Outlook for USD

[rtforu]

I have always believed that the USD would someday make a comeback however I am starting to have doubts. I listened to a web interview with Warren Buffet the other day, I know that trying to predict the direction of currencies is difficult but I reckon a guy like Buffet would probably be better at it than most.

Anyway, he thinks the USD dollar will decline further over the longer term and will be worth substantially less in 10 years time. Bad news for people not planning to retire in HK or USA.

[hongkongfooey]

Could somebody explain to me again why the hell we are tied to the US dollar and not RMB :mad:
404, NC :confused:

[Numero Crunchero]

The HKD is fully convertible whereas the Yuan is not so these two currencies cannot be pegged at the moment. Whilst China is acting more and more like a capitalistic society on a personal enterprise level, it is still a communist country at the national political level. The Chinese government is reluctant to forgo control of capital flows to foreign interests. Many financial 'experts' suggest the Yuan will be fully convertible in the next 2-3 years at which point it seems to make no sense having the HKD pegged whilst the Yuan floats!


I am sure 404 will give a better answer;-)

By the way, I remember seeing a study on FOREX forecasts made by market professionals - they were wrong just over 50% of the time. But I must admit to putting more weight on the Oracle of Omahas' missives!

[Arfur Dent]

Isn't that 'Sage of Omaha' ?

[willnotcomply]

It is the "Oracle of Omaha".

[Shep69]

The USD will fall until the Fed decides to stop printing up $ to cover private and public debt--9 trillion and going up on just the public side--and the U.S. develops currently available energy resources which are independent from oil.

Then it will climb again.

[On the beach]

It's to be hoped that OPEC don't decide to price oil in Euros rather than $$s, which is a distinct possibility.

On the beach

[AAIGUY]

Look , it's this simple (note.. I have been buying gold since 600/oz)

US is PRINTING money secretly. They used to have to publish what was called M3 ( the amount of new currency produced). About 4 years ago (GULF WAR 2??? coincidence?) they stopped.

Now they have to pay for War et all on a decreasing tax base. They have reduced interest rates as much as possible, still cannot support dollar.

Dollar is soon to be worthless internationally. Not being alarmist, but simply you need to understand what has occurred. Expect HKD to depart peg within 24 months.

[Frogman1484]

expect a widening of the peg before that or we will have double digit inflation with an asset bubble, just like 1997 Asian Crisis!!

[rtforu]

AAI, you are correct. As Buffett put's it, The US is forcing 2 Bill a day down the throat of the rest of the world! You can't keep doing that and not expect a devaluation of the currency.

[On the beach]

Or as Bush will probably say:

:D "Yesterday we stood on the edge of the abyss. Today we took a giant step forward" :D

On the beach

[404 Titan]

hongkongfooey

Sorry for taking so long to reply. As Numero Crunchero has said the HKD isn't pegged to the RMB and won't be for the short - medium term ie + 5 years because the RMB isn't fully convertable ie there are restrictions on its conversion to other currencies.

While I am not always right, my current view on the USD hasn't changed from earlier in the year. I remain slightly bearish for the short term but in the medium - long term I remain bullish.

[Arrowhead]

Initially this is all about the direction of interest rates. The US cut rates aggressively, and so its currency slumped. The UK cut a little, and so has largely held ground with the USD recently. The ECB has maintained rates, so teh EUR has strengthened.

But the US has recently signalled that it has cut as much as it can, given inflation. However the UK has said the same and so has the ECB. So it looks like everyone's interst rates will stay the same for a while, and so exchange rates should too.

BUT this is also about economics. With the USD at a record low, its export machine will go into overdrive. If the dollar slips 50% then people stop buying Airbus and they start buying Boeing. Billions of dollars worth, and more than the US can ever print. So their economy starts to warm up (relatively speaking), making space for rate increases - well thats the theory anyway. Also the US will not have a war-mongering president (and oil import bill) for much longer.

My guess is things stabilise here for a year or so, and then the USD gains ground as its economy is first out of "recession" and it raises rates first. Very interesting that it seems to have hit its limit at 2.05 to the GBP, and may havew stalled at 1.55-1.60 to the Euro.

Just dont put your savings into a bank that is likely to go bankrupt.

[rtforu]

The interesting thing here is cross rates. The direction of the USD dollar in relation to certain currencies can be driven by totally different factors it seems, a good example would be USD/EURO as opposed to USD/AUD. Interest rate splits are probably driving the former and commodities the latter.

