Falling euro, friend or foe?

Many critics of the Eurozone are sceptical because they have always raised the fact that countries cannot devalue their currency, think twice would be my response, what is happening with the Euro is a large scale depreciation that means nobody has to leave the zone to get cheaper currency.

There is a race to the bottom happening in my opinion, the Chinese have definitely lead the way thus far with their Yuan manipulation, the only reason the world plays ball with them is due to their manufacturing output of cheap goods (which would be cheap compared to 1st world production costs even if Yuan traded at fair value) which we want and willingly buy.

Then you have the dollar, the US has such massive forward liabilities that the dollar will have no choice but to tank, the UK sterling doesn’t have a great future either, fifty years ago it was worth five dollars now it is at $1.43 – but currency is not absolute, it is relative – and that is why you have to look elsewhere to see what …

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Balance Sheet Expansion

Tom Keene of Bloomberg talks about the Fed and the results we may see of the solutions being put in place by Ben Bernanke. He makes the interesting and valid point about Ben Bernanke being one of the best living historians of the Great Depression and why it puts him in the unique position of being able to navigate the situation the US economy is in. 50 beeps in the 10 year treasury equates to nine big figures on Euro Dollar, so going from $1.30 to $1.39. Tom also talks about savings rates. Great viewing.

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Government Bond Bubble forming

[this clip has a 5 second delay before it starts]

We have spoken before on this blog about the likelihood of a treasury/govt. bond bubble forming. The indicators were out last year when we saw negative margins in the secondary market for US TBills. What this meant was that rather than earning interest to hold Tbills people were actually paying to hold them.

This, matched with the TARP and Stimulus packages mean that government bonds will need to increase the yield to get buyers when the flight to safety that has propped them up so far dissappears.

The manifestation of this will probably result in a severely weakened US dollar, if this happens then the EU will be forced to devalue to some degree so that it doesn’t totally decouple from the world economy, although some hegemonic status in the Euro wouldn’t be a bad thing in terms of providing future protection to the Eurozone.

A counterpoint is in the video below by Hugh Hendry

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Global Reckoning includes Asia, Tom Keene of Bloomberg Comments

Tom Keene, editor at large in Bloomberg has given an interesting interview, talking about Japan and how they are witnessing a sea of change in their economic dynamics, he says there is a ‘flight to dollar’ which is reflective of a ‘flight to quality’. However, with all the lending the USA will require in order to finance their stimulus plan the question is this: will the flight to quality fill the bond orders required? And even if it does, how will the USA pay it all back? Questions worth pondering

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Investment Ideas for 2008

If you are the type of investor who doesn’t get scared when there is a bit of a storm then there are some opportunities in 2008, an important thing to remember is that when money is lost there is an equal gain somewhere else, almost like that rule in physics, matter cannot be created or destroyed only turned from one form into another, for the sake of our example, money can change from one persons hand into another persons hand (unlike matter it can be created, the Fed,ECB, & BOE have proven that much in the last few weeks!).

Here are some of my picks:

1. Property: Even in a market where prices are falling there are deals to be found, the debt burden is going to push some people out and they may become motivated sellers, this means you can purchase well below the market value. Distressed debt and Vulture buying are not for the feint of heart but I absolutely guarantee that right now the billionaires of the late teens in real estate in the USA are the …

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