U.S. Dollar Facing Imminent Collapse
- The bottom line is that the U.S. dollar is going down. It will either go down in an orderly fashion as it has been or it could collapse as Reich has pointed
- The administration wants to get China’s cooperation in preventing a dollar collapse. U.S. dollar facing imminent collapse?
- We might see a global meltdown of theUS dollar or we controlled devaluation of the UScurrency: either way global economy is doomed.
or so people have been saying since the 1920s.
Those three articles are from Sep 2004, Dec 06 and Jun 2007 and as the timeline below shows I could have go on and on.
Time Line
Carrying on the Google promo from last week. The chart below is the time line for articles on collapse of the us dollar. Just as I alluded to on How to Spot Market Turning Points there are always going to be turning points and pundits will always call them. It it inevitable that the US dollar will cease being the world currency, there is a slim chance the USD will fail over the next twenty years and a good chance that within ten years that all will be looking great States side. (I think five years, but ten really improves my odds of being right.)
Times of stress inevitably buildup within large complex systems, this is one of those times for the USD and the US in general. Fear is being whipped up by the probability of a new ‘Global Currency’, how will the US deal with aging boomers, who has the balls or I should say equipment to turn in surpluses and debt.
What is more likely than a collapse is the USD bottoming and them regaining ground against EUR, AUD, JPN, CAD and so on with a few notable exceptions like the Yuan. As always, when is the question?
Related posts:
And what Forbes is reporting now http://www.forbes.com/2009/11/03/buffett-dollar-india-personal-finance-investing-ideas-gold-china.html
Buy Gold.
Hi Dean, you are right about the world is going to end with the USD down the toilet brigade. A stopped clock is right twice a day ! I am actually starting to feel a bit more bullish about the USD. I’ve been in 100% australian equities with no international exposure until recently. I munched on some SLF which is 50% Westfield and quite leveraged to the US economy. After a bad recession, I reckon there might be a bit of a rebound in retail activity at some stage.
That isn’t going to change the AUD-USD trend for awhile, but at some level, there’s always a snapback. And at some level, the USD is going to be good value. I reckon I’d start buying around 1.2 handle.
I can’t see how there can be any other reserve currency as long as the Yuan is pegged to the USD. I had a look at the chart for it and the peg has barely changed in the last 2 years, even though it’s supposed to be more floating. I think the Chinese want to keep it there. It did float down a bit from 8.25 over a few years prior to 2008.
I guess the US and China will be the main superpowers in the next 2 decades. What happens when the no.2 country in the world pegs it’s currency to the no.1 country (at arguably an articifially low rate for a decade) ? Is it good for either of them (arguably yes). Is it bad for everyone else (possibly). It means that everyone else’s currency appreciates more against the USD than if the peg is not there. Liquid asian currencies and AUD are used as proxies. Could it eventually overheat the Chinese economy (maybe). I think they are more worried about underactivity at the moment and can pull away the stimulus if things get too hot.
People talk about the Chinese real estate bubble. Property prices have appreciated over ? 1000% in the last 10 years. But then Average yearly income has gone up by about that too. Whatever can be said about the peg, their economy has done well out of it and they’ve learnt from the asian crissis that you have to hold a lot of forex reserves to protect against a run against the currency.
With a major snapback for AUD, I suspect it will occur when there is a hiccup in China or when the US starts raising rates and before the interest rate differential has reached a peak. I can’t see a reason for this in the near future though, so maybe we’ll float around the 1.0 handle for a while before going over that. That’s my conjecture, but not worth investing anything on.
Anyway, back to stocks Dean, would like your thoughts on TLS: given that TLS is :
1. technically still weak (50EMA still below 200EMA)
2. bill may reach parliament before year end
3. does not meet a fundamental criteria : rational competitors, the main competitor is the government who may behave in a crazy value destroying manner for the sector by rolling out billions of dollars worth of uneconomic fibre. They have also threatened crazy things such as to ex-appropriate TLS assets at below market value – why would they bother with all this if they were willing to pay anywhere near market value for it ???
