Yeah. It could.

But it's all a question of timing. I've been a dollar bear for two years or more. However, short term....

Adage oft learned the hard way: the market will remain irrational longer than you will remain solvent.

(Admitting that I find this irresistible): I'm long term bearish on the dollar, but I was bullish last year, and I'm neutral for the time being. I figure the next time to hedge against a largish (I figure there will be a series, with the last one being the worst) dollar decline will come sometime in the latter half of the year.
This presumes that the Chinese don't decide to institute a crawling peg that revalues their currency upward by a decent amount each - pick your period - month, quarter, year. That would be a good way of avoiding disruption. Maybe Snow should propose this to them?
Re Dubai and their dollar peg: always a bad idea to me. But you can't argue with success, and from the stuff I see posted here and elsewhere that place has been very successful.

dear ALL!!!,

could you please translate this for those unfortunate ones who are NOT finance geeks?

alf shukr,

--raf*

Pantom:

(Admitting that I find this irresistible): I'm long term bearish on the dollar, but I was bullish last year, and I'm neutral for the time being. I figure the next time to hedge against a largish (I figure there will be a series, with the last one being the worst) dollar decline will come sometime in the latter half of the year.

I agree. Flows seem to be sustaining the dollar for now. Of course in my exile to the dollarzone, I am now indifferent to that.

This presumes that the Chinese don't decide to institute a crawling peg that revalues their currency upward by a decent amount each - pick your period - month, quarter, year. That would be a good way of avoiding disruption. Maybe Snow should propose this to them?

I am sure they are aware of the concept of a crawling peg, but equally sure they have a "stability" bias towards current arrangements. A crawling peg would be a good idea, however.

Re Dubai and their dollar peg: always a bad idea to me. But you can't argue with success, and from the stuff I see posted here and elsewhere that place has been very successful.

Dubai is covering up a lot of original sin in a massive wash of liquidity.

Dollar peg for them, however, probably is almost irrelevant as their revenues (UAE rather) are almost all in dollars. It does tie Dubai specific service economy to the dollar, which may not be smart or useful to Dubai. However as much of their hinterland market is dollar tied - if by the wieght of exports alone - for Dubai this is probably not a serious issue as their competitiveness is all about overall efficiency relative to their neighbours in terms of regulation and laissez-faire.

Matthew:
Exactely.

The sheer weight of stupidity, ignorance or delusion can be overwhelming.

Maybe the herd of wilderbeasts really are running headlong to the abyss, but standing in front of the herd will still get you trampled in the immediate term.

Raf:
Google yield curves.

The issue is short term rates are rising above longer term rates, which is the opposite of normal behaviour. Typically longer term rates are higher as you should be compensated for added risk implied by time.

Raf -- This Daniel Gross article is a year old, but it's a good treatment on the subject for those of us who aren't finance geeks. His account is slightly doom and gloom, but here's a more skeptical take published around the same time for balance. For my part, it puts me in mind of astrology...

Raf* --

As the L has said, it means that short term government interest rates are higher than long term.

good rules to keep in mind: when bonds are more attractive, their prices go up, but the interest rate goes OPPOSITE the prices, so that the more in-demand a bond is, the LOWER the interest rate on that bond/type of loan gets.

an inverted curve can mean that the investor community does not see long term growth/stability as aggressive is buying more heavily into long term government bonds as security. Since short term government bonds are more sensitive to government policy, and long-term are more sensitive to economic forecast; it can mean that investors feel that the government is throttling the economy dangerously in order to slow it.

It also more practically means banks are probably going to tighten their lending. Banks make money by lending to us (savings account holders, CD holders) at a lower short term rates than they receive in their long term loans (business investment, mortgages). If the short term rates are high, they will not make money lending out on investment type loans while borrowing form the depositor (us) at shorter higher rates -- result: shrinking or slower-growing development, manufacture, employment, housing etc.

To China - it has an artificially low exchange rate, government made. This is to keep their products cheap and attractive. Outside pressure from competitors (inclding US manfuacturers and govt) is pushing them to raise value of the renminbi, their currency. They are complying only very slowly in spurts. Also, I believe that internal pressure will demand they increase their value -- increasingly successful Chinese want more and less expensive products for development and consumer use, eg petroleum and cement which will be overly high unless the currency is more powerfully valued.

When the value is increased, the dollar will necessarily drop, especially as CHina is becoming a force to be reckoned with. This may mean the selling of American and other financial assets by outside (including Chinese govt and private) investors. That can push a downturn in US financial markets inhibiting confidence, especially if done abruptly.

For MENA, in the midst of these currencies and trading powers, it can get rough.

I don't know and I am not afraid to say it. Actually, fear has nothing to do with it. I don't give a hoot.

Buy a well diversified portfolio and sleep well. Unless the alternative is something that you get off on.

For me I'd rather think about why people behave the way they do and how they interact. And think about the stupid things governments do. That's economics for me. Where's the profit in that? - psychic benefits.

Welcome John. Of course, stupid things governments do is merely stupid things other actors do writ larger and harder to correct.

And then in emerging markets, we can add on a whole bunch of other layers of madness.

It's why I like emerging markets and MENA specifically.

Not that the DPW madness isn't entertaining.

Matthew,

There's another side to the story: artificially low Chinese currency keeps dollar-based assets relatively valuable (relative to the Chinese currency) and worth investing in. If the value of the Chinese currency rises, the value of dollar-based assets take a big dip, Chinese have to unload their US bonds, and interests rates go sky high. Not something useful if you want to keep the deficit spending going the way this administration does.

Mmm. The signpost, as I have said to people IRL, is when US bond rates spike at the same time as the dollar heads south hard. That's the sign that it's all unraveling.
Exactly when that happens is of course unknowable.