Double entendre.
Reader JackS asks;
Do you think that the Fed's obvious slant towards bailing out Wall Street instead of the dollar will cause further decline for the dollar next year?
While I am not sure bailing out Wall Street is priority one the dollar may not even be the fourth priority.
There are a lot of moving parts to this, some more important than others. Obviously a weak dollar does not matter for Americans buying goods and services in the US. Oof, that is pretty much what Bernanke said to congress and my hunch is he'd like to take that one back.
As far as where the dollar goes, I don't have a trader's answer. I have felt the dollar has been on a clear on obviously path lower for all sorts of reasons having to do with economics and less global demand in the future.
If that turns out to be correct there will be periods where the dollar has big rallies. This was the case for the first few months of 2004 and all of 2005. In 2005 the dollar rallied about 12.5%.
The way client portfolios are structured the weak dollar has been a big help but if the dollar has a counter trend rally the portfolio will lag. If you are heavy foreign, as I am, know that a dollar rally will hurt your performance.
This is not something I am worried about. Every portfolio is threatened by certain outcomes, a strong dollar is one of the threats to what I am doing. Knowing that ahead of time will make it easier for clients should it happen.
Candidly I do not know at what point the dollar decline becomes serious enough to become a topic of conversation for the Fed. The drop in the dollar thus far has not dominoed into a radically different inflation picture or so much faith being lost by our trading partners that it effect trade enough to alter US consumer's access to merchandise.
There are nasty implications for all of these things and more but from where I sit, trying to navigate the stock and bond markets (and that is probably where you sit too), there is no great need to quantify what will happen or when, if anything. What I think matters is understanding the argument for why the dollar may go down, deciding for yourself whether you believe it or not and then structure your portfolio accordingly.
From a portfolio standpoint being right about the magnitude of this sort of thing matters little if the portfolio decisions are wrong. It is easy for people to focus on the wrong thing--in this case correctly guessing the magnitude of some future event which is very complicated. Knowing that you will be better off owning foreign stocks if the dollar declines (picking direction, even if not easy, is easier than picking magnitude) is simpler and more important.
We got six or seven new inches of snow yesterday in about two hours. Roscoe was very pleased.
4 comments:
The following is off topic, but I don't know where else to post something funny with a financial planning theme and it fits with Roger's title.
From the blog of Agent Zero; NBA player Gilbert Arenas shows himself to be an astute financial planner...
Let’s Talk Contracts
I know a lot of people, you know, you hear about the Bulls team and why they’re losing because of their players entering free agency … You know, I want to say something to some of the young players out there in this game today. Especially somebody like Luol Deng who turned down that big contract. You don’t turn down $12 million. Period. That’s me, personally. I learned when I did my deal: Don’t look at other people’s money when you do your deal. Unfortunately, that’s what this league is about. They see a player that they think they’re better than, and then try to jump over them.
So now, Luol, you’re over here in a contract year and you’re not doing so well as a team. You get paid as a team. Now you’re going to be a free agent, and if you keep this up, that $12 million might not be on the table. So he turned down $12 million, Okafor said he wants Dwight Howard’s money … I mean, you ain’t Dwight Howard. It’s like them two had a discussion together about turning down the $12 million. Then Iguodala turned down $12 million … What is going on in the NBA? Iggy, you’re from Arizona, baby. You don’t turn down that much money. I don’t know who your agent is, but Agent Zero says you don’t turn down that $12 million.
I just don’t understand it. Then Varejao, he asked for $60 million and ends up with three years for $17 million. You could have got that contract last summer! You done missed 20 games of the season getting paid the same money you could have got last summer. For the deal you just signed, you could have got that this summer from the Cleveland Cavaliers without losing no basketball time. By the time you’re playing again and are ready back in your form, I’m going to be playing again! It’s a damn shame.
If I was they parents … Whooo! They would get some nice little butt whippings. Not trying to be funny here, but what’s the difference between 12 and 13 or 14? I mean, I know they’re all looking for max deals … but it’s like Charles Barkley says, max players put people in them seats. If you’re not putting people in them seats, you are not a max player.
If you average 15-16 points, you’re not a max player. It ain’t just about scoring, but I know Okafor is asking for Dwight’s money, but he’s doing what Dwight does. If you did what Dwight does, then that’s an argument, but you don’t. So don’t ask for Dwight money, $12,000,000 is what you get.
Same thing with Luol. I love the way Luol plays, but right now if you’re not better than Tayshaun and Carmelo and the best threes out there, if you aren’t valuable to your team like that … I mean he’s valuable to the Bulls, but not in the ways that those guys are. So, $12,000,000 is what you got.
Same thing with Iguodala. I know after A.I. left, you were supposed to be that No. 1 guy, but, the way he plays the game, he doesn’t have that. He’s not that type of player. He’s a second guy. An assistant coach told me a great story about him. When he was in Arizona, he said he was like 9-for-11 from the field and he apologized to the team for shooting 11 shots. From that day on, I just called him Scottie Pippen. He’s a Scottie Pippen type of player. A great, overall player. He’s your glue player. You need a superstar and then you need him. So $12 million is good for you. Nothing more and nothing less. Be happy with the $12 million.
With me, everybody was like “Oh, they overpaid!” And then two years later it was like, “Oh, they underpaid!” No! At the time, that’s what they offered me and that’s what I took. So if I become a four or five-time All-Star after that, hey, I wasn’t underpaid. At the time, that’s what I was worth. I might have increased my value since then, but at the time, that’s what I was worth.
At this time, $12 million is what they’re all worth. Nothing more and nothing less. Same thing with Ben Wallace when he got paid his $60 million through four years. At that time, at that moment, that summer, he was worth that. I’m not saying that’s what he’s worth now, but at the time he signed, that’s what he was worth.
This is where when keeping it real goes wrong. Sometimes holding out is for the good, sometimes it backfires which is happening now to some players. This year has been the weirdest year I’ve ever seen with Matt Barnes signing a one-year deal, with Pietrus – who did well – signing a one-year deal and then I don’t know if you all even know this, when Jameer Nelson went at Devin Harris and said, “I should be getting paid like Devin Harris, what does he do?” At the end of the day, Devin Harris got paid what Dallas wanted to give him. That’s not Devin Harris’ fault. Don’t blame Devin Harris.
That’s what players don’t understand. You’re sitting there worrying about what somebody else is getting and you end up not seeing what’s in front of you and you’re going to be mad at the end of the day.
What’s the difference between 12 and 13 or 14? I know it’s $1 million, that’s a lot of money, but if you’re sitting there asking for 13-14 and they offer you 12 and you say, “No” then next summer you get offered, 10 or nine, now you’re going to be looking back like Joe Smith. He would never ever get that money back when he turned down that $90 million from Golden State. Y’all got to start looking at these people man. Sprewell, he turned down $21 million. I think he’s still holding out!
People don’t realize, these people do exist.
Samaki Walker – I played with Samaki. He told me the story. He turned down the money in Dallas because he was looking at all these other people getting paid. There’s all these other people getting max deals and he’s thinking, “Man, I was killing for Dallas so I wanted to hold out and then I end up signing a $3 million deal, got traded to the Lakers where I’m sitting behind Shaq, from there I came over here as a free agent.” He never made that money back. He ended up losing $40-some million.
You never know what’s going to happen. Nothing is guaranteed. I’m talking to three players that are trying to get $12 million and I gave you three examples of players who lost a total of almost $200 million. One lost $90 million and he ended up signing a $20-something million deal – Joe Smith. Samaki lost $40-something million and ended up signing a total of $8 million and Sprewell turned down $21 million.
The person who taught me that lesson was Jay-Z in one of his songs, “Where is the Love?” It’s something funny like, “I don’t (bleep) what you eat” or “What you eat don’t make me (bleep).” That’s basically the same thing I think.
It ain’t about just Iggy, Deng and Emeka, it’s about everyone. It’s about all young players out there who are going into negotiating and who are be going to do it in the future. If somebody offers you $12 million and you think you’re worth more than that, somebody should punch you in your face if you turn down that money. What if you get hurt and you can’t play basketball again? You just lost $60 million. You just threw away a great lottery ticket. That’s what people don’t understand.
http://my.nba.com/forum.jspa?forumID=400032200
Roger.
I was also sort of wondering if certain Middle East countries and possibly China might consider the Euro as their reserve currency and how would that impact our markets?
And also as this article states: "As the dollar loses value, U.S. stocks lose value."
http://tinyurl.com/yuyn2k
I wonder why no one cares about this?
JackS
I have been writing about this sort of thing, visibility for the dollar to at least have to share it world reserve status, since 2004.
This, I believe has been playing out slowly for a couple of years and i think will continue to play out slowly over the next few years or longer.
jacks,
you, probably quite properly, wonder why other people don't seem to care about this.
my perception is that numerous financial people care seriously about the eroding value of the dollar. the media, as usual, probably won't turn up the volume on this issue until some type of crisis occurs. my guess as to the "crisis" would be an announcement from some major oil producing nation that they will hencforth accept euro for oil and, more importantly, price oil in euros. an alternative would be if china decides to peg the value of the yuan to the euro. since china now trades more with euroland than with the us, i think china could eventually reach a point where they tire of the united states exporting our inflation to them (in the form of currency deterioration). i'm not sure china would make any announcement that they will peg the yuan to the euro, but if they start telling certain parties that they want to be paid in euros rather than dollars for certain goods, that could spark crisis-like news as well.
if our trade deficits come down a lot (probably through recession), then we have to start to reverse our position on the dollar.
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