Follow Up To This Morning

Here is an email I received;

How much do these interest rate differentials factor in the timing of your purchases, once you have used your top-down approach to determine you want to be in one of these markets? Is it a significant factor or simply one of many equally weighted?

I think the question is of a short-term nature. Since I manage serious (defined as can't be earned back again) it is not appropriate to try to game the next few weeks for any aspect of portfolio implementation.

Longer term if I felt the dollar was going to get stronger I would hold back on some of the foreign, less of an overweight than it currently has. However my opinion is that the dollar has to get weaker. It seems like there are too many this is just how it works things going on to allow for prolonged dollar strength.

So I guess the answer is that it factors in bigger picture for client accounts. Since I don't think shorter term for clients or personally (clients don't need a portfolio manager that spends four hours a day trading his own account) I'm afraid I don't have a great answer.

Here is another;

roger, i was reading this blog: http://anothermoneyblog.blogspot.com and i asked the guy a few questions and wanted to ask you (since you're the other regular blog I read) do you think the trade deficit can lead to a dollar crash?

I take this as a question of probabilities.

After I concede that anything is possible I would say the probability of a dollar crash is low. That does not mean you shouldn't have a little gold because you should (be it stock, ETF, coins, whatever). Deficits carry big risks and clearly can create cracks in the dyke. The US has swung in and out of various deficits over its history and the worst case scenario in the last 100 years from what I'll just broadly refer to as excesses was the great depression ( fair enough if some thinks something else in that 100 year time period was worse).

The question feels like it has an apocalyptic tone to it so, if that is correct, a crash, an economic death blow that could be worse than the depression in terms of length and magnitude seems unlikely. There are too many efficiencies and market mechanisms to give this a high probability. As a matter of my own theories, as our economy becomes more mature (this is a perpetual thing I am talking about) the booms and busts will be less volatile and dramatic and may last longer than in the past. The much older European economy is perhaps a template.

A slow rolling over of the US economy as it cedes the role of the economic superpower to China or India (history would say it will be someone else's century, not ours) causing a general but prolonged weak dollar with below average market returns (maybe 6% on average vs 10%) seems more realistic to me.

So if you want your 10% returns in that environment you need to be prepared to learn more about foreign stock and commodities.