. APismoClam: from what does a currency derive its value vis-a-viz another currency? **** October 26, 2005 SouthAmerica: That is a very complex question. I wrote a number of articles about the Brazilian currency, the Euro and the US dollar. If you read some of these articles you will understand some of the reasons that are behind and make a currency fluctuate against other currencies. I wrote other articles on this subject but they are not included on this list. Here is a list of locations where you can find a copy of some of these articles. They were published and republished on Brazzil magazine and also on other various newspapers. ** In the last 6 years I wrote at least 10 articles about: Why Brazil should adopt the Euro as the Brazilian new currency. Here are some articles about the Brazilian currency, the Euro and the US dollar: June 2003 â âShould Brazil Adopt a New Currency?â http://www.brazzil.com/content/view/564/32/ June 2002 - âThe Euro Nowâ http://www.brazzil.com/content/view/6353/67/ Articles about US dollar: http://thecrashingusdollar.blogspot.com June 2003 â âDear Saudis, Play Safe Bring Your Money to Brazilâ http://brazzil.com/p117jun03.htm .
There might be some sort of language barrier here, but statements like "When that happens the dollar will sink like Bush has in the polls." seem pretty insanely speculative. It's pretty pretentious to think that you are a more informed and nuanced thinker than the entire market. Do you trade these predictions? Are you massively short the dollar? Were you massively short the dollar at 1.36? Is there any point where you "close" this "short" in the dollar? I have rarely read anything from a trader who has lasted a decent amount of time who is unwilling to acknowledge that the opposite side of a description of a market situation might have some validity. I have read posts from idealogues trying to promote viewpoints about markets that are similar to yours. But, I never really understood the purpose of posting something if you weren't looking for any feedback or dialogue. I'm trying to figure out is if you fully appreciate the equilibrium that markets tend to move towards over the long term. The information you mention in your articles is not proprietary and is commonly considered by currency traders. If everyone understood the market was going to go a certain way, barring trading restrictions, it would go there eventually. Imbalances may last for a decent amount of time, but you would think some sort of correction would come within a year. Although I'm also somewhat bearish on the dollar over the long term, I think the situation may be more nuanced than you give it credit for. So I guess in conclusion, when do you say that a basic premise in your argument is flawed? Do you say it at 1.15? 1.10? Do you have a "stop loss" for your argument, if not for your position?
Amen! Why do some people just not realize that truths are rarely extremes. People make extremes believable, but truths are more often moderate. Reminds me of the wacko on these forums claiming the US would be a banana republic back when the EUR hit 1.36. Give me a break. Do I believe there are rather alarming imbalances? Of course. You'd be an idiot to not see them. But making statements about the end of the world are better left to the Chicken Little's of the world who cannot seem to grasp the understanding of normalcy. -Ivan
. Davidlynch2000: There might be some sort of language barrier here, but statements like "When that happens the dollar will sink like Bush has in the polls." ⦠The information you mention in your articles is not proprietary and is commonly considered by currency traders. **** SouthAmerica: You quoted the above from somebody elseâs posting. Then you wrote a bunch of stuff regarding it. Then you mentioned my articles. What my articles have to do with what you wrote? You also said: âThe information you mention in your articles is not proprietary and is commonly considered by currency traders.â By the way, I donât know of anyone else here in the US, in Brazil or anywhere around the world - who wrote any articles besides me about Brazil adopting the Euro as its currency. Here is an example quoting from an article published on June 1, 2002. Letter to the European Central Bank December 12, 2001 Dr. Willem F. Duisenberg President European Central Bank Postfach 16 03 19 D-60066 Frankfurt am Main Germany Dear Dr. Duisenberg: In the last two years I have written various newspaper articles published here in the United States regarding Brazil and the euro. Enclosed is a copy of my last article of that series. I have been recommending that Brazil replace its current currency the Real for the currency of the European Monetary Union the euro. In the coming years most countries of the world will have to make a drastic decision; they will have to decide if they will adopt as their new currency the euro, the US dollar or some other currency from Asia . I believe that Brazil should adopt the euro and also should integrate its economy with the European Union's economy. Keep in mind that it will be just a matter of time for the European Central Bank to be forced to deal with that issue triggered by some major international monetary crisis. Today, the Brazilian economy has an Achilles heel, which is its currency the real. On January 1, 2002, the international monetary game played in the last 30 years comes to an end. Starting in January the US dollar will not be the only game in town. I believe the euro will become a major competitor to the US dollar, and will be accepted around the world as a major currency. The euro will become an important part of the monetary reserves of most countries. When the time comes for the European Monetary Union to make the decision to accept Brazil as one of its members, that decision will be very important not only to Brazil, but will have a major impact on the international monetary scene for decades to come. It will be for the benefit of the members of the European Monetary Union to offer Brazil membership in that monetary club. Brazil has a young and vibrant population and can offer to the European Union a growing market with 170 million people. The adoption of the euro by Brazil would stabilize the Brazilian economy and would open the door to many new economic opportunities between Brazil and the members of the European Monetary Union. This new stable monetary environment would provide new opportunities for European investments in Brazil. I want you to keep in mind when the European Monetary Union debates the merits of accepting Brazil for membership, that the country Brazil is one of the