I can probably see the USD gaining on the Euro over time and maybe the Pound but I'm not so sure it will make much gain on the Canadian and Aussi.

[Kitsune]

The big difference between the Fed and the UK/EU banks is their remit. The UK/EU bank rates are set, specifically in the UK and generally in the EU, to target INFLATION. The Feds remit is to ensure GROWTH. With this fundamental disparity the US interest rate, and hence the currency will generally be below the £ or Euro.

In my time the HK$ has varied between 8.8 and nearly 16 to the £......... :cool:

[404 Titan]

rtforu

You know a famous investor by the name of Warren Buffet was once quoted as saying, “For every bubble there is a pin waiting to prick it”. The resources boom is no different to any other bubble in history, it will burst. If the world economy goes into decline with rising interest rates globally, it will burst before you know it.

Kitsune

There is actually concern amongst some senior economists that central banks that target inflation rather than growth could be leading their economies to disaster, especially when the inflation is imported like it is in Australia and Europe. While the central banks are fighting inflation that they really have no control over, their economies fall into a deep recession. It has only been in the last 30 years that some central banks around the world have been tasked with targeting inflation within a certain band. It is only a matter of time before it will be proven to be the failing fad it has become.

[rtforu]

Yes 404, I'm sure the bubble will burst but not anytime soon. I'm not sure I agree that this bubble is like all the rest. For instance, I couldn't see this boom as being similar to the dot com bubble. Given the demand from China and india I can see this cycle lasting for some years. While that is the case I can't see commodity based currencies reducing in value.

I hope I'm wrong!

[404 Titan]

rtforu

Strictly from an economic point of view when someone says “but this time it is different”, the hairs go up on the back of my neck. There is absolutely no difference with this bubble compared to all the bubbles that preceded it in history. It is also worth pointing out that prior to the Dot.com bubble in 2000, people were also saying “but this time it is different”. Look around you. The clouds are forming to produce the perfect storm.

[kluge]

Anyone care to suggest to some scenarios other than keeping funds in HKD and opportunities/threats to each.

That would be food for thought.

[Arrowhead]

I certainly would not keep my savings in HKD. 3% no thanks.

1) RMB for the currency appreciation (no brainer)
2) your home currency becuase it is just that - and GBP, NZD, AUD all offer good rates - nationwide intl in the UK offer 6.6% and is fairly "safe"

Just dont leave it in HKD or USD since the currency appreciation is far from guaranteed meanwhile the rate is pitiful.

[404 Titan]

Arrowhead

You can do a lot better than bank deposits. It doesn’t matter what the currency, that would be the last place I would put the bulk of my money. In addition, to get a decent rate most want you to lock your money away with them for more than 12 months. Are you confident that the Euro, AUD and NZD will still be appreciating against the USD in 12 months? Have a look for example at what has happened with the NZD to the HKD/USD in the last 3.5 months alone. It has declined in value by 7.3%. Here’s some interesting facts about what has happened to the five high yielding currencies (AUD, NZD, GBP, CAD and EUR) I track on and have been trading in, in the last three years:

AUD
From the 29-3-06 to 7-6-08 it has appreciated 37.28% to the HKD/USD.

NZD
From the 28-6-06 to 27-2-08 it has appreciated 37.83% to the HKD/USD.
From the 27-2-08 to 11-6-08 it has depreciated 7.3% to the HKD/USD.

GBP
From the 28-11-05 to 8-11-07 it has appreciated 25.18% to the HKD/USD.
From the 8-11-07 to 11-6-08 it has depreciated 6.19% to the HKD/USD.

CAD
From the 13-6-05 to 7-11-07 it has appreciated 36.7% to the HKD/USD.
From the 7-11-07 to 11-6-08 it has depreciated 9.5% to the HKD/USD.

EUR
From the 16-11-05 to 22-4-08 it has appreciated 37.63% to the HKD/USD.
From the 22-4-08 to 11-6-08 it has depreciated 2.5% to the HKD/USD.

With the exception of the AUD it is quite clear to me that the HKD/USD has probably turned the corner with the rest. I’m not going to tell you what to do with your money but these numbers speak for themselves don’t you think?

[boocs]

Thanks 404, that's very interesting to see the comparison, especially now since most have started going the other way. Many thanks.

b.

[kluge]

404 Titan - hence my previous question.

There don't appear to be a lot of "cash equivalent" investments that I am aware of in HK that offer decent returns for acceptable levels of liquidity and volatility. If you are aware of some please do share.

[404 Titan]

kluge

Always remember: High returns = High risk.

Again I am not going to advise you per say on what is the best returning investment but if you have had your money in HKD for the last seven months or so, you have just made up to 9.5% without trying, well at least on paper you have. By working the currency market you could have doubled that return.:ok:

[kluge]

404 - thx for reply. Not asking for investment advice per se. Please bear with me as I do invest myself.

I am always on the look out, as I'm sure you are, for investments across all the four asset classes that meet my personal investment criteria for liquidity, safety of principle, ROR and any tax advantage that may ensue.

In HK the "cash equivalent" asset class products of structured notes and others are limited (the buy-in amounts are generally not a problem for me).

I am interested in hearing of "leads" that I can do my own research against and make my own decision whether to invest or not, eg would you know who I can buy the Vanguard S&P 500 tracking fund through in HK ? It seems that I can't do it via HSBC Premier or their offshore investment house.

I see a lot of value in that type of information exchange via this thread. And it could be educational for those lurkers who wish to learn about investing.

I've found that the most difficult thing to find is good advice (by which I mean "leads" for research) from the right advisors NOT sales people - who generally pedal the diversified mutual fund/quarterly asset rebalancing twaddle. I recall from seeing past postings of yours that you are aware of the FSI b/s and pitfalls.

For yourself, I've had good success with this:
http://www.moneymanagement.com.au/Articles/Select-Gottex-hedge-funds-top-Morningstar-ratings_0c041330.html

As a rule I don't buy into hedge funds because of their high costs. However this one has been good to me over the last 5 yrs, cost structure is attractive and liquidity high.

[Truckmasters]

http://www.sharecafe.com.au/cafetake.asp?a=AV&ai=9012

Another interesting commentary on the future of the USD etc

[GlueBall]

Why don't you take a look at the Fortune-500 directory and count how many of the world's biggest corporations are USA [USD based] companies. Individual, private companies like Wal-Mart, Exxon-Mobil . . . that have operating revenues exceeding GDPs of many countries.

Or look around where you live and count the number of USA companies doing business in your neighborhood: Starbucks, KFC, McDonald's . . . Google, Microsoft, GE, P&W, HP, Ford, GM. . . .

And you are worried about the long term prognosis of the all mighty U.S. Dollar?

Once upon a time there was "Pax Romana" the Roman Empire. Today it's "Pax Americana," it's today's only super power, financially, militarily, economically, culturally. Until that status changes, [it may someday, but not in our lifetime] . . . the U.S. Dollar rules! Like it or not. :ooh:

[CXtreme]

CULTURALLY ??????

If Hip Hop, Gangster Rap and Mexican Gangs is a culture then maybe.

We all spend time in North America , get out the hotel and see the "culture" around!!

Yes they are a super power, pity all the good american kids are in Iraq while the scumbag's and illegal's drain the social system.

Learn a lesson Brittan!

[GlueBall]

CXtreme: I don't live anywhere near the USA, but I am paid in USD, I fly airplanes made in USA, my jeppesen charts are product of USA, I navigate off American GPS satellites, my laptop computer is product of USA, its operating system is product of USA; I use Google, U-Tube, Yahoo, VISA and Mastercard and American Express; . . . more than 50% of all movies shown on my TV are made in USA, more than 50% of all music I hear worldwide is from American artists, I see more people wearing "jeans" than any other garment, I see more American restaurants worldwide than any other . . . . it's part of American arts, customs and intellectual achievements; It's American influence called: Culture. :rolleyes:

[filejw]

Pretty simple really, as soon as the next President gets us out of Iraq and its trillions of USD expense our currency will climb in value again.

[411A]

404 and Glueball have their prognostication caps on correctly, and will be proven right, in the mid-long term.

Only the young and quite foolish count the US Dollar out, and further...commoditiy booms go bust, sooner or later.
Oil is not, by any stretch of the imagination, immune.

How do I know this?
For years and years I have traded commodities, and long before personal computers were available, I had manually drawn charts nine feet long...and I always made a profit (sometimes small, but nevertheless, a profit).

What I do not do however, is trade currency futures.
Currencies can be (and many times are) manipulated by governments, and can change direction in an instant...charts or no charts.