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alstry (35.28)

Alstrynomics ll

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December 19, 2008 – Comments (3)

In lesson one, we learned that devaluing the  dollar would have much more serious consequences to America today compared to devaluing the yen  in 1990s Japan.

In lesson two, we learn that even though you may be printing currency, if your neighbor is printing faster than you, then you should expect the dollar to get stronger relative to other currencies.  Currency strength is measured in a variety of ways, but the most practical is to measure one currency against another.  One dollar gets you half a pound.  It takes 100 yen to make a dollar. 

Currency is simply a claim check for goods and services.  We trade based on perceived relative currency value, and as a  result, comparing relative currency values between  each other is the best way to determine the strength  of a  currency.  If you are a material girl, if you have enough money, you can  pretty much get all the material you want from anywhere in the world.

I am constantly hearing from all the gold bugs that  pretty soon the dollar will be worthless and the only thing you will be able to do  with it  is blow  your nose.  That may be the case, but it will likely still be a lot stronger than other currencies out there in material world...... 

As I stated in a previous blog, if  the US tries  to devalue its currency, you think other countries are going to sit idly by and watch?...NOT A CHANCE.

Look what Japan did tonight:

Bank of Japan cuts interest rate to 0.1% from 0.3%

Japan approves 43 trillion yen emergency stimulus.......wan't Obama's package about $750 Billion over two years.........now who is really stimulating here relative to their population size?

It looks like the world is now trying to stimulate and devalue currencies at a faster rate than America.  If that is the case, which it seems to be, than the dollar should start getting stronger soon against other currencies and the price of oil and other commodities continue to fall in terms of dollars.

Since we live in a material world, and our world is priced in dollars, as the economy continues to slow, expect your dollars to buy you more material as long as our neighbors own faster printing presses than we do.....

3 Comments – Post Your Own

#1) On December 19, 2008 at 8:58 AM, saunafool (98.77) wrote:

Alstry,

If everyone is devaluing their currencies, I would expect prices to rise in terms of dollars, but rise even more in terms of yen, euro, pound, or another currency which is being devalued at a greater rate.

I'm becoming more and more convinced that the biggest threat out there is inflation. I just don't see how every government in the world can pump trillions into the economy without causing the price of everything to rise.

In short, I think they are making the same mistake they did in the 70's (prioritizing economic growth over inflation) because they are so afraid it might be the 30's.

Time will tell...

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#2) On December 19, 2008 at 9:13 AM, 4everlost (29.41) wrote:

Dang it, man,  you've made me rethink the foundation of my investing thesis.  I've been doing DD on foreign commodity businesses (especially ones that pay a dividend!).  Now what!?  Based on your premises, foreign comodities are the worst play because a stronger $ and falling commodity prices will make it economically impossible for them to export to the US.  If the scenario you describe plays out then US exports become more affordable to the rest of the world.  It seems as though the increased demand will be around infrastructure - every country on the globe has announced projects.  US-based construction materials and equipment would be poised for growth.

Thanks again for your views.  It's helpful to me when I have to review my premises that led to my conclusions.

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#3) On December 19, 2008 at 9:32 AM, alstry (35.28) wrote:

4ever,

That is  what I am here for.....I am certain someday one  of you will help me to change my  view wheter by degree or direction.

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