EWI (Robert Prechter's website) says the dollar can fall

[gasull]

From EWI Message Board:

It's important to make a distinction between the dollar's domestic and international values. In a deflation, the value of any currency -- the U.S. dollar, in this case -- rises domestically: As asset prices fall, each unit of currency buys more domestically-available goods and services. "Cash is the only asset that assuredly rises in value during deflation." - Ch. 18, Conquer the Crash. However, the USD's international value (as represented by the U.S. Dollar Index) in a deflation can rise OR fall relative to other currencies.

As someone said, if you aren't confused, you haven't been paying attention.

[touchring]

Re: EWI (Robert Prechter's website) says the dollar can fall

I think one of the biggest fallacy among investors is that China is going to support US debt. This may lead to a black swan event.

[jckb98]

Re: EWI (Robert Prechter's website) says the dollar can fall

I think one of the biggest fallacy among investors is that China is going to support US debt. This may lead to a black swan event.

I believe you are using 'black swan event' incorrectly. The human feeding turkey is a perfect example of a black swan event*. By using black swan in your discussion with the US debt, you are implying that investors, thinking China is going to support US debt, do not and have not considered otherwise.

But there are a multitude of articles and opinions among the investment, political, and diplomatic worlds that caution China might not be supporting US debt forever with no strings attached or while keep on getting slapped in the face.

So it is a Known-unknown problem. The problem is known to be potentially there, but it is unknown when it will happen or how it happens or if it happens. But preparations can be made, and preventions have certainly been tried, such as Tim G. assuring China about maintaining the value and safety of Chinese-owned US debt.

Black swan / Turkey's bad day, is a problem that is not known nor expected and completely blows previous expectations away.

Went off on a rant there.

*For those who haven't read The Black Swan by N.N.Taleb, the turkey example is as follows:

A turkey being fed by a human for 1000 days since birth, naturally thinks the human is its caregiver, and enjoys its day and enjoys interaction with the human as part of family. On the 1001 day, the turkey is slaughtered. Being killed by the same human has never went into the mind of the turkey, and it suffered from the consequence of such catastrophic event tremendously. NNT call this type of event Black Swan, which he named after the event using the historical example of spotting the first black swan in Australia, overturning long-held views of "all swans are white".

[kartius919]

Re: EWI (Robert Prechter's website) says the dollar can fall

Housing prices could never go down and these MBS could never be worthless. AIG could never fail. Thats like what a 5 sigma digma gajigma event! BLACK SWAN!

The sun going Supernova on our ass is also a black swan. Oh they say our sun isn't big enough, but bammo. Black Swan!! I await this day with bated breath. wait if i'm expecting it, does it still make it a black swan?

[touchring]

Re: EWI (Robert Prechter's website) says the dollar can fall

I believe you are using 'black swan event' incorrectly. The human feeding turkey is a perfect example of a black swan event*. By using black swan in your discussion with the US debt, you are implying that investors, thinking China is going to support US debt, do not and have not considered otherwise.

In that case, only Sept 11 will fit the definition of the black swan event. Even Lehman failure is not totally unexpected. Am I right to say that?

[jckb98]

Re: EWI (Robert Prechter's website) says the dollar can fall

In that case, only Sept 11 will fit the definition of the black swan event. Even Lehman failure is not totally unexpected. Am I right to say that?

Well...

It is relative. For the turkey, its death was a black swan event. For the human, the death of the turkey wasn't such, as the person planned it.

NNT foresaw the real estate collapse coming, and so for him, the crash of the market and the subsequent fallout were not black swan events to him. But the events certainly were black swan for a lot of people, especially people who believed that housing market would only go up and up.

So for Bin Laden, 9/11 was not black swan. But for Giuliani, it probably was since he decided to place the emergency coordination office in the WTC.

[touchring]

Re: EWI (Robert Prechter's website) says the dollar can fall

Well...

It is relative. For the turkey, its death was a black swan event. For the human, the death of the turkey wasn't such, as the person planned it.

NNT foresaw the real estate collapse coming, and so for him, the crash of the market and the subsequent fallout were not black swan events to him. But the events certainly were black swan for a lot of people, especially people who believed that housing market would only go up and up.

So for Bin Laden, 9/11 was not black swan. But for Giuliani, it probably was since he decided to place the emergency coordination office in the WTC.

There's one black swan event that 99% of Americans would not think will happen, but which I think has a greater than 50% chance of happening given the current rate of de-industrialization - that China's economy will surpass the US in less than 15 years.

[halcyon]

Re: EWI (Robert Prechter's website) says the dollar can fall

The situation is much more complicated and less-one dimensional than most are willing to wrap their brains around.

Read M. petti's article on Coming Savings Clash:

http://mpettis.com/2009/09/dollar-weakness/

Take away ponts:

1) China will buy/hold less USD nominated debt/cash in the future
2) This is a direct outcome of the crash in China's USD exports and the need to direct flows to domestic market spending (balance of payments/investment changes)
3) This will not , according to Pettis, crash the dollar
4) Something else might crash the USD, but it won't be CHI reducing their USD gov debt buys

I haven't yet checked if EJ has included this in his models - I supposed he has, but haven't found the exact piece yet.