Dollar demise?

[Chuck Bao]

I just finished with my Thai stock market daily today and had to conclude that although there may be no truth to that UK newspaper account of a change in the pricing of oil in the short term, it is still inevitable.

Still, US markets rose today on the back of commodity plays.

Good grief, how odd is that?

Maybe that is part of the orderly exit plan worked out. Leak, leak, leak and get the US markets readjusted to commodity base and ramp it up ahead of a sell-off.

Now, if I could only figure out how foreigners can faniggle the treasury market in the same way, I would be a rich man. Otherwise, we may be looking at much higher interest rates to counter the currency downside.

[royalfan5]

Weather is starting to really mess with the grain markets as it is a late maturing crop, and it looks like a long wet harvest at the moment. It also could be a huge crop and tank this if it gets out of the field in an orderly fashion. If it is smaller than expected the big export bookings are going to put a lot of pressure on South America to produce and export to keep prices at bay. Plus, there is a lot of talk that the run up in raw sugar has Brazil booking US ethanol of export. I'm kind of hoping the dollar will tank some more so I can book some more corn for 2009 and 2010. Also, we need to figure out what to do with the big wheat carryout.

[Chuck Bao]

Good job and thank you. We really should talk more often. Thailand's commodities are largely food.

This is my daily stock market comment.


We are looking for another positive day on the Thai stock market today. It is not only the DJIA’s 132-point, or 1.37%, gain overnight, but also the weakening dollar. November crude futures rose 47 cents to $70.88/barrel, while December gold futures increased $21.90 to a record high of $1,039.70/ounce. Meanwhile, the baht strengthened against the dollar to Bt33.35/$. In other words, the fund flow should remain quite positive for the Thai stock market. Realistically, if these factors continue the SET index could test the 750 mark within this week.

• We are definitely not complaining: The Thai stock market’s prospects are looking increasingly more positive. To recap yesterday, the SET index gained 12.92 points, or 1.80%, to 731.39 largely on the back of foreigners being net buyers of Bt1,353mn and trading volume quite healthy at Bt25,881mn. Although we were not so sure previously about buyers’ resolve in extending the current rally, we have to take a much more optimistic view on the back of positive equity market fund inflows.

• DJIA gains 1.37% on a weak dollar: It is interesting to note that while the Thai stock market is largely tied to a strengthening baht, the US markets’ gains overnight appear to be tied to a weakening dollar. Wall Street’s gains were largely attributed to energy, basic materials, mining, as well as multinationals, as investors shifted into commodities and commodity-based equities.

• Demise of the dollar?: Part of the sudden weakness in the dollar is due to a news article in the UK-based newspaper, The Independent, that Gulf-area oil producers, as well as China, Russia, Japan and France, are planning to eventually end dollar-based oil pricing. This news story was immediately denied by several of these countries, but markets obviously tend to run ahead and possibly over-react. A second factor was commodity-rich Australia raising interest rates.

• Baht further strengthens: According to the Bank of Thailand’s official exchange rate, the spot bid rate for dollars rose to Bt33.35 against the dollar yesterday, up from Bt33.45 on Monday. We may indeed see our year-end target of Bt33.00. A strengthening baht is typically quite positive news for the Thai stock market in terms of attracting positive foreign fund flow, although it clearly hurts Thai exporters who represent a large portion of the economy. The Bank of Thailand cannot fight against the trend, but will try to keep the baht from strengthening any faster than regional currencies.

• Knee-jerk reaction: The obvious plays in the Thai stock market today are those companies that produce dollar-based commodities and should benefit from the rise in commodity prices. Thailand does not produce many hard commodities, but the theme should carry through and the energy stocks (unfortunately currently tethered to the Map Tab Phut court case on environmental issues) or food-related commodities, which are probably a better way to play this, such as TVO and CPF. Investors also have to realize that this is just a knee-jerk reaction and there will most certainly be a counter reaction to support the dollar, but like the Bank of Thailand, there is no fighting the overall trend. BUY TVO and CPF.

[JohnnyMack]

Gold hit an all-time high today.

[Crucifax Autumn]

I just saved a lot of money on my car insurance!

[Tailwind]

I just saved a lot of money on my car insurance!

Thanks, pal! I just spit a mouthful of green tea all over my monitor! :mad:

:D :D :D

[Crucifax Autumn]

I'm still looking for the drunk and crazy part of this.

[Chuck Bao]

Thank you very much.

Drunk and crazy is probably a step up for me.

[Crucifax Autumn]

I'm gonna get drunk right now. I still won't understand a word of what you were talking about up there though!

[JohnnyMack]

Back to your original post, the Iranians have been threatening to develop a "dollar-free" oil bourse for years. They've slowing been working on it, however I don't know how much credence I put in a report that says that ALL middle eastern oil producing countries as well as the Chinese won't use the dollar.

Nobody needs a strong dollar more than China.

[Bourbon St Sooner]

What you said right there JM is why I'm always so confused about why the Chinese are always in these discussions to end the dollar's status as a reserve currency. They have $1.5 trillion in dollar reserves. Why would they want to diminish it's value?

I definitely am looking for higher interest rates whether the economy recovers or not. Australia increased rates yesterday making the dollar's slide even more precipitous. Eventually the Fed's going to have to defend the dollar.

