ladelfina
Thinks s/he gets paid by the post
- Joined
- Oct 18, 2005
- Messages
- 2,713
In Sept. '04, ShokWaveRider wrote this:
I certainly don't mean to whine.. but yeah, I'm "suffering". I wasn't 3+ years ago.. but I am getting to be concerned now.
I searched the forum for currency exchange rates and most all the discussions here I could quickly find were either short-term-based.. or assumed that the dollar would fluctuate within a modest range up/down, say, 10%.. (Billy/Akaisha- see same thread above -in no way giving them any grief nor any implication that I may have relied on that figure.. just an example of a 'reasonable guess'.).
I have tried to be sanguine (10% don't bother me none) but have begun to experience a more sharply-different reality living on dollars in the euro zone. I'd rather not continue paying (aside from high energy costs which are and were a given) $2.75/lb. for a generic whole chicken vs. 89 cents/lb., or $3.50 for 2 lightbulbs (in the US 4 similar for the 1/2 the price).. just to pick one "local" and one "made in China"-type basic item.
In the past, I'd consoled myself on two fronts: the (good) generally higher 'earning power' of the US market (a chimera?), and the (bad) higher complications, fees/bank expenses, and taxes of investing directly overseas, both reasons for which I never -stupidly, in hindsight- exchanged $ for € at the outset of this adventure. 2003-2006, it has been an OK trade-off.. but the chickens are coming home to roost, and exchanging dollars for euros is now more unpleasant a prospect than ever. (When you see a $50-75 random deduction on your EU-bank balance that says nothing more than "forfeit".. and that is NORMAL.. you may understand. When you pay online and get charged the same rate as an in-person teller money-order .. plus other crazy fees.. you do try to avoid the Italian banks or really ANY EU bank as much as you can help it.). My mistake. Forest for the trees and 20/20 hindsight.
In the context of this highly personal scenario, I don't expect anyone to have any brilliant advice.. BUT.. I want to understand currency movements better. Not fluctuations.. movements.
What I want to know from the geniuses here is WHAT happens to the "lost" money/value.. and will it always be "lost"? To the extent that it had been "there" (I understand this is not a given).. is it possible that it may just disappear? Does anyone have a good enough grasp of macroeconomics and economic history to guide me succinctly?
I break it down into two phases. I kinda get what happens in Phase I.
I wanna know what happens beyond that.
Phase I: a country is seen to have too much debt or other strife or instability or politically bad business climate --whatever. Its interest rates may be low, so its funds are less desireable to other countries and large corporate investors. The companies that make up this country's market may or may not be viable, and may even have significant increases in local-currency profitability and value, but their global worth goes down as the home country currency tanks. What profit they realize is now devalued.
Phase II: once this has been a steady state for a while.. does the discrepancy ever get made up, in part or in full? I'm familiar with some of the PPP (purchasing power parity) ideas featured in The Economist, for example, with their Big Mac index (which in Feb. '07 showed the euro 'overvalued' at about 20%.. this can only be much higher now: a revisiting in July pegged the euro Big Mac at +22%.
Not buying any Big Macs, I would personally rate basic foods and goods (ex. energy) at +50%-+100% of US prices currently, and more if you count white goods and clothing and other durables which can be 200-300%). I can understand the impact of higher energy costs in the rest of the chain, but these were as proportionally high in Italy in '04 as they are now. If anything, energy prices have NOT seen as sharp hikes recently as in the US (again the dollar valuation//devaluation at work, I imagine) so that portion should be less, not be the driving price-augmentation force.
We have all heard the histories of rampaging inflation in Germany and Argentina, with things out-of-control. What happened AFTER (ok...in Germany we kinda know).. but really, who wins and who loses in an out-measured peacetime inflation or hyper-inflation and its aftermath?
Even looking at the current day, Argentina's inflation rate is 9-10%. Its growth rate is similar. So is "inflation" there bad? good? normal? Where does the inflation "go" w/r/t the rest of the world? And, more important, does it ever "come back"? If someone invests in an Argentine company and gets 10% yield, paid out in dollars.. is that conceivably a loss in dollar terms (as the cycle comes 'round)? If the PPP is -22% does that mean the Argentine company has to realize a 30+% profit? This sounds like a dumb question, and I apologize!
