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Shattered Assumptions
Old 10-23-2008, 03:59 PM   #1
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Shattered Assumptions

Quote:
Dollar Roars Back As Global Debts Are Called In

"For six years the world has been borrowing dollars to bet on property, oil, metals, emerging markets, and every bubble in every corner of the globe.

This has been the dollar "carry trade", conducted on a huge scale with high leverage. Now the process has reversed abruptly as debt deflation - or "deleveraging" - engulfs world markets. The dollars must be repaid."
[Moderator edit, see also post #10]

http://www.telegraph.co.uk/finance/c...called-in.html
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Old 10-23-2008, 04:02 PM   #2
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Do you have an opinion on this? Or you just posting an internet article? Why does this interest you?
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Old 10-23-2008, 04:09 PM   #3
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So in other words, the dollar pendulum has swung the other way. To summarize - the dollar goes up, the dollar goes down. For us investors in the accumulation phase, it makes international investments even cheaper since our dollars buy more of their euros, yen, pesos, etc. Well, not yen exactly... Not yet anyway.
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Dollars and Sense
Old 10-23-2008, 04:32 PM   #4
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Dollars and Sense

I look to anomalies to help me understand what is happening or what just happened. If gold prices are dropping in a world full of fear and uncertainty I want to know the reason. Most would assume that the opposite would happen and look to gold as a safe haven.

I find if I can just understand what is happening I am a long way towards estimating what is likely to happen.

I then invest or divest accordingly. I spend a fair amount of time on this and have a library of books on the subject; The Black Swan is a recent example.

Every decade or so this pays off in a big way.

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Old 10-23-2008, 04:39 PM   #5
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Hmmm - even Bogle in recent years seemed to be drifting away from his most folks do not need foreign stocks(cause it adds unnecessary currency fluctuation to their portfolio).

And and it seems Vanguard drank the cool aid - charging into the future looking in the rear view mirror. Rejiggering my Target Retiremnt a tad - stockwise.

And I joined the party going young at heart Target 2015 instead of 2010 or 2005.

so he spake with egg on face.

heh heh heh - don't cha just love timing. .
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Old 10-23-2008, 04:54 PM   #6
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Quote:
Originally Posted by boont View Post
I look to anomalies to help me understand what is happening or what just happened. If gold prices are dropping in a world full of fear and uncertainty I want to know the reason.
b.
I'm not saying I have the answer - I can think of a couple
1. Profit taking by non US investors - gold is priced in dollars - a foreigner buys gold when dollar weak(ening) and sells it when dollar strong e.g. UK investor buys when $2 = 1 pound; sells $1.65 = 1 pound
2. Margin calls on other investments - sell gold to cover it.
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Old 10-23-2008, 05:19 PM   #7
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I have been saying for a while that the dollar was way undervalued especially against the Euro, but I would have never expected it to swing back so violently going up almost 27% in just a few months. The ECB is going to have to cut interest rates further, probably all the way down to 3% which will further bolster the dollar. Also, Americans and American institutions are cashing out of emerging markets equities and bonds (because they dropped the most this year), repatriating money home. The list of emerging markets in trouble is getting longer by the day (Argentina, Turkey, Hungary, Ukraine, Paskistan, etc...). So I am not adding to my international positions anymore. I think I'll have better entry points in the future... I can't wait to go shop for a condo in Europe in a few years!
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Old 10-23-2008, 06:06 PM   #8
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Are emerging market indexes affected by currency risk? (It sounds like it from the article, currency risk was something I wanted to study thoroughly before I invest international markets)

I would think they would be a really great buying oppurtunity sometime in the near future when they are have below average overall returns AND foreign currency is weaker than average.
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Old 10-23-2008, 06:55 PM   #9
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Are emerging market indexes affected by currency risk? (It sounds like it from the article, currency risk was something I wanted to study thoroughly before I invest international markets)

I would think they would be a really great buying oppurtunity sometime in the near future when they are have below average overall returns AND foreign currency is weaker than average.
Every time you invest abroad, there is a currency risk. Until recently the exchange rate trend of many emerging markets currencies worked in our favor, i.e. they were steadily strengthening against the dollar (Brazil, South Africa, Chile, Mexico, Russia, etc...) hence giving us that extra bit of return we all enjoyed in the past few years. But the tide has turned in the past 3 months and is now working against us. The dollar is strengthening rapidly against many emerging markets currencies and some have to take steps to shore up their currencies. The US$, for example, has gained 40% against the Brazilian Real since the end of July!

Another negative for many emerging markets: the implosion of commodity prices which used to represent a sizable share of their GDPs.

Also, as it turned out, we discovered that the money fueling growth in emerging countries came from the developed world. Now that we are in trouble ourselves, we are bound to see less capital flowing to developing countries. That will further put the break on growth.

This is my view on Emerging countries in general (you don't have to agree): Their economies still depend on us, the developed world, to consume and capitalize their growing economies. When we consume, they sell us more stuff and the price of commodities go up which works to their advantage. So before they can recover, we have to recover first and start consuming again. If you think, like I do, that it will take us maybe 2-3 years to recover, I am thinking that it will probably take emerging countries even longer. Between slowing growth and depreciating currencies, I don't think they look particularly cheap at the moment. But at some point, I think they will become very attractive again. When exactly, I don't know. But I am not buying right now. I am sure there are exceptions (China perhaps, whose currency is pretty stable and who can develop its own domestic market), so perhaps careful shopping could uncover some gems out there...
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Old 10-23-2008, 07:33 PM   #10
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