What Do You Make Of The Plunging US Dollar?

[FaninAma]

http://www.kitco.com/market/

It has taken quite a drop in the last few days.

Is this worrisome to you financial gurus? Is it due to the Iran fiasco and a short term trend or is it a longer term trend due to world-wide divestiture of US dollars by foreign governments?

I thought cash would be a strong short term position but now I am reconsidering. I have been lucky enough to have a precious metals fund in my portfolio over the last 3 years. It appears precious metals are headed parabolic.

[sanantoniosooner]

http://www.fotosearch.com/comp/TBZ/TBZ133/pg01p010.jpg

[JohnnyMack]

I said something a while back about hedging with gold. None of y'all f'in hillbillies listened. Gold is at $620.

[JohnnyMack]

is it a longer term trend due to world-wide divestiture of US dollars by foreign governments?


Yes. China is dumping the dollar and hedging with gold and euros.

From Kitco.com


The China Factor

The Chinese government has also stated that they are looking diversifying out of the US dollar into Gold. This news in itself holds tremendous significance towards the overall direction of Gold. Presently, China has under 2 % of its reserves (850 billion +) in Gold. Most of their reserves are US dollar assets. According to the World Gold Council, the world average is 9 % of its reserves. The EU average is at 25 %, and the US holds 60% of its reserves in Gold. In comparison, China’s percentage of its reserves in Gold is unbelievably low. As China continued to become a world economic power, they will continue adding Gold to their reserves. Even if they only reached the 9% average, the amount of Gold that would be taken off the market would have a significant impact on the price of Gold.

In the past year, China has begun laying the groundwork for substantial Gold investments from both its citizens and its Central Bank. Floating their currency and allowing the average Chinese citizen to own Gold were the first steps. The Bank of China will start facilitating US dollars for Gold transactions within recent months. The Bank of China also reported last month that they will slash the spread on gold trading by up to 20 % for a trial period. All of these factors combined with continued demand for Gold jewelry (as Chinese citizens continue to increase their standard of living) will continue to fuel this Gold bull market.

[FaninAma]

So what's up with the price of silver? Is it just following gold or are there plans to use it as a reserve currency?

[Stanley1]

I don't even keep paper money anymore, I walk around with gold, and pay that way.

[JohnnyMack]

So what's up with the price of silver? Is it just following gold or are there plans to use it as a reserve currency?

From what I understand silver is seriously short.

I know that Warren Buffet bought silver (129,000,000 ounces) at less than 4 dollars an ounce. It's now at 14 dollars and ounce.

I also know that I wish he would adopt me.

[Chuck Bao]

I have to give a presentation on the global economy tomorrow and I haven’t a clue what I’m going to say.

+ Wall Street makes its biggest one-day rise in a year on Tuesday on news that the Fed to close to finishing this round of tightening.

- But, no more rate hikes are bad for the dollar.

- Oil prices reach record levels and a weak dollar will further drive up inflation.

+ But, core inflation (how in the hell are they calculating it?) rose just 0.1% in March.

- Given that the wholesale price index rose 0.5% in March, shouldn’t that be bad for corporate earnings?

+ Indications that economic growth in the January-to-March quarter rebounded from the last quarter of last year.

- But, the Fed is expecting the economy to moderate in the next several quarters.

+ A weak dollar is good for the manufacturing sector, or what’s left of it.

+ China’s economy grew by 10.2% and with Chinese President Hu Jintao in town, China’s going to order a lot more planes.

- So, if the whole property bubble slows and new bank lending is credit card loans to consumers paying for rising fuel costs, that’s a bad thing, right?

In my opinion, it’s all about the spin. The reality does eventually catch up, but by that time we get new spin. We have the cheerleaders (making hay while the sun shines) and the doom and gloom folks (who nobody pays attention to until **** finally happens).

The best question and thread here is: “How much will gas have to cost before you stay home” by walkoffsooner. I think the responses are interesting.

http://www.soonerfans.com/forums/showthread.php?t=67056

[royalfan5]

From what I understand silver is seriously short.

I know that Warren Buffet bought silver (129,000,000 ounces) at less than 4 dollars an ounce. It's now at 14 dollars and ounce.

I also know that I wish he would adopt me.
I just want him to do what T.Boone did for OSU here at UNL, he gave the same percentange of his for fortune that T. Boone did we could gold plate memorial stadium and buy a basketball program.

[Chuck Bao]

Excuse me for asking an ignoramic question. What is the expected rate of return for investing in a gold-plated stadium and Buggeater basketball?

[royalfan5]

Excuse me for asking an ignoramic question. What is the expected rate of return for investing in a gold-plated stadium and Buggeater basketball?
It's not an investment, it would be one of those things you do because you can, and Warren certainly can. Would the rate of return be any worse on that the money give to a kleptokratic governement?

[Chuck Bao]

Maybe the newest UNL graduates can advise WB to avoid Thai steel companies during the middle of an economic crisis or Cambodia most of the time.

[Chuck Bao]

I still don't think many of the urban folk get it. This article which appears on the front page of Thailand's Nation newspapers is all confused abouts lots of things, particularly that the rural people can sweep our streets and collect our garbage and do all sorts of things.

And, they can't complain because because if they want to raise cash cows, the "steers" bring up up 200,000 baht or 500 dollars. I don't think this urban writer understands what a steer is.

http://www.nationmultimedia.com/2006/04/19/business/business_30001966.php


STREET WISE
Cash cows and the rural poor

Like any country that sees its economy expand suddenly and rapidly, China experiencing grave trouble in the form of widening disparities in urban and rural incomes.

"The income gap between rural and urban areas will continue [to grow] this year," says Ma Xiaohe, a researcher at the National Development and Reform Commission, the nation's top planning body.

Agence France-Presse reported that the Chinese Academy of Social Sciences, the top state-run think-tank, predicted annual per-capita income in rural areas would increase about 5 per cent to 3,500 yuan (Bt16,600).

No forecast has been made public for this year's expected increase in urban incomes, but usually it is several percentage points higher than in the countryside.

Last year, rural incomes expanded 6.2 per cent and urban incomes 9.6 per cent.

A recent survey from the Research Office under the State Council - China's cabinet - revealed that nearly 30 per cent of migrant workers made less than 500 yuan a month.

The dire forecast of the widening income gap between city and countryside comes despite government pledges to do more to improve the lot of the farmers.

In this year's budget, the central government has allocated US$42 billion (Bt1.59 trillion) to boost spending on the impoverished countryside, a rise of 14.2 per cent over last year.

Beijing's economy grew 10.2 per cent in the first quarter, which raises further questions about whether this will only exacerbate the income-disparity problem.


A similar phenomenon can be seen in Thailand. No matter how much the economy grows - now or in the past - the rural poor never stop complaining about their disadvantages.

As in China, the rural poor come to Bangkok to do the dirty work that nobody else in the capital wants to do, like collecting garbage and sweeping the streets.

Earning Bt4,000 to Bt6,000 a month is not very much, but it's good enough for those who can't find anything better at home.

Those who control lots of land may find themselves luckier. The owners could net millions in profit from the sale of land that has been handed down through the generations.

Amid all of this, some rural poor are now hoping to cash in some easy money, this time by placing their bets on raising cattle. One Khon Kaen villager says a top-quality steer can fetch Bt200,000 nowadays.

Those who cannot afford adult cattle could start with raising a calf. If there's no money for the initial investment, they could take out a loan, hoping the investment would pay off once the calf is fully grown.

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[yermom]

http://www1.istockphoto.com/file_thumbview_approve/997455/2/istockphoto_997455_folded_dollar.jpg

[HoserSooner]

I'm loving at at this point in time...makes our trip down there in June a lot less expensive. :D

[FaninAma]

The debt structure in this country is very worrisome. I think any significant downturn in the housing market would be an ominous indicator that we are entering a debt consolidation period where a lot of the debt owed by private citizens and corporations will simply have to be written off.

It is apparent that there is a concerted effort by other nations to replace the dollar as the dominant currency in the world. How low can the dollar fall before it becomes a problem for this country.

And I agree that the inflation figures are BS. How can you not have more inflation when the commodities market has gone crazy over the last 5 years?

[Vaevictis]

It is apparent that there is a concerted effort by other nations to replace the dollar as the dominant currency in the world. How low can the dollar fall before it becomes a problem for this country.

It's not all bad. As the dollar falls, it becomes more and more cost effective to keep manufacturing (and other low-education) jobs on-shore, and more and more cost effective for other nations to import from us.

[FaninAma]

It's not all bad. As the dollar falls, it becomes more and more cost effective to keep manufacturing (and other low-education) jobs on-shore, and more and more cost effective for other nations to import from us.

I agree with that but at some point there is the problem of diminishing returns. As the dollar weakens fewer foreign investors will put their money in our bond market and equity market.

[JohnnyMack]

I agree with that but at some point there is the problem of diminishing returns. As the dollar weakens fewer foreign investors will put their money in our bond market and equity market.

change that "will put" to "are putting".

pay off your credit card debts, pay down your mortgage, diversify your portfolio. This could be a wild ride and I don't feel like getting caught with my pants down.

[yermom]

with inflation like it is, shouldn't we stay in debt?

[Harry Beanbag]

change that "will put" to "are putting".

pay off your credit card debts, pay down your mortgage, diversify your portfolio. This could be a wild ride and I don't feel like getting caught with my pants down.


Thanks Bruce. ;)

[yermom]

Thanks Dave Ramsey. ;)

.

[Howzit]

...pay down your mortgage...

Grrrreat. I'm getting ready to double mine.

[FaninAma]

Man, the precious metals market is smokin'!
http://www.kitco.com/market/

[FaninAma]

with inflation like it is, shouldn't we stay in debt?

If you believe inflation is low and headed higher then yes because then you essentially borrow money when inflation is low and pay it back with cheaper, more plentiful dollars when inflation is higher. But at some point this pyramid scheme has to end because more and more people have to borrow to keep the whole debt structure from collapsing. When you have debt consolidation you enter into a defationary period and then it is bad to have a lot of debt.