I understand that the "yields" in emerging markets are, in many significant repects, only a reflection of the relative weakness or strength of the dollar (the question is, how much?). Is the friction/traction consumed in this ever really to be 'gained' (or only lost)?
In Sept. '04 (the time of ShokWaveRider's post) I had $600,000 USD. Now I have $1.2million USD. This is invested roughly 45% int'l. stocks, 35% US stocks (many w/int'l. market or exposure), 12% US bonds.. plus other crumbs. Which sounds great. SHOULD sound great. ...But a raw whole chicken costs me 300% more (not 200% more) than in the US today, so I am wondering HOW effectively I have LOST ground of 30-40% over 3-4 years (not even counting basic inflation) in spite of a nominal double-digit gain each year over that time.. and WHY... and whether it may be recuperated or whether it is lost to the ages. Do these things return to some 'norm' .. or do they 'stick', with the disparities lost/assimilated forever?
It's easy to talk of short-term currency fluctuations in the order of ±10%. In exchange rate terms.. I'm 'only' experiencing a currency "fluctuation" of the difference between $1.20 in 2004 and $1.50-almost now. I am not smart or dedicated enough to apply myself to how that reflects itself in PPP. What I have been EXPERIENCING appears coincidentally to be the sum of these two: the PPP at 20+% extra.. and the base exchange rate at 20%+ extra. Which leaves me with a tasty-sounding +100% increase over 4 years in dollar-denominated investments.. but a precipitous decline in real, purchasing, terms. Is this what Americans, in part, are facing? In the US, there is at least a buffer provided by goods purchased internally (the same or only proportionally more expensive according to US inflation) vs. imports (more expensive as the dollar continues its free-fall). To me, everything is as if it were a US "import" yet far worse.
Any thoughts? Thanks for bearing with me!
Again, I'm just a layperson with no econ. background so any/all insights welcome.
http://www.early-retirement.org/forums/showpost.php?p=278455&postcount=1How Low Will The GreenBack Go
The Greenback is really hurting me. Is anyone else suffering? Livinig abroard most of the time is getting more and more expensive. When I moved to Canada the Dollar was 1.55 CAN now is it 1.28, on $1m that equates to $270k loss. That is a house in my books. I do not even want to think about the Euro rates.
Will The Government ever stop spending more than they take in?? Or do we simply get poorer and poorer?
At this rate, the USA is going to go from one of the richest countries to one of the poorest. DOESN'T any one care? Or is all people vote for these days to do with Abortion, the ability to buy assault weapons, Who served under whom in the military 30 years ago and where, or other equally economically useless topics.
I certainly don't mean to whine.. but yeah, I'm "suffering". I wasn't 3+ years ago.. but I am getting to be concerned now.
I searched the forum for currency exchange rates and most all the discussions here I could quickly find were either short-term-based.. or assumed that the dollar would fluctuate within a modest range up/down, say, 10%.. (Billy/Akaisha- see same thread above -in no way giving them any grief nor any implication that I may have relied on that figure.. just an example of a 'reasonable guess'.).
I have tried to be sanguine (10% don't bother me none) but have begun to experience a more sharply-different reality living on dollars in the euro zone. I'd rather not continue paying (aside from high energy costs which are and were a given) $2.75/lb. for a generic whole chicken vs. 89 cents/lb., or $3.50 for 2 lightbulbs (in the US 4 similar for the 1/2 the price).. just to pick one "local" and one "made in China"-type basic item.
In the past, I'd consoled myself on two fronts: the (good) generally higher 'earning power' of the US market (a chimera?), and the (bad) higher complications, fees/bank expenses, and taxes of investing directly overseas, both reasons for which I never -stupidly, in hindsight- exchanged $ for € at the outset of this adventure. 2003-2006, it has been an OK trade-off.. but the chickens are coming home to roost, and exchanging dollars for euros is now more unpleasant a prospect than ever. (When you see a $50-75 random deduction on your EU-bank balance that says nothing more than "forfeit".. and that is NORMAL.. you may understand. When you pay online and get charged the same rate as an in-person teller money-order .. plus other crazy fees.. you do try to avoid the Italian banks or really ANY EU bank as much as you can help it.). My mistake. Forest for the trees and 20/20 hindsight.