[JohnnyMack]

Eventually the Fed's going to have to defend the dollar.

Interest rates will go up and they will do everything they can to dump as much gold on the market as they can.

http://www.guardian.co.uk/world/2009/sep/19/imf-sells-gold-bullion

The IMF quietly started dumping its gold reserves and it's likely to be snatched up by the Chinese who want a hedge against a weaker dollar. The Chinese are kind of stuck right now, needing a strong dollar, but knowing that short term it ain't likely to happen.

[TheHumanAlphabet]

Please someone with more knowledge enlighten me...

Why is the fed or the Bush or Obama administrations not doing anything to support the dollar and defend it from all time lows against the Euro, Pound and/or Yen?

I don't get it.

[yermom]

you mean like invade Iraq?

[Bourbon St Sooner]

Yeah JM, I thought about taking whatever extra money I have and paying down my mortgage, given that money market rates are rediculously low, but I figure that 6% FR mortgage is going to look pretty good in a couple of years.

[Chuck Bao]

Please someone with more knowledge enlighten me...

Why is the fed or the Bush or Obama administrations not doing anything to support the dollar and defend it from all time lows against the Euro, Pound and/or Yen?

I don't get it.

There is an old axiom, that central banks can control either the exchange rate or the interest rate, but not both. A weak dollar is playing out because the US Fed would rather keep interest rates low for now.

Of course, that is too simple for the extraordinary situation that we are now in. The key question is how far will the dollar fall. Unfortunately, there is little US manufacturing exporters left to benefit from a weak dollar. New investment in manufacturing takes about two years before production gets ramped up. That may be too late since we need foreigners to continue buying our debt and they know that. Besides that, there is little sign of new investment yet. The Fed may have no choice but to start raising interest rates next year.

Concerning China, those dudes have a serious chip on their shoulder. They are just sending out a signal that they will play, but on their terms and by their rules. It is a power play and that's all. It is pretty clear if you see how China traders manipulate global commodity prices with their stop-and-go buying tactics. Think about it. They can drive down the dollar by talking about a shift in reserve currencies and then buy US assets and drive the dollar back up.

Also, currency traders live in their own unique world. They're traders and play a daily cat and mouse game with the local central bank. They often put out some extreme views and the next day reverse course.

The sad thing is that the real sector suffers from these high jinx.

[JohnnyMack]

There is an old axiom, that central banks can control either the exchange rate or the interest rate, but not both. A weak dollar is playing out because the US Fed would rather keep interest rates low for now.

Of course, that is too simple for the extraordinary situation that we are now in. The key question is how far will the dollar fall. Unfortunately, there is little US manufacturing exporters left to benefit from a weak dollar. New investment in manufacturing takes about two years before production gets ramped up. That may be too late since we need foreigners to continue buying our debt and they know that. Besides that, there is little sign of new investment yet. The Fed may have no choice but to start raising interest rates next year.

Concerning China, those dudes have a serious chip on their shoulder. They are just sending out a signal that they will play, but on their terms and by their rules. It is a power play and that's all. It is pretty clear if you see how China traders manipulate global commodity prices with their stop-and-go buying tactics. Think about it. They can drive down the dollar by talking about a shift in reserve currencies and then buy US assets and drive the dollar back up.

Also, currency traders live in their own unique world. They're traders and play a daily cat and mouse game with the local central bank. They often put out some extreme views and the next day reverse course.

The sad thing is that the real sector suffers from these high jinx.

I honestly don't know that even the Fed has any idea of what to do right now. The amount of cash that was created was unprecedented. It's kind of like in Spaceballs when they go into Ludicrous Speed. No one's done it before, so no one knows exactly what will happen. But you're right in that we haven't seen much growth in the manufacturing base which is what would help stimulate the economy from the ground up. I guess those that have argued for free markets are getting what they asked for. We'll all sit back and see what happens now.

[oudivesherpa]

Oil is a good hedge against the Dollar. Also, if you stop having coups the Bat would be a good investment against the dollar. I've invested in several enegry spider funds that have done well. But I don't invest in the currency markets, can't take the market swings.

[Chuck Bao]

Oil is a good hedge against the Dollar. Also, if you stop having coups the Bat would be a good investment against the dollar. I've invested in several enegry spider funds that have done well. But I don't invest in the currency markets, can't take the market swings.

Agree.

I think that everyone with an investment portfolio should have at least one oil-related stock as a hedge. Okay, that's a no-brainer.

But, that hedge isn't working so well now. Both equity markets and oil prices are moving in tandem, both reflecting the degree of economic recovery. Earlier this year, I was arguing that the link is counter-intuitive since rising oil prices would effectively head off an economic recovery. I guess I was wrong. I still think that investors should keep that oil hedge.

Gold futures may be a more valid hedge against a weakening dollar. But, gold prices have already moved and I don't pretend to be a gold market analyst.

Going to what I do know, Southeast Asia is not a bad place to invest based on both a weak dollar and economic recovery prospects scenarios. Yeah, a coup is not conducive to new investment or consumer spending. You can't believe how bummed out I am about that.

[Bourbon St Sooner]

So why's the bond market going up at the same time as equities and commodities. It looks like any excess liquidity is going into paper rather than any hard investments. Not a good outlook for the job market.