the strong usd

[jk]

Re: the strong usd

Re: 2.5 region world.

I recall you writing about a 3 trade region/3 currency world. I too have been wondering if Europe instead ends up fractured, with parts such as the UK, aligning with the Americas, and others aligning with Asia from a trade standpoint.

the greek port of piraeus is already run by the chinese. i believe the same is true of at least a couple of other european ports. german ties with russia have been growing over the years, nordstream 2 is just the most obvious recent development. the germans, though, are increasingly being squeezed as china has begun producing duplicates of all the machine tools they used to buy from germany, both for domestic chinese consumption and to market around the world.

the french and germans are distancing from the u.s. even as the former ussr dominated eastern european and baltic countries want ever closer military ties. northern tier defense with the uk, netherlands, denmark, norway are integrating around the f-35 system. apparently the german military [and the french military?] would like to join in but are politically forbidden, while macron continues to peddle the fantasy of a european defense force. let's see him deal with the gilets jaunes first. german auto industry will be hit hard by a no-deal brexit, as the uk is a major export market for them. let the u.s. institute its threatened auto tariffs and it will add up to an increased push for the german automakers to expand their already significant operations in the u.s., where they will also benefit from lower corporate taxes, friendlier labor regulation and less regulation in general.

german industry is about to be hollowed out. and of course germany has already fully exploited its southern european markets at the cost of running up enormous target 2 balances which will be written off when the eurozone falls apart.

it's hard to see europe as a strong player going forward. the obor [or bri] project reaches right into europe, of course, both by rail and by sea. we may see mackinder's "world island" down the road.

[GRG55]

Re: the strong usd

u.s. and china are not engaged in a trade war. they are in the early innings of [what i hope will only be] a cold war as part of the breakdown of u.s. global hegemony and the emergence of a 2.5 region world. [only counting europe as 0.5 for now- not clear what its status will be.]

recommend gavekal's "clash of empires" which i recently read. also 4/5 of the way through "lords of finance" - extremely well written, deserved its pulitzer imo - about the last time there was a sovereign debt bubble.

calling halford mackinder!

Re: 2.5 region world.

I recall you writing about a 3 trade region/3 currency world. I too have been wondering if Europe instead ends up fractured, with parts such as the UK, aligning with the Americas, and others aligning with Asia from a trade standpoint.

[jk]

Re: the strong usd

u.s. and china are not engaged in a trade war. they are in the middle innings of [what i hope will only be] a cold war as part of the breakdown of u.s. global hegemony and the emergence of a 2.5 region world. [only counting europe as 0.5 for now- not clear what its status will be.] i say middle innings because china began the early innings no later than its admittance to the wto. the u.s. until lately just didn't even know a war was on. sun tzu would be proud.

https://www.worldtribune.com/zero-ch...oth-meds-tech/

recommend gavekal's "clash of empires" which i recently read. also 4/5 of the way through "lords of finance" - extremely well written, deserved its pulitzer imo - about the last time there was a sovereign debt bubble.

calling halford mackinder!

[GRG55]

Re: the strong usd

Time to reprise this nearly year-old thread started by jk.

The Fed has signalled the start of another rate cutting cycle, and all pretense of continuing QT has been dropped.
Talk of incentives to persuade US corporations to repatriate retained earnings held abroad is a distant memory.
In an effort to talk down the USD exchange rate, this Administration seems to have embarked on a program to persuade foreign sovereigns not to increase holdings of US Treasuries (and perhaps even sell down existing US$ denominated reserves) under threat of being targeted a "currency manipulator". This at a time of record US fiscal deficits.

The question is: Are we stuck in an "Endless Ka", or is this current deflationary impulse finally "Prelude to Poom"?

Plausible cases can be made for either of these outcomes.

- Attached is a chart of the USDX, showing "the strong usd" trend in place when this thread was started last year has more or less continued, albeit at a more modest rate. Are we certain that direction is about to change as a result of the Fed's recent policy shift (and other factors)?
- The volume of global sovereign debt, corporates and now sub-prime debt issues subject to negative nominal interest rates continues to increase. The Fed is the only CB of consequence that isn't already at, or below, the zero bound.
- The ubiquitous (magical?) 2% inflation target has been persistently out of reach, especially for the BoJ and ECB. With global economies slowing, as the US remains the strongest of them (evidence of an impending recession in the USA remains muted), can the Fed succeed in achieving the inflation Dr. Bernanke said could always be created, if necessary?
- As global economies slow are capital flows (yield seeking and safe haven motivations) going to continue to favour the US$ and keep its exchange rate comparatively strong, no matter what the Fed does?
- Will it take a complete loss of confidence in, say the ECB and the Euro (as an example), to finally achieve the higher inflation rates needed to help deal with the stifling accumulated debt loads since the global financial crisis? Will a loss of confidence abroad drive even more capital flows to the safety of the US$?

Well that didn't take long. The Chinese slow down their selling of US$ to support the yuan, and boom...

https://www.cnn.com/2019/08/05/busin...ump/index.html

Trump administration labels China a currency manipulator

Updated 6:42 PM ET, Mon August 5, 2019

Washington D.C. (CNN Business)The Trump administration on Monday designated China a "currency manipulator," after the country's central bank allowed its currency to weaken amid the ongoing trade dispute.

The move comes hours after Trump accused Beijing of depreciating its currency on Twitter, adding later that such measures have been used to "steal our business and factories, hurt our jobs, depress our workers' wages and harm our farmers' prices. Not anymore!"

The People's Bank of China allowed its currency to fall below 7 yuan to the American dollar, which is considered to be a psychologically important marker, for the first time in a decade. The move was seen as a retaliatory measure following Trump's threat to slap a 10% tariff on $300 billion of Chinese goods...

[GRG55]

Re: the strong usd

Everyone knows the us will return to the secular downtrend but before this happens, it might go up another 20-30%.

Don't know about the precise %, but as far as the US my "endless ka" seems to be playing out. It's the reason I thought this thread was due to be reprised in mid-July.

Given what is now transpiring in both Hong Kong and with the mainland Chinese currency, I would expect capital flows out of both to re-accelerate, despite the efforts of Beijing to control them. Little of it will be going into Euros, Yen, Sing$ or Swissies.

Most here will recall I've been a consistent China sceptic, scoffing at those that proposed the Chinese could collapse the US$ at will, and other similar silly ideas. Years ago I argued if the Chinese currency was free-floated it would go down vs the US$, not up as all the then China bulls exclaimed. I've long believed it's economy was a house of cards, built on rampant corruption, gamed statistics, historically unprecedented capital misallocation, melamine laced baby formula and officially sanctioned theft of intellectual property. In other words unsustainable.

But I think we best keep an eye on Europe as well. That is also unsustainable. Germany, the alleged powerhouse economy is also home to the most cratered up banks in the EU. Does anybody else think something doesn't add up here?

Quite frankly I am surprised factors such as chronically high youth unemployment haven't resulted in more visible social fissures by now. The gap between the elite haves and never-ever-will-have in Europe makes the USA appear positively egalitarian by comparison. When it finally starts to unravel (has it already started in France?) I suspect it will be surprisingly rapid and sudden. Another one of those infamous "unexpected" events, just like the last big financial crisis.

Overlapping timing of problems in both Asia and Europe might be the catalyst for a USDX blowoff of epic proportions. And that would be the last straw for the global economy ex-USA.

[dcarrigg]

Re: the strong usd

Everyone knows the us will return to the secular downtrend but before this happens, it might go up another 20-30%.

Key question is how much time there is. https://www.newyorkfed.org/medialibr...s/Prob_Rec.pdf. July models at least by this measure aren't looking any better than June. And moves today don't look so hot either, but that's one day. August keeps going like this, and I wouldn't be shocked if we're in the soup by sometime this fall.

[touchring]

Re: the strong usd

Fundamentals, such as inventories (the measurement of which is notoriously difficult btw), may explain short term perturbations. When the US$ finally enters its next secular downtrend we should expect the nominal oil price to rise, along with many other commodities.

Everyone knows the us will return to the secular downtrend but before this happens, it might go up another 20-30%.

[GRG55]

Re: the strong usd

Thanks GRG55. I note you mention jet fuel prices rising. Do you have an opinion about oil prices?
Lately I've seen pundits point to the amount of petroleum China and Iran have in storage and conclude that with supply so plentiful prices can't go up much in the medium term.

Fundamentals, such as inventories (the measurement of which is notoriously difficult btw), may explain short term perturbations. When the US$ finally enters its next secular downtrend we should expect the nominal oil price to rise, along with many other commodities.

[thriftyandboringinohio]

Re: the strong usd

Boeing is in the penalty box for now. But a bet against it seems bad odds to me. Boeing Commercial Airplanes is certainly not going to disappear. Let's remember barriers to entry in this business are extremely high (yes, I'm taking about you, Bombardier!). And no buyer of commercial jets would benefit from the loss of one of the two big players.

The relative fortunes and sales volume leadership of the two global behemoths in the business swing back and forth. The exchange rate of the US$ vs Euro is one important factor; the high USDX has helped Airbus in recent years. That won't last forever, as much of the discussion on this thread suggests. Trump's idiotic tariffs on aluminum didn't help Boeing (or Textron/Cessna, Piper, Beechcraft, Learjet or Gulfstream) either - probably one of the stupidest things of many this Administration has done to harm domestic USA manufacturing. But then Boeing seems to have done quite a few stupid things themselves.