In the context of this highly personal scenario, I don't expect anyone to have any brilliant advice.. BUT.. I want to understand currency movements better. Not fluctuations.. movements.
What I want to know from the geniuses here is WHAT happens to the "lost" money/value.. and will it always be "lost"? To the extent that it had been "there" (I understand this is not a given).. is it possible that it may just disappear? Does anyone have a good enough grasp of macroeconomics and economic history to guide me succinctly?
I break it down into two phases. I kinda get what happens in Phase I.
I wanna know what happens beyond that.
Phase I: a country is seen to have too much debt or other strife or instability or politically bad business climate --whatever. Its interest rates may be low, so its funds are less desireable to other countries and large corporate investors. The companies that make up this country's market may or may not be viable, and may even have significant increases in local-currency profitability and value, but their global worth goes down as the home country currency tanks. What profit they realize is now devalued.
Phase II: once this has been a steady state for a while.. does the discrepancy ever get made up, in part or in full? I'm familiar with some of the PPP (purchasing power parity) ideas featured in The Economist, for example, with their Big Mac index (which in Feb. '07 showed the euro 'overvalued' at about 20%.. this can only be much higher now: a revisiting in July pegged the euro Big Mac at +22%.
Not buying any Big Macs, I would personally rate basic foods and goods (ex. energy) at +50%-+100% of US prices currently, and more if you count white goods and clothing and other durables which can be 200-300%). I can understand the impact of higher energy costs in the rest of the chain, but these were as proportionally high in Italy in '04 as they are now. If anything, energy prices have NOT seen as sharp hikes recently as in the US (again the dollar valuation//devaluation at work, I imagine) so that portion should be less, not be the driving price-augmentation force.
We have all heard the histories of rampaging inflation in Germany and Argentina, with things out-of-control. What happened AFTER (ok...in Germany we kinda know).. but really, who wins and who loses in an out-measured peacetime inflation or hyper-inflation and its aftermath?
Even looking at the current day, Argentina's inflation rate is 9-10%. Its growth rate is similar. So is "inflation" there bad? good? normal? Where does the inflation "go" w/r/t the rest of the world? And, more important, does it ever "come back"? If someone invests in an Argentine company and gets 10% yield, paid out in dollars.. is that conceivably a loss in dollar terms (as the cycle comes 'round)? If the PPP is -22% does that mean the Argentine company has to realize a 30+% profit? This sounds like a dumb question, and I apologize!
I understand that the "yields" in emerging markets are, in many significant repects, only a reflection of the relative weakness or strength of the dollar (the question is, how much?). Is the friction/traction consumed in this ever really to be 'gained' (or only lost)?
In Sept. '04 (the time of ShokWaveRider's post) I had $600,000 USD. Now I have $1.2million USD. This is invested roughly 45% int'l. stocks, 35% US stocks (many w/int'l. market or exposure), 12% US bonds.. plus other crumbs. Which sounds great. SHOULD sound great. ...But a raw whole chicken costs me 300% more (not 200% more) than in the US today, so I am wondering HOW effectively I have LOST ground of 30-40% over 3-4 years (not even counting basic inflation) in spite of a nominal double-digit gain each year over that time.. and WHY... and whether it may be recuperated or whether it is lost to the ages. Do these things return to some 'norm' .. or do they 'stick', with the disparities lost/assimilated forever?
It's easy to talk of short-term currency fluctuations in the order of ±10%. In exchange rate terms.. I'm 'only' experiencing a currency "fluctuation" of the difference between $1.20 in 2004 and $1.50-almost now. I am not smart or dedicated enough to apply myself to how that reflects itself in PPP. What I have been EXPERIENCING appears coincidentally to be the sum of these two: the PPP at 20+% extra.. and the base exchange rate at 20%+ extra. Which leaves me with a tasty-sounding +100% increase over 4 years in dollar-denominated investments.. but a precipitous decline in real, purchasing, terms. Is this what Americans, in part, are facing? In the US, there is at least a buffer provided by goods purchased internally (the same or only proportionally more expensive according to US inflation) vs. imports (more expensive as the dollar continues its free-fall). To me, everything is as if it were a US "import" yet far worse.
Any thoughts? Thanks for bearing with me!
Again, I'm just a layperson with no econ. background so any/all insights welcome.
Last edited: