dollars come home- implications?

[jk]

Re: dollars come home- implications?

In 1985, when the bonar, which then with little doubt was a more reasonably valued dollar, topped out it seems that a bright thing to do was to have divested oneself of it into foreign markets, which if one looks at the Nikkei then as a sort of proxy was relatively dirt cheap. Right now, though there may be some cheap markets somewhere, I cannot think of one, it seems if when the dollar was high the right thing was to put it into cheap markets, how can the same rationale be applied for bonar holders to be investing in foreign markets now?

the dollar is relatively low now, but that doesn't mean it can't get lower. i think it's going a lot lower, i just don't know when.

Experience, as I remember it, makes me agree with jk that if the US equity markets drop, then most international equity markets will too. For foreign markets to hold up in dollar terms suggests to me that the dollar would have to appreciate greatly while those markets go down.

i think you've got this backwards. for foreign markets to hold up in dollar terms, even if those markets decline in terms of their home currencies, suggests the dollar would have to drop, not appreciate. if the dollar drops at least as much as the overseas market drops in its own currency, the dollar value of the foreign investment will hold up or increase.

What could make the bonar reverse significantly thus making a US'er's holdings in foreign markets profitable?

the dollar doesn't have to reverse to make that investment profitable. if the foreign market holds steady in terms of its home currency, for example, a dollar drop relative to that currency will mean the foreign market rises in terms of dollars.

In 1985 when the dollar was at a high, I do not remember feeling any "wealth effect," though I was in Oslo at the exact moment of its high. In 1992, when the bonar was at its low, I do not remember feeling any "poorness effect." In both instances, living here and spending dollar/bonars was not felt. This supports the notion that a person buying and selling stuff in his/her own country doesn't "feel" the changes of the home currrency as reflected in exchange rates.

we live in a much more globalized world. import prices rise if the dollar drops. also oil producers are likely to want to maintain their global purchasing power, and thus raise the cost of oil in dollars, provided that a global slowdown doesn't reduce demand significantly.

Perhaps only foreign people with lots of their own money who are investment-savvy individuals would be looking to sell their appreciated holdings that may be further influenced by the gain from their currency's appreciation. If one is a European invested in a US fund or stock, would you be selling it now?

if i were a european invested in us stock, i'd either sell and repatriate my money, or hedge the currency exposure in the futures market.

If one is a foreigner looking at the US now, is not the US a cheap market? Even we who read iTulip are exposed rather continuously to the fact the US markets though at nominal highs, are certainly not at true highs. What happens if foreigner holders of their own currencies are looking to divest themselves of it into foreign markets. Which foreign markets to holders of yen, Euros, Swiss francs are cheap?

a market may be cheap, but go on to get a lot cheaper. i don't think any of the equity markets globally are cheap right now.

similarly a price may look high, but get a lot higher. i think the odds are that one day we'll look at current pm prices as being really cheap.

[Jim Nickerson]

Re: dollars come home- implications?

Quote:

Originally Posted by jim nickerson Experience, as I remember it, makes me agree with jk that if the US equity markets drop, then most international equity markets will too. For foreign markets to hold up in dollar terms suggests to me that the dollar would have to appreciate greatly while those markets go down.

i think you've got this backwards. for foreign markets to hold up in dollar terms, even if those markets decline in terms of their home currencies, suggests the dollar would have to drop, not appreciate. if the dollar drops at least as much as the overseas market drops in its own currency, the dollar value of the foreign investment will hold up or increase.

Thanks, jk, for your thoughts. It certainly is not beyond my abilities to get something backwards. I can tell you this is hard for me to juggle in my mind, if that isn't patently obvious, and I hate to burden you or anyone to try to get my thinking rectified, so I will not look down at you if you wish not to pursue this.

[as I wrote that below, a question arose. The FTSE is valued in Pounds. Since the advent of the Euro, how are the CAC and DAX valued? Are they quoted in Euro's today? It strikes me they must be, but I do not know that as fact.]

If I put $10,000 into European equities with the Euro at $1.32, that would buy ~ Euro7570 (.75Euro = ~ $1.00) . If Euro equities lost 20% in Euros thus equalling Euro6056, for me to get my $10,000 back, the $ would have to depreciate to $1.58 in Euros or ~ $1 =Euro.63 (this is equal to a 20% increase in the Euro or a 20% decline in the $). Any lesser depreciation of the $ would result in a net loss in dollars. Jeez, I hope that is correct.

If the Euro7570 investment appreciates in Euros, and the $ depreciates against the Euro, then that would be the winningest bet, but we get back to the situation to which you agreed "i don't think any of the equity markets globally are cheap right now."

So isn't buying generally expensive global markets with a generally cheap $ a rather risky proposition now? It cccurs to me that there is a lot of risk everywhere in most foreign equity markets for us.

(I may comment on your other comments as I can digest them)

[jk]

Re: dollars come home- implications?

Quote:

Originally Posted by jim nickerson Experience, as I remember it, makes me agree with jk that if the US equity markets drop, then most international equity markets will too. For foreign markets to hold up in dollar terms suggests to me that the dollar would have to appreciate greatly while those markets go down.

If I put $10,000 into European equities with the Euro at $1.32, that would buy ~ Euro7570 (1 Euro = ~ $.75) .

jim, you just said the euro= u.s.$1.32. what you mean to conclude is that .75 euro= 1 dollar, not the reverse. then something valued a euro7570 is also valued at $10,000.

If the Euro7570 investment appreciates in Euros, and the $ depreciates against the Euro, then that would be the winningest bet,

yes

but we get back to the situation to which you agreed "i don't think any of the equity markets globally are cheap right now."

So isn't buying generally expensive global markets with a generally cheap $ a rather risky proposition now? It cccurs to me that there is a lot of risk everywhere in most foreign equity markets for us.

as you point out, there are 2 risks in using relatively cheap dollars to buy relatively expensive foreign markets: the dollar could go up, the markets could go down.

my own opinion is that the cheap dollar will eventually get substantially cheaper. but i also think all the world's equity markets could go down in the process. [though i am less convinced of this] so i'm in foreign currencies, but not in foreign equities.

[Jim Nickerson]

Re: dollars come home- implications?

Thanks, jk, sorry about the conversion error, my thinking was right, but writing that wasn't.

[lobodelmar]

Re: dollars come home- implications?

Nov. 20: I am hard-pressed to recall the last time that: a) there was so much money sloshing around; and 2) people seemed so hell-bent on getting rid of it. [emphasis added]

This has been bothering me for a while now. I've been wondering where all of this money came from...why VC funds are getting so big again, why Private Equity and hedge funds have so much cash, why companies have millions in cash sitting around... maybe I am naive, but it seems that the present situation with so much cash lying around is not normal...that this isn't standard operating procedure...

If it is "dollars coming home," this makes a little more sense, and maybe that is the case in some of the investment vehicles I mentioned above. But where else could all the cash have come from? Bush Tax cuts? Massive productivity increases? Did someone discover the formula to turn lead into gold?

- Lobo

[jk]

Re: dollars come home- implications?

Did someone discover the formula to turn lead into gold?

- Lobo

someone discovered how to turn electrons into electronic data entries.