[yermom]

i was mostly kidding

debt is bad mmmkay

[NormanPride]

I owe $5 to this guy down the street, will this be a problem in the future? TIA

[SoonerInKCMO]

Could somebody please splain to my ingnernt *** why precious metals are used as a hedge against movement in currencies? Heck, I don't even understand why we have a precious metals market to begin with... it's not as if they have any intrinsic value like other commodities such as oil and grain do. Currencies aren't linked to them any more (well, as far as I know anyway... are they linked to any Asian currencies?) - so why do people get concerned about the value of paper money saying that it only has value because we agree that it does and not say the same thing about metals?

[SoonerInKCMO]

I guess my issue goes back to the pre-Y2K days back when the doomsayers were all like: "Convert all your cash into gold now!!! Paper money will be worthless!!! Gold will keep its value!!!" And I was all like: "Why? Why will gold still have value if paper money doesn't?". :confused:

[Vaevictis]

Heck, I don't even understand why we have a precious metals market to begin with... it's not as if they have any intrinsic value like other commodities such as oil and grain do.

It's partially for historical reasons, and partially because of supply issues.

Estimates peg total all time gold production at about 4.3 billion ounces; yearly production remains under 100 million ounces or so. That means that gold theoretically only suffers about 2.3% inflation per year due to production. And gold is pretty hard to extract, and it's not like we're randomly finding new mines all over the place. The supply is pretty steady.

It's also not subject to vagaries such as people randomly deciding to print cash ;)

Stuff like grain isn't held simply because it rots. Oil might be a reasonable durable good to hold onto, but as you have seen, the market for oil is very volatile, and is subject to finding of new oil fields, better production and extraction techniques, natural disasters, increasing demand, etc, etc.

Gold is somewhat volatile right now due to increasing demand, but its value is more likely to go up than down. Oil, for example, is potentially worthless if we move to a different energy source, or find a drastically more efficient way of harnessing the energy we extract from it.

(that's my totally unexpert take on the matter, anyway.)

[JohnnyMack]

Could somebody please splain to my ingnernt *** why precious metals are used as a hedge against movement in currencies? Heck, I don't even understand why we have a precious metals market to begin with... it's not as if they have any intrinsic value like other commodities such as oil and grain do. Currencies aren't linked to them any more (well, as far as I know anyway... are they linked to any Asian currencies?) - so why do people get concerned about the value of paper money saying that it only has value because we agree that it does and not say the same thing about metals?

Are you being serious? I can't tell.

[SoonerInKCMO]

Are you being serious? I can't tell.

Yes, I'm being serious. My second post more accurately reflects my confusion.

[FaninAma]

i was mostly kidding

debt is bad mmmkay

Remember that when somebody tries to borrow 5 bucks from you.

[OklahomaTuba]

I blame the Duke rape situation myself.

[yermom]

Remember that when :dolemite: tries to borrow 5 bucks from you.

screw that guy

[NormanPride]

Remember that when somebody tries to borrow 5 bucks from you.

I'm sorry, okay! I swear I'll make the payments this time!

[Vaevictis]

Yes, I'm being serious. My second post more accurately reflects my confusion.

The Y2K people were either profiteers trying to sell you something, or idiots running around like chicken little. Pay no attention to them.

(Seriously, if you think the world economy is going to collapse, then investing in gold is stupid. In cases like that, you invest in a nice farm with its own water supply, as much renewable energy on that farm as possible (solar, wind, etc), farming supplies, and munitions to take whatever else you need (and keep others from doing the same to you). Gold doesn't do you a goddamn bit of good in that case.)

Basically what it boils down to is that currency is tied to the vagaries of the economic position of the country that issued it. Gold is not; it's a durable good of limited supply and production. It won't rot, and inflation on it due to the production is very low. (in my unexpert opinion)

[SoonerInKCMO]

The Y2K people were either profiteers trying to sell you something, or idiots running around like chicken little. Pay no attention to them.

Back then, I was thinking the 'idiots running around like chicken little' theory was the correct one. ;)



(Seriously, if you think the world economy is going to collapse, then investing in gold is stupid. In cases like that, you invest in a nice farm with its own water supply, as much renewable energy on that farm as possible (solar, wind, etc), farming supplies, and munitions to take whatever else you need (and keep others from doing the same to you). Gold doesn't do you a goddamn bit of good in that case.)


I absolutely agree.



Basically what it boils down to is that currency is tied to the vagaries of the economic position of the country that issued it. Gold is not; it's a durable good of limited supply and production. It won't rot, and inflation on it due to the production is very low. (in my unexpert opinion)

Yeah, I see that, and I understand that those properties of gold that you listed are why it became a means of exchange in the first place. It just seems to me that with the world's currencies being disconnected from the issuing countries' gold supplies, and having an international currency market, that trading in precious metals now somehow seems vaguely superfluous. Instead of a person hedging their US$ position with gold, they could do the same with a competing currency.

[NormanPride]

But "competing currency" isn't shiny.