Dollar Thrives in Age of Competitive Devaluations – Bloomberg 01-28-13

Salient to Investors:

A. Gary Shilling at A. Gary Shilling & Co writes:

  • In periods of prolonged economic pain, international cooperation gives way to an every-nation-for-itself attitude, including competitive devaluations. Decreasing the value of a currency, by creating and selling unlimited quantities, is much easier than supporting it, by selling limited quantities of other currencies it holds, or borrowing from other central banks. The IMF says global central-bank foreign-exchange reserves increased to $10.53 trillion in mid-2012 versus $6.7 trillion in 2007.
  • Currency interventions seldom have lasting effects, viz unsuccessful Japan, and ultimately work against the US dollar, adding to its attraction  as the only haven in an uncertain world. All countries lose in competitive devaluations because of the disruption to foreign trade when one currency, specifically the US dollar, dominates.
  • Central-bank policy, especially quantitative easing, depresses a currency by hyping the supply of liquidity. Central bankers, who congenitally hate inflation, want it to return as they value their jobs.
  • The yield on Japanese government bonds will be much higher long-term as leaping interest rates will add so much to the deficits and debt that an uncontrollable spiral will unfold.
  • China has succumbed to immense foreign pressure to allow the yuan to appreciate only in good times, but holds its currency flat when times are tough.
  • Brazil’s economy is commodity-oriented and therefore at the mercy of subdued Chinese manufacturing.
  • The dollar is likely to meet at least 5 of the 6 criteria of a dominant global currency for many years:
    1. Rapid growth in GDP per capita. US emphasis on entrepreneurial activity and superiority in new technologies will maintain this lead.
    2. A large, usually the biggest, economy. Rapid productivity growth and relatively open immigration, the falling population in Japan spreading to other developing nations including China, will assure the US lead.
    3. Deep, broad financial markets. The US stock-market cap is 4 times that of China, Japan or the U.K. and more than 3 times that of the euro zone. Almost 50 percent of Treasuries are held by foreigners versus 8.7 percent of Japan’s government net debt.
    4. Free and open financial markets and economies. Fragile conditions in Europe, and China continuing to control its financial markets and currency, assures the US lead.
    5. Lack of substitutes. The rigidly controlled Chinese economy and financial markets eliminate the yuan for the foreseeable future. Japan does not want the yen to be a primary global currency. The European crisis eliminated the euro for at least a number of years.
    6. The dollar’s credibility is still substantial. The US current-account deficit will shrink as retrenching consumers moderate imports, US production becomes increasingly competitive, and the US becomes more self-sufficient in energy.

Read the full article at http://www.bloomberg.com/news/2013-01-28/dollar-thrives-in-age-of-competitive-devaluations.html

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Emerging Stocks Decline to Three-Week Low as Samsung, Kia Tumble – Bloomberg 01-25-13

Salient to Investors:

Laurentia Amica Darmawan at PT First State Investments Indonesia said the currency issue is the biggest risk factor in the foreseeable future for Asian companies, and will continue until we have clarity on how long global monetary easing will last.

Credit Suisse lowered Turkish banks to neutral from positive, saying the net interest margin peaked in 2012 and they are vulnerable risks ignored by the market.

Goldman Sachs has a negative outlook for aluminum prices.

The MSCI Emerging Markets Index trades for 11 times estimated earnings versus the MSCI World’s multiple of 13.6.

Citigroup said emerging-market equity funds attracted funds last week, the seventh week stocks lured more funds than bonds.

Read the full article at http://www.bloomberg.com/news/2013-01-25/emerging-stocks-decline-to-three-week-low-as-samsung-kia-tumble.html

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Asian Currencies Strengthen in Week as Economic Outlook Improves – Bloomberg 11-23-12

Salient to Investors:

Enrico Tanuwidjaja at Royal Bank of Scotland said growth momentum in Asia is clearly taking off.

Kozo Hasegawa at Sumitomo Mitsui Banking said funds continue to come into Asia, which supports regional currencies, data out of China are improving.

Kim Dong Young at Industrial Bank of Korea said there’s risk appetite in the market with data from China, but caution against government intervention will restrict won gains. 

Read the full article at http://www.bloomberg.com/news/2012-11-23/asia-currencies-set-for-weekly-gain-as-economic-outlook-improves.html

 

Asian Currencies Drop as U.S., Greece Budget Risks Spur Outflows – Bloomberg 11-16-12

Salient to Investors:

Koji Fukaya at Office Fukaya said stock declines are hurting risk sentiment and investors are selling Asian equities, putting downward pressure on regional currencies. Fukaya said money will continue to flow into emerging markets and their currencies will recover in the medium to long-term.

Saktiandi Supaat at Malayan Banking said asian currencies will remain volatile because of concern over global growth.

Daniel Chan at Glory Sky Global Markets said China is encouraging inflows of capital to stimulate its economy, which will keep the yuan strong. Chan said the key uncertainty is who will be in charge of economic policies in China and how aggressive they are in reforms.

Read the full article at http://www.bloomberg.com/news/2012-11-16/asian-currencies-drop-as-u-s-greece-budget-risks-spur-outflows.html