Many of the financial apocalypse crew believe the US dollar will crash for many of the reasons you probably already know like the various deficits and so forth.I've been in the dollar going lower camp for several years and believe it will continue lower for the most part but that it won't be a wild cascade lower.
This chart shows the decline of the US dollar over the last five years against the Canadian (in black), the British pound (the kind of the salmon colored line), the Swissi (in blue) and the Norwegian (the kind of brown line).
So the declines range from 20-30% over the five years studied which is substantial. The question is how important is this. Clearly the American way of life has not been dramatically impacted by this decline but an argument that says there has been some impact is probably valid.
My thought all along has been that this is a deterioration that will cause slightly higher interest rates, and have some effect on purchasing power along the lines of becoming a nuisance. The dollar is down what I would say is dramatically in the last five years and the extent to which it has become a nuisance thus far for the general public is not that easy to see. Based on that it is reasonable to wonder whether another 20% decline over the next 5 years will matter that all that much.
One tangible effect thus far could be on the price of energy. Obviously the run up in oil over the last few years has had less impact on people living in countries whose currencies have gone up against the greenback but in the US we are spending an extra $20-$25 per tank and more to heat our homes (this varies depending on what you use). For the most part this is nuisance for most people but I do concede this does hurt some portion of the population more than others.
In this light I think the probability of a truly calamitous event resulting from a dollar decline is low. Part of the equation is the extent to which the dollar is the world reserve currency. I have been saying for a couple of years that there is visibility, IMO, for the dollar to have to share the role but even sharing the role the dollar is still very important not only for the global commerce conducted in the dollar but also because so many countries sell us the stuff we need.
All of that said, nothing is impossible. In thinking about these things you need to sort out both probabilities and possibilities.
11 comments:
I basiclly agree with you for the dollar versus the euro and other european currencies, most or all of the fall in the dollar has already occurred. But, the dollar should continue to fall for quite some time versus developing countries such as china. This is especially true since they are currently manipulating exchange rates.
THe decline has been somewhat buttressed by the asians and energy exporters recycling their dollar revenues back into the dollar. My contention is that they will begin to slowly, but more consistently abstain from USD recycling and this will cause a quicker decline of our currency in the future. How about 20-30 percent over 3 years, not 5 years. What would be the impact then? I appreciate your moderate and realistic approach. However, I am an individual trader, that has been my only job and source of income for the last 18 years and I also must be prepared for the exogenous and unexpected. That being said, USD is at major support, and markets rarely go in straight lines. Countertrend rallies and reactions can be quite violent and extended. Love your blogs - appreciate your work, thoughts and time.
Scott K.
You guys need to study the plan for a North American Union. You seem oblivious to the plan for a One World Government.
The Amero is set to replace the US dollar, but the US dollar has to crash first, before this can be possible. This is the it way works in every country that has ever done this. Why all of sudden would the USA be immune to this same thing? Hyper-inflation of the US dollar, removal of the M3 report, war spending expected for decades. Who do you think is paying for all of that? The middle class in the USA.
The crash of the US dollar will also serve the purpose of obliterating the middle class in the US. The middle class in any society is the class that challenges the elite rulers in that society. Remove the middle class and the likelihood of One World Government and the NAU lasting for a very long time without sufficient challenge is greatly enhanced.
All of this has been planned for some time. Just ask David Rockefeller. He has talked about it publicly more than once.
Has the dollar already crashed? No way, Jose.
The Amero is set to replace the US dollar.
Is set really the right word? The euro was decades in the making. While a regional currency seems plausible at some point all of the parties need to want it before the multi decade process can even begin and you say set?
One day yes, before 2020? my hunch is no.
roger,
I happen to be looking at energy etfs and your post from a year ago popped up:
http://etf.seekingalpha.com/
article/12624
..the all etf port. What would be the return on this port, today? No kidding, my eyeball says that this is one great port. Can you revisit this one? I'm impressed by your vision of themes, mix of global vehicles, and selection of etf families. Powershares is looking better to me all the time for its dynamic value. More questions: can you post a chart of your port as an RR index?... is there a website that allows one to put in tickers and percentage weighting that lead to single price chart?...and, could you elaborate on the structure that you started a year ago? By the last question, I mean add selected etfs to the headings that you started with as ones with merit that potentially add value to that heading. As an example...would EWD/sweeden have a good correlation for industrial or EWN/netherlands have a good correlation for finances or EWA/austria be good for emerging(i'm thinking of russia)etc?
fortunately the portfolio was still in my morningstar account, lol, otherwise it would have taken quite a while to figure this out.
Morningstar charts it back to June 30, 2006. In that time it says that the portfolio was up 22.46%, slightly ahead of the S&P 500. You can click here to see the chart.
You will notice that it lagged last summer and outperformed during the q1 dip. If you look at the chart I believe that the R2 and Sharpe numbers would be decent but morningstar only has that info on about half of the funds so I can't say for sure.
also interesting to me is that client portfolios also lagged last summer and have outperformed this year. clients though get a much higher yield with the stocks they hold and of course there have been trades along the way for clients and none with this portfolio.
I agree with most of this column by Bill Gross: http://www.allianzinvestors.com/commentary/mgr_billGross06012007.jsp
Without substitution, without China artificially fixing their exchange, and without efficiency improvements, we would be feeling a lot of inflationary pain from the lower dollar. In the event, most of the pain is in the commodities that we can't easily substitute like food and energy (see chart 5).
which comes about because of the combo of the dollar as world reserve currency and china selling a bunch of stuff to us.
The govt's of both China and Japan (in different ways) choose (one elected to choose and one not) to defer consumer consumption in favor of commercial exports. People in the U.S. making longterm financial plans can't bank on those policies always remaining in place - look how far the Euro has come towards being an alternative currency standard in just one decade - I guess I like your intermediate term prognosis for the currency trader but not the financial planner!.
Btw I'm currently reading the book "Inside the House of Money" by Drobny which is super relevant to some of the currency issues you discuss.
In light of this colum what do you think of udn as safty valve?
UDN is tied to the dollar index which is about 57% in the euro. I prefer (and use) Australia and Sweden currencyshares because I think the diversification is better than the euro.
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