit and reduce debt, said New York University Professor Nouriel Roubini, who predicted the financial crisis.

“If markets were to believe, and I’m not saying it’s likely, that inflation is going to be the route that the U.S. is going to take to resolve this problem, then you could have a crash of the value of the dollar,” Roubini said in an interview today in Cernobbio, Italy. “The value of the dollar over time has to fall on a trade-weighted basis, but not necessarily relative to euro and yen.”

Roubini said he didn’t see a risk of a dollar crash in the “‘short term.”

It is interesting to note that Roubini says to not panic in the “short term” and CR Capital Advisors agrees which is why we are recommending that our clients slowly diversify out of the dollar through cost average. Do not stampede to the exit door but begin to think of the dollar as one of the stores of wealth.  Also, notice that she implies the Euro and the Yen are not the only options to diversify away from the dollar.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a.SW_71xPhjA

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Asset Protection