Dollar headed lower?

[warlock5]

Speculative traders in Chicago last week racked up the highest number of long-euro, short-dollar contracts on record. Options traders have reported brisk business in euro calls - contracts to buy the euro at a pre-determined rate.

However, the market has been rife with rumours that the latest wave of selling has been led by foreign governments seeking to cut their exposure to US assets.

India and Russia have reportedly been selling US assets, as well as petrodollar-rich Middle Eastern investors.

China, which has $515bn of reserves, was also said to be selling dollars and buying Asian currencies in readiness to switch the renminbi's dollar peg to a basket arrangement, something Chinese officials have increasingly hinted at. Any re-allocation could push the dollar sharply lower and Treasury yields markedly higher.

http://news.ft.com/cms/s/257979a6-30...00e2511c8.html

Scary.

[reynold]

Most people think the dollar will sink way down.

[Sami]

It probably will too.

[nastyking]

very bad for us european guys

[warlock5]

Here is an even scarier article:

"So what is the cause of the low interest rates responsible for the current unsustainable situation?"

"The answer is the massive purchases of U.S. government bonds by Asian central banks, particularly the Bank of China and the Bank of Japan. During the first half of this year foreign central banks bought more than $201 billion of U.S. assets, $180 billion of which was U.S. government bonds. This means that foreign central banks financed more than 60% of the U.S. current account deficit and nearly the entire increase in government debt."

"It might seem strange that they are so interested in buying such low-yielding securities as U.S. government bonds. But the reason why they do it is because they want to avoid a sharp increase in the value of their currencies against the dollar, which would deal a heavy blow against their export industries."

"But this is in itself an unsustainable situation. Their increasing purchases of U.S. assets make them increasingly vulnerable to heavy losses if the dollar falls, but the increasing U.S. current account deficit forces them to increase their purchases to prevent their currencies from rising. The longer this unsustainable process is allowed to continue the heavier losses that will be inflicted on both sides."

"Only if either Asian countries accept a sharp appreciation of their currencies or if the U.S. adopts a much tighter monetary and/or fiscal policies can the situation be prevented from getting worse. But as both solutions would create temporary downturns in the world economy, it is doubtful that the politicians in either Asia or the United States will be willing to face up to them."

"The conclusion is that Alan Greenspan and George W. Bush did not prevent the stock market bubble of the late 1990s from turning into a crisis. They only postponed it."

full article - http://www.mises.org/fullstory.aspx?Id=1670

That article talks about real estate prices too.

I think being completely negative about investments is counterproductive, but I also believe people should make sure they are anticipating a bit of risk in real estate just as they would with the stock market.

I'm no expert, but I see two other things, besides the other articles, that are bad for real estate right not:

The first, and most obvious, is the interest rates. They are going to go higher and quite a few people won't be able to afford their mortgage payments.

The second, the growing number of retiring people who won't want or be able to live in large homes anymore. (in other words: retirement homes/apartments might be a smarter investment right now.)

Anyone else have any ideas about this? I can't be the only person thinking this way, there was someone recently who posted a picture of a very nice home that he had sold and added the comment that he suspected the housing market was going to go lower so he was "downgrading" on his next home purchase.

[Ramster]

I was at the bank earlier to transfer some money.

I got 1.1615 at my Canadian Bank. That is terrible!!!!!!!!!

[polish_aristocrat]

Originally posted by nastyking
very bad for us european guys

[sacX]

Originally posted by warlock5
Here is an even scarier article:

"So what is the cause of the low interest rates responsible for the current unsustainable situation?"

"The answer is the massive purchases of U.S. government bonds by Asian central banks, particularly the Bank of China and the Bank of Japan. During the first half of this year foreign central banks bought more than $201 billion of U.S. assets, $180 billion of which was U.S. government bonds. This means that foreign central banks financed more than 60% of the U.S. current account deficit and nearly the entire increase in government debt."

"It might seem strange that they are so interested in buying such low-yielding securities as U.S. government bonds. But the reason why they do it is because they want to avoid a sharp increase in the value of their currencies against the dollar, which would deal a heavy blow against their export industries."

"But this is in itself an unsustainable situation. Their increasing purchases of U.S. assets make them increasingly vulnerable to heavy losses if the dollar falls, but the increasing U.S. current account deficit forces them to increase their purchases to prevent their currencies from rising. The longer this unsustainable process is allowed to continue the heavier losses that will be inflicted on both sides."

"Only if either Asian countries accept a sharp appreciation of their currencies or if the U.S. adopts a much tighter monetary and/or fiscal policies can the situation be prevented from getting worse. But as both solutions would create temporary downturns in the world economy, it is doubtful that the politicians in either Asia or the United States will be willing to face up to them."

"The conclusion is that Alan Greenspan and George W. Bush did not prevent the stock market bubble of the late 1990s from turning into a crisis. They only postponed it."

full article - http://www.mises.org/fullstory.aspx?Id=1670

That article talks about real estate prices too.

I think being completely negative about investments is counterproductive, but I also believe people should make sure they are anticipating a bit of risk in real estate just as they would with the stock market.

I'm no expert, but I see two other things, besides the other articles, that are bad for real estate right not:

The first, and most obvious, is the interest rates. They are going to go higher and quite a few people won't be able to afford their mortgage payments.

The second, the growing number of retiring people who won't want or be able to live in large homes anymore. (in other words: retirement homes/apartments might be a smarter investment right now.)

Anyone else have any ideas about this? I can't be the only person thinking this way, there was someone recently who posted a picture of a very nice home that he had sold and added the comment that he suspected the housing market was going to go lower so he was "downgrading" on his next home purchase.

It's true that China and Japan have massive USD reserves, but it's unlikely they'd flood the market with these dollars as they'll shoot themselves in the foot in the process..

I notice though China have started making some noises about floating their currency and that would cause quite a bit depreciation in the USD, that would be a very bitter pill to swallow.

The US federal reserve would have to raise rates and stifle the economy and probably cause a bunch of bankcuptcies in the housing market. Then again that could be what the housing market needs.

[Vitasoy]

It sure as hell ain't heading up any time soon

[warlock5]

Well if Japan is any indication, the housing bubble will "slowly deflate" rather than burst. Either way, it won't be too pretty.

[Webmaster_Logic]

Originally posted by nastyking
very bad for us european guys

thats a fucked up sig