the US dollar actually *appreciates* against everything under the sun?
It doesn't last very long, but I'm trying to get my head around it. Can someone offer a semi-logical explanation?
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the US dollar actually *appreciates* against everything under the sun?
It doesn't last very long, but I'm trying to get my head around it. Can someone offer a semi-logical explanation?
Idiosynchracies of currency markets? Arbitrage?
The real question to ask is...Why do you care?
i) If you are an average Joe, exchange rates shouldn't really affect you that much
ii) If you are a currency trader speculating on a dollar fall and you have to ask this question, then you really don't know how to play this game and you should get out as soon as you can
There is a difference between Investing and Speculating. If you are speculating, you really need advanced and inside knowledge, quick thinking, sophisticated tools. Else you are going to lose your shirt
The average joe who walks or rides a bike doesn't care about the dollar's value.
Those who drive might have a different opinion though.
LOL this coming from a person who's "investing" with pro-American blinkers and continues to "cost average" Citibank shares.
I wish I did know about currency trading, but I'm happy to admit I don't. I never want to become a currency speculator because I actually like sleeping.
The reason I need to know is because I have substantial positions and real estate in the Hong Kong and China (where I actually know what I'm doing) and I'm therefore holding a lot of quasi-USD because the currencies are pegged and I'm forced to follow the currency markets to hedge against the currency risk.
Besides, everything is tied up to the USD. The performance of your SPX relative to the FTSE or ASX or Nikkei is inextricably linked to the performance of the USD. The value of BHP or Exxon is tied to the price of oil which is (still) quoted in USD.
Not officially, anymore. Seriously though, its arbitrage. If you are in "substantial positions in real estate in Hong Kong and China", none of this should matter unless you are planning to turn paper losses/gains into realized losses/gains. If that's the fact, then just wait it out. The dollar will drop again.
this is the paradox of a Pro-American investing bias. In terms of purchasing power, a rising DOW may still be losing value. There's just as much risk of loss, and no way to cost-effectively hedge against it except diversifying into 'real goods' or other investments denominated in rising currencies.Quote:
If your investments are so much tied to exchange rates, then you have to protect them by hedging.
In the long run, hedging lowers returns, but since your risk is larger, you have to buy the insurance
this is the paradox of a Pro-American investing bias. In terms of purchasing power, a rising DOW may still be losing value. There's just as much risk of loss, and no way to cost-effectively hedge against it except diversifying into 'real goods' or other investments denominated in rising currencies. Thus a falling DOW plus a falling dollar constitute a double whammy ... which will eat away at a whole lot of Joe Sixpack 401k / IRA accounts (which are essentially the only assets that Joe Sixpack has left)Quote:
If your investments are so much tied to exchange rates, then you have to protect them by hedging.
In the long run, hedging lowers returns, but since your risk is larger, you have to buy the insurance
As to Joe Sixpack, every gallon of gas he buys, every trip to the grocery store, every trip to WalMart etc. shows the effects of a falling US dollar exchange rate. Of course nobody explains this to Joe, who assumes that the rising prices in US dollars are due to the greed of local merchants.
Actually No. If your Investment Horizon is more than a Year, you don't need to hedge anything. Hedging is only for short term investments.
Just like insurance hedging is a suckers bet.
If you are an US investor, over the long run, 50% S&P 500, 20% International Stocks, 10% Bonds and 10% Small Cap will beat 95% of any other investments out there
Even if you are a speculator, *Now* is the perfect time to load up on US dollars. When Average Joes start thinking Dollar is going down, that is the perfect time to load up. Works all the time
^^^ hey all I can say is that, if you're convinced in your own financial 'model' of the US dollar then hey go for it. I hope it works out. In the meantime I'll be adding back to my gold holdings on dips.
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As to the reasons that the US dollar exchange rate makes short term moves, in general this has to do with central bank action by both the US Fed and by China / Japan / ECB / Russia. In the most recent case it probably had to do with the 'open microphone' fubar at the OPEC meeting, where the presidents of Iran and Venezuela were attempting to strongly pursuade the Saudis and other OPEC countries to start pricing oil in Euros instead of US Dollars.
Yesterday there appeared to be some 'flight to safety' action re purchase of US gov't bonds. Why people are buying US T's instead of German (Euro) Bunds is a question that I can't explain.
But with the US dollar now setting a fresh 'negative' record at 1.48 to the Euro, it would appear that the tide has turned yet again. Xan I hope that you didn't buy US dollars at the open !!!
PS if you grab a calculator and work out the percentage that the US dollar has dropped since yesterday, it is almost exactly equal to the percentage that the DOW has risen since yesterday.
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Dow has been falling in "real" terms (i.e. in price of gold) for a long time now, it has only risen in "nominal' terms (i.e. in the depreciating US dollar). Actually, DOW has never recovered in "real" terms since stock market crash of early 2000s. At some point the "nominal" price will meet the "real" price, when the investors relalise they their stock market gains did not translate into the gains when the purchasing power of their US dollar holdings is concerned.
I heard some time ago on CNBC (somebody slipped saying this) that the currency was no longer the dollar, but the barrel - of oil that is.
^^^ or the 1oz bar of gold ! ^^^
Why would you compare DOW in terms of Gold?. Gold prices are pure speculation. It has no underlying value to it
By your logic, Gold has been falling in "real" terms (i.e in price of Google stock)
S&P 500 has been falling in "real" terms for the past 30 years (i.e in price of Berkshire Hathaway stock)
Melonie,
I don't do currency trading. Unless you understand when a butterfly flaps its wings in China there is an earthquake in Brazil phenomenon, it is really risky to speculate
That only adds up to 90%. Where's the other 10%?
Edit to Add: I understand where you are coming from xan. MPT does state that proper asset allocation will account for 95% of portfolio success over a long time horizon. But you are way oversimpliying the matter. First of all, you are completely leaving out several important asset classes. What about mid-cap, commodities, and even real estate? What about bond sectors?
Also, would you really recommend such an asset alloc to a 60 year old about to retire with a low risk tolerance?
Finally, within asset allocation, there is much to be said about growth and value investing. Really, you keep repeating the same line, but there is nothing substantive about it. Who are you reading, Suze Orman? Where do you get your informatin
Typo. 20% US small.
If you want to master the Art of Cooking, you need to learn to boil water
Any newbie investor starting with a single pick (whether it is Gold, Real Estate, Stocks, Bonds, Currency) is a disaster waiting to happen.
To me Boiling the Water => 50/20/20/10 Asset Allocation (or some combination based on your taste) is a must. It is the best strategy for long term (> 25 years) and is the best strategy if you are saving monthly (which 98% of the investors are)
Once you have this plan in place, then you can go crazy with anything ( I would still suggest not to play with more than 5% of your Net worth)
Add to your edit: Investing is about repeating the same thing over and over again and not follow any trends. Thats why I repeat my posts.
I agree with your points about commodities, REITS, Value and others. But those are for people who already know how to boil an egg.
This is not Suzie Orman but
http://www.amazon.com/Intelligent-As...5673221&sr=8-1
^^^ another thing to consider is that investing is a 'zero sum' game i.e. for every winning investor there is also someone else on the other end of the trade that is a loser. The 'smart money' winning investors already assume that some percentage of Joe Sixpack investors will follow the 50/20/20/10 diversity plan, and arrange their own investment flows to assure that these investors wind up being the losers rather than themselves.
as to why anyone would want to compare the DOW to the price of gold, I agree that the 'powers that be' certainly don't want anyone to do this ... for obvious reasons !
if the link doesn't work you can go to stockcharts.com and plug in the information manually
Xan, here is the interview with Robert Precher, Elliot Wave Theorist. See the chart of the Dow in "real money' and here what he says about the "silent crash". You may not believe anything he says, but hey it's an opinion, right?
http://www.elliottwave.com/mediaroom....aspx?code=ann
(snip)"Here's the bottom line: Any finite resource is a ZSG. Even an infinite resource has only 100% of marketshare, to be divided amongst competitors. That percentage is also a ZSG.
Let's see how some of these zero sum issues apply to different areas:
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Markets: are probably the best example of a ZSG. In 2000, the Wishire 5000 was worth $1.2 trillion more than it is today. Some people bought, some people sold. Mark-to-market, there is a loss to the collective buyers from the collective sellers. Its even more specific with individual companies.
I short the SPX to you -- each tick is zero sum -- there's a winner and a loser.
Stocks that always go up and never go down are exempt from this; Please let me know as soon as you find any.
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Business: Marketshare is another example of zero sum: Consider all the ZSG losers who have seen their businesses hurt by the winners in competition: GM is losing to Toyota; DJ, NYT, WP, and Knight Ridder have been losing to Yahoo & Google; Sony PS is losing to MSFT XBox; Intel has been losing to AMD.