jewels of our planet. Brazil has a privileged geopolitical location on our globe. Brazil has an up-coming emerging market economy with abundant natural resources, including the magnificent Amazon jungle, and also a modern economy evolving and adapting very fast to accommodate the new technologies developed around the world. The next time that Brazil decides to change its currency again, they will have only two alternatives to choose from this time around; either they adopt the euro or they adopt the US dollar. I believe that it would be a privilege for the European Monetary Union to have Brazil as a member of that club. Brazil and the members of the European Monetary Union will have much more to gain from that association than if Brazil adopts the US dollar. Please be prepared in the future to welcome and to offer Brazil membership to the European Monetary Union. I believe that the Brazilian economy matches much better with the economies of the countries which comprise the European Monetary Union than to the economy of the United States. From a Brazilian point of view, it is more appealing to adopt the euro instead of the US dollar, because of the US dollar's vulnerability to the international monetary market system. The long term US trade imbalances have created a large pool of US dollars in the hands of relatively few central banks around the world. These nations continue to run large trade surpluses with the United States, and they continue to increase the pool of US dollars held by their central banks. Forbes Magazine's columnist Steve Hanke estimates that today 70 percent of US currency circulates outside the United States. The major holders of this currency are the euro countries, Japan, China, Hong Kong, Taiwan, South Korea, Indonesia, and Singapore. Probably today, there is an oversupply of US dollars outside of the United States. Gold at US$ 295/oz might be undervalued when compared to the US dollar. At US$ 295/oz gold provides about 15 percent of official world monetary liquidity. Central banks hold only one-third of the above ground gold supply available. Gold is the second largest component of international monetary reserves after the US dollar. Gold and the euro will became increasingly important parts of the international monetary reserve system and their gains will be at the expense of the US dollar. If any of these countries decides to move their monetary reserves from the US dollar into gold, the price of gold would increase versus the US dollar. If that happens in the near future we will have a major international monetary crisis in the world. About 75 percent of the US dollars circulating outside the United States are in the hands of these few Asian central banks, and if any one of these countries decides to sell their US dollar monetary reserves to buy gold it will produce a stampede to exit the US dollar, creating a gold and euro buying panic. Remember the euro countries also have a large supply of US dollars, which they can use to buy gold. When the European Central Bank moves from US dollar into gold, the euro will become stronger versus the US dollar, in turn giving an incentive to the other countries to move their international monetary reserves also from US dollar into euro or gold. When this US dollar collapse becomes reality, the less developed countries will be the most devastated by this event, because these countries hold only a small fraction of their reserves in gold or euro. This oversupply of US dollar circulation outside the United States might prove to be the Achilles heel of the US economy and also can become a nightmare to the Federal Reserve. The Federal Reserve would need to raise interest rates in the US, creating a major problem for the US economy and the financial markets. I believe that it will be too risky for Brazil to adopt the US dollar because of this oversupply of US dollars circulating around the world. It will be better for the Brazilian economy in the long run for Brazil to adopt the euro. The current US dollar based international financial system is about to go through a dramatic change because of the new competition from the euro. I don't know, when or what will trigger the coming events, since no finance minister or central banker wants to be blamed for launching the world into a major international monetary crisis. I hope you will enjoy reading the enclosed article about Brazil adopting the euro, and please share this information with the Finance Ministers of the countries which are members of the European Monetary Union. Thank you for your attention to this matter. Sincerely, Ricardo C. Amaral Author / Economist .
You are absolutely correct. I quoted someone else. Sorry about that. I have limited screen space right now so I was scrolling through a window without being able to see the top of the screen. This is a quote on your blog though. "Now that the stampede is about to speed up around the world, the US dollar should decline to at least the range of $ 1.50 â $ 1.60 to Euro 1.00 in the near future." The ideas were pretty similar. But again, sorry for the mistake. "By the way, I donât know of anyone else here in the US, in Brazil or anywhere around the world - who wrote any articles besides me about Brazil adopting the Euro as its currency." I wasn't refering to your conclusion as necessarily being incorrect if your premises turned out to be correct. I was refering to your assuredness that your long term view of the currency market (your premise) seemed to be dismissive of what the market beileved. The other people in the market (who currently have found some sort of equilibrium with a much stronger dollar than you think is justified) may have more to offer than you are think regarding justification for the dollar's current valuation.
I just pulled back up the blog and the post I quoted was from back in the day. That might be a little misleading then. I assume that we can safely say your views are similar now, even if the exact figure on the revaluation has changed. Has your estimate of future revaluation changed? Did the Euro sell off that occured do anything to change your mind about an appreaciating Euro? Is there any price where you would say your fundemental idea is mistaken? What sort of model did you use to come up with 1.50 to 1.60 back in November of last year?
Robert Rubin the former treasury secratary is the best choice. I would have to agree. democrat or not the guy knows the markets and every dealer on the street would be in check by Bob but of course there would be the old, "there goes another Goldman Sachs guy in charge of something that affects the entire street."