investindinar
04-21-2006, 08:24 AM
This morning I was perusing through MSN.COM and I found this article in Jubak's Journal entitled "Why interest rates will march higher". It is very much in line with what we've been discussing in this forum regarding rising interest rates and a falling dollar.
Let me quote from the article, "Higher relative interest rates elsewhere -- and lower relative interest rates in the United States -- will weaken the dollar. A weaker dollar raises the risk in holding dollars and dollar-denominated bonds such as U.S. Treasurys for overseas investors. And they will demand higher interest rates in order to supply the cash to cover the huge U.S. trade deficit -- $804 billion in 2005, or 6.4% of GDP. The financial markets got this connection immediately: On the day that the Dow Industrials rallied by 200 points, the U.S. dollar fell against the euro and the yen. Bernstein Research is projecting a 5% to 7% decline in the dollar against the euro and the yen in 2006. Not huge in itself but enough to add to the pressure on U.S. long-term interest rates." This is more information along the same lines: foreign central banks and institutional investors begin to detect a decline in the value of the dollar due to huge deficits and they are only beginning to unload dollars for other currencies, non-U.S. denominated securites, or precious metals. The dumping of USD, and dollar denominated securities translates to an increasingly weaker dollar, and higher interest rates in the U.S.
Let me quote again from the same article,"The data is preliminary, but it already suggests that the prospect of a quick end to Federal Reserve hikes in short-term interest rates and the increase in yields elsewhere has changed global flows of capital. In March, for example, the Japanese, who are by far the largest holders of U.S. Treasury bonds, sold a net $20 billion in foreign bonds and stocks. That's up from net sales of $7 billion in March 2005." It seems that foreign central banks are already pricing in a decline in the dollar and Japan seems to be leading the charge. This is definitely not good news for the dollar.
Incidentally, the recent rally in the stock market (April 18th) that Jubak is referring to, is only a blip on the radar screen. Jubak is saying in the article the same thing that we've been saying. That is to say that the stock and bond markets are going to take a hit this year, along with the dollar. Some economists are forecasting about a 5% to 7% decline in the value of the dollar vis a vis other currencies.
The NID keeps looking better and better all the time. I can't wait until the GCC currency gets rolling in 2010. Unfortunately, by then the dollar will be trading at 2 dollars per EURO.
Sincerely,
investindinar
Let me quote from the article, "Higher relative interest rates elsewhere -- and lower relative interest rates in the United States -- will weaken the dollar. A weaker dollar raises the risk in holding dollars and dollar-denominated bonds such as U.S. Treasurys for overseas investors. And they will demand higher interest rates in order to supply the cash to cover the huge U.S. trade deficit -- $804 billion in 2005, or 6.4% of GDP. The financial markets got this connection immediately: On the day that the Dow Industrials rallied by 200 points, the U.S. dollar fell against the euro and the yen. Bernstein Research is projecting a 5% to 7% decline in the dollar against the euro and the yen in 2006. Not huge in itself but enough to add to the pressure on U.S. long-term interest rates." This is more information along the same lines: foreign central banks and institutional investors begin to detect a decline in the value of the dollar due to huge deficits and they are only beginning to unload dollars for other currencies, non-U.S. denominated securites, or precious metals. The dumping of USD, and dollar denominated securities translates to an increasingly weaker dollar, and higher interest rates in the U.S.
Let me quote again from the same article,"The data is preliminary, but it already suggests that the prospect of a quick end to Federal Reserve hikes in short-term interest rates and the increase in yields elsewhere has changed global flows of capital. In March, for example, the Japanese, who are by far the largest holders of U.S. Treasury bonds, sold a net $20 billion in foreign bonds and stocks. That's up from net sales of $7 billion in March 2005." It seems that foreign central banks are already pricing in a decline in the dollar and Japan seems to be leading the charge. This is definitely not good news for the dollar.
Incidentally, the recent rally in the stock market (April 18th) that Jubak is referring to, is only a blip on the radar screen. Jubak is saying in the article the same thing that we've been saying. That is to say that the stock and bond markets are going to take a hit this year, along with the dollar. Some economists are forecasting about a 5% to 7% decline in the value of the dollar vis a vis other currencies.
The NID keeps looking better and better all the time. I can't wait until the GCC currency gets rolling in 2010. Unfortunately, by then the dollar will be trading at 2 dollars per EURO.
Sincerely,
investindinar