4. It is good value in other ways but is not really a great company
- how much of your portfolio would you be willing to hold of TLS at current prices ?
I am thinking of waiting around till year end and topping up if it goes to 2.80
Another interesting tidbit that always amazed me was the correlation between AUD and gold (0.7-0.8). In terms of currency exposure, I think you can’t go wrong by remaining predominantly in the currency you have your obligations in.
For me there is no reason to get foreign currency or international investment exposure unless I have a very strong directional view that AUD will depreciate. At the end of the day, I intend to remain living here, so all my expenses are in AUD, so international exposure is risk with limited upside currently. BRIC funds may or may not outperform XAO. AUD/XAO are currently pretty much play on risk/China and world growth in any case.
S, I’ll be writing a longer post on Telstra sometime soon. In this post http://www.fusioninvesting.com/2009/10/fusion-portfolio-and-smsf-performance/ you’ll find this picture I haven’t sold any Telstra since then.
I also own Telstra outside of super at around the same level. I like an almost 10% after tax yield with a good shot at 10% added annual capital gain over a number of years or a 30% one year capital gain. Downside is as you say S, a crazy government.
My last comment on TLS was “The opportunity to buy a this stalwart at discount prices has arisen due to regulatory uncertainty and now the threat of structural separation of Telstra’s wholesale and retail divisions.” That was a few weeks ago, but little has changed.
Funds have been selling as they’re desperate to chase performance and Telstra was the least likely to show capital appreciation until after regulatory uncertainty is cleared up.
correlation between AUD and gold (0.7-0.8)
Surely that would break down if gold reached the heights many wise men are now talking up.
IF USD:AUD gets to 1.20 I’ll be reversing my short USD position! Depending of course on what is going on at that point. Just to be clear I’m actually net long USD at the moment once you add in equity exposure. The US has been my primary investing market since around 1997. When I returned to Australia in 2004 I decided to entrust our “Australian Operations”, i.e. investing in Australia, to a small caps value based fund manager. I only added an Australian investing focus in 2008 and completely took over managing new Australian investments in early 2009.
I know more about more US companies and have much better resources at my finger tips for those than I do for Australian equities. However, since taking over ‘Australian Ops’ I’m enjoying home court advantage, I love the higher dividends and franking credits and like no Fx hassles.
the correlation is high, but the % movement is not the same, although recently it has so the AUD gold price is about the same it was 12 months ago. I find it a really good secondary cross to think about when I am thinking of where AUD-USD is going. Everyone’s got their own little pet cross, Alan Kohler interestingly thinks Chinese electricity consumption is a forward indicator of AUD. This has only been in the last 2 years and it might be a coincidence. The AUD-Gold correlation is a multidecade one.
thanks a lot, great information. A lot of people use the Chinese electricity consumption as the least fudged indicator out of China.
I’m sure you saw the yuan announcement
BEIJING (Reuters) – China said on Wednesday it will consider major currencies in guiding the yuan, suggesting a departure from an effective dollar peg that has been in place since the middle of last year.
The reference to a new set of benchmarks for determining the value of the yuan holds out the possibility of a departure from recent practice, which has seen the currency held steady since mid-2008 around 6.83 per dollar.
“Following the principles of initiative, controllability and gradualism, with reference to international capital flows and changes in major currencies, we will improve the yuan exchange rate formation mechanism,” the central bank said in a 46-page monetary policy report.
It was the first time since the landmark revaluation and launching of forex reforms in July 2005 that the People’s Bank of China has strayed from the language of keeping the yuan “basically stable at a reasonable and balanced level” when discussing future forex reforms in such quarterly reports. http://news.yahoo.com/s/nm/20091111/bs_nm/us_china_economy_pboc
You know, if you have a look at some of the articles that come up for that graph you find that they aren’t as supportive as indicated.
I like the last couple of paragraphs of this one:
http://query.nytimes.com/gst/abstract.html?res=9B05E2D9133BEE32A25757C0A9649C946195D6CF
Thanks for pointing out that one aRRAN. If none of them were supportive then I’d be worried. The chart simply displayed the timeline from google for “collapse of US Dollar” as per the image title.
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