There are situations where the pie is expanding, but even there the ZSG works in percentage basis (not raw numbers). Google has been taking search share from Miscrosoft and Yahoo. But the entire pie has gotten so big so quickly that even the % share losers are still winning -- short term.
Increase in gasoline prices? When Exxon Mobil, BP Amoco and Conoco Philips win because Oil goes up, Wal-Mart and Target lose. Why? There's a finite amount of cash to be spent, and the more that goes to energy, the less there is for discretionary items. (If you have enough income, the increase is irrelevant to life style, but still comes out somewhere)."(snip)
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I can see the theoretical component. But if it were actually true, then wouldn't we all just be fucked from the get-go? We don't have access to all of the info that the "smart money" investors do. Is the average joe effectively fucked? What's the alternative?
^^^ you don't have to be smarter than the 'smart money' to be on the winning side ... only smarter than Joe Sixpack ! And lately thanks to US dollar devaluation, Joe Sixpack still thinks he's winning when he's actually losing, and keeps buying more and more stocks and bonds on a monthly basis thanks to his employer 401k !!! The 'tin foil hat' crowd will tell you that the 401k is the single biggest boon to the 'smart money' crowd that was ever invented.
Wow Melonie. With that one comment, you have lost a lot of credibility
Repeat after me. Stocks are not a Zero sum Game
Lets say you there is a basket of Index World500, which is the stock of 500 largest companies in the World
World 500 represents the Value of World Profits.
World Profits have grown in 'real' terms for the past 5000 years.
I'll repeat World Profits have grown in 'real' terms for the past 5000 years.
Anyone who buys World500 is not getting passed on a worthless piece of asset, but an asset that atleast will compensate for the Time Value of Money (the World's real interest rate).
World500 stocks are not Zero Sum Games. They grow with the profits of World
World Profits have grown in 'real' terms for the past 5000 years (which pretty much grows in line with real GDP growth)
But here's a basic rule that you should know
"Value can be created by using lesser Value raw materials"
If I cut your hair for $50 and it costs me $10, I've instantly created $40 real profit to be shared by all Mankind. I repeat this $40 was created new (in real terms) and is shared by all Mankind. (How is it shared is a different political debate), but the World grew wealthier by $40 by that one act
Lets take a look at Nirvana,
"Robots does all the work of humans; Robots creates other Robots, maintains them, produces food, entertainment, latest gadgets" In this scenario, no human being never needs to work and the Robots produce everything you need. This state is much wealthier than the current state we live in.
If we reach this state, the World would probably be a $5000 Trillion Dollar Economy (in todays dollars).
If you Invest in World500 today, when that state of Nirvana is reached, World500 would have increased around 50000%.
World500 stocks are not Zero Sum Games. They grow with the profits of World
Do you think mankind will be happy at this point of time? People who buy World500 at this Nirvana state will be suckers because it is a zero sum game (ZSG)?
Absolutely not.
Here's another stage of Nirvana,
Every Human being on this earth can create and own planets all by themselves, they can design their own planets and create anything they want. Since as a nation we are producing planets instead of homes (worth say $300 Trillion Dollars in todays dollars), you'd say the World GDP would be $300,000,000,000 Trillion Dollars or a 600,000,000,000% increase in your World500 from the previous Nirvana state.
World Profits have grown in 'real' terms for the past 5000 years and will continue to grow for the next 5000 years until such a point where every human beings are content and happy....That will be the day, I'll short World500
Investing in stocks is not a Zero sum game
Will there be turbulence to our path to Nirvana? Absolutely guaranteed. There may be years where stocks would lose value. But stocks loses value only because it is mispriced.
Investing in stocks is not a Zero sum game
yeah, but I'll be dead before nirvana if we ever get there.
I can't buy World500 and leave it for my great great great great grandchildren (I could but I don't want to). I want to maximize this lifetime's wealth. Specifically wealth that I can spend when I'm young >>> that which I can spend when I'm old 'cos I can do more right now.
Also, the growth of companies have already been priced into the shares. What is required is not that mankind makes profits, or even that these profits are growing. IT HAS TO GROW AT A FASTER RATE THAN WHAT IS IMPLIED BY THE PARTICULAR SHARE (OR INDEX).
In the short run at least it's a zero sum game. Someone with common sense would realize that we're not talking 100 year horizons here.