On the product side Airbus had the clear lead in the narrow body single aisle segment even before the 737 Max fiasco. It strengthened that dominance by acquiring the Bombardier 'C' Series program (Boeing couldn't have strategically mis-played that any worse than it did, an indicator of the same hubris, arrogance and lack of organizational capability/talent that led to the Max fiasco). Boeing is the undisputed leader in wide-body. Airbus' product line does not compete well with the 777 or the 787 Dreamliner (whoever came up with that name should be shot) - the latter is in an efficiency category all its own. Boeing can't build the 787s fast enough; obviously the sales incentive of free tools in the wings with every purchase is a big customer draw.

A falling US$ exchange (some day) and rising oil/jet fuel costs might actually cause Boeing shares to improve in due course.

Edit added: This saga has a ways to run, but I would not be surprised if the end result is a split apart of Boeing Commercial Airplanes from the defence businesses, under new leadership after a major clean out of the nitwit executives responsible for/tainted by the 737 Max affair. Recall what the Federal Govt orchestrated in the C suites of some of the banking and auto firms bailed out or forcibly merged during the financial crisis.

Thanks GRG55. I note you mention jet fuel prices rising. Do you have an opinion about oil prices?
Lately I've seen pundits point to the amount of petroleum China and Iran have in storage and conclude that with supply so plentiful prices can't go up much in the medium term.

[Mega]

Re: the strong usd

Yes British Airways played them with a VERY good price on 200 off 737 Max........Boeing will sort this.

I thought about buying in to Boeing as a $ V £ play...............not sure if they listed on London exchange

Mike

[GRG55]

Re: the strong usd

So is Boeing a short play yet? They seem to be caught in a cycle that’s about to turn down, while in the middle of a life threatening blunder.

Boeing is in the penalty box for now. But a bet against it seems bad odds to me. Boeing Commercial Airplanes is certainly not going to disappear. Let's remember barriers to entry in this business are extremely high (yes, I'm taking about you, Bombardier!). And no buyer of commercial jets would benefit from the loss of one of the two big players.

The relative fortunes and sales volume leadership of the two global behemoths in the business swing back and forth. The exchange rate of the US$ vs Euro is one important factor; the high USDX has helped Airbus in recent years. That won't last forever, as much of the discussion on this thread suggests. Trump's idiotic tariffs on aluminum didn't help Boeing (or Textron/Cessna, Piper, Beechcraft, Learjet or Gulfstream) either - probably one of the stupidest things of many this Administration has done to harm domestic USA manufacturing. But then Boeing seems to have done quite a few stupid things themselves.

On the product side Airbus had the clear lead in the narrow body single aisle segment even before the 737 Max fiasco. It strengthened that dominance by acquiring the Bombardier 'C' Series program (Boeing couldn't have strategically mis-played that any worse than it did, an indicator of the same hubris, arrogance and lack of organizational capability/talent that led to the Max fiasco). Boeing is the undisputed leader in wide-body. Airbus' product line does not compete well with the 777 or the 787 Dreamliner (whoever came up with that name should be shot) - the latter is in an efficiency category all its own. Boeing can't build the 787s fast enough; obviously the sales incentive of free tools in the wings with every purchase is a big customer draw.

A falling US$ exchange (some day) and rising oil/jet fuel costs might actually cause Boeing shares to improve in due course.

Edit added: This saga has a ways to run, but I would not be surprised if the end result is a split apart of Boeing Commercial Airplanes from the defence businesses, under new leadership after a major clean out of the nitwit executives responsible for/tainted by the 737 Max affair. Recall what the Federal Govt orchestrated in the C suites of some of the banking and auto firms bailed out or forcibly merged during the financial crisis.

[thriftyandboringinohio]

Re: the strong usd

So is Boeing a short play yet? They seem to be caught in a cycle that’s about to turn down, while in the middle of a life threatening blunder.

[touchring]

Re: the strong usd

i'm already fully allocated to gold [~20%]. bought a little moo and comt today.

Physical gold? No silver? Platinum?

[jk]

Re: the strong usd

I wonder what European central banks might have to say about this question.

https://www.bullionstar.com/blogs/ro...y-to-buy-gold/

i'm already fully allocated to gold [~20%]. bought a little moo and comt today.

[kbird]

Re: the strong usd

anyone have thoughts on the best way to invest in commodities for the intermediate-longer term?

I wonder what European central banks might have to say about this question.

https://www.bullionstar.com/blogs/ro...y-to-buy-gold/