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  #16  
Old 09-27-2007, 09:12 AM
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Default Currency weakness does not = Economic weakness.

Nice discussion guys.

The current US dollar weakness has a few reasons, of which one is not economic weakness. The massive trade deficits have always been lurking in the background, but there have been 2 new developments, both in some way related to the subprime mortgage meltdown.

Firstly the trust of foreign investors in US bonds and US rating agencies like S&P, Moodys, Fitch etc has been eroded due to this fiasco. Secondly the Federal Reserve is lowering interest rates. Billions, perhaps Trillions of dollar is moved around the global currency/bond markets by financial traders for so called "carry trades" where they borrow in one currency when its interest rates are low and falling and put them into strong currencies where the interest rates are high. This situation going forward explains the dollar weakness which will likely continue for about 6-12 months more atleast.

As far as US real estate goes. I think some parts of the US are already reasonable. We have so far seen a 5% fall averaged nationally. I think it will bottom out at 10-15% in all. However more of this will be on the coasts and Florida, where falls of up to a 1/3 can be expected by the time this is over. 2nd half of next year might be a good time to jump in. On the converse side, I remember a discussion on this board about buying real estate in India some time ago. In retrospect, with a strong economy there, rising home prices(though they have cooled a bit this quarter) and a rising rupee seem to suggest it was a great time to buy real estate there 2 yrs ago, all these factored in, you could easily have seen a doubling of your investment there in this time, and Rs to USD conversion is easy as well nowadays. We are in my guesstimation perhaps 2/3 complete in the adjustment process, so there may be a little more of this yet to come. Rupee at 39.4 to the dollar yesterday on Yahoo.

All said, the underlying US economy is currently not that bad. As people stated above, some of these structural changes happening and planned will help out the US as well. In the end if they can engineer a soft landing for the real estate market, I think near term things will improve again, atleast for another cycle of economic growth.

Last edited by alterego; 09-27-2007 at 09:16 AM.
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  #17  
Old 09-27-2007, 09:30 AM
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alterego,
Trade deficits will turn to trade surplusses when dollar weakens.
The biggest trade deficit is with China and United States has repeatedly warned China to stop from currency manipulation. While that (china stopping its manipulation) won't happen, United States will get a major reprieve with dollar slide.
Subprime mortage issues, trust deficit in US will add to the list of negatives and will help United States to adjust and get smarter at it going forward.

Again carry trades (Borrowing from Japan and investing back in US, India etc) will affect everybody and not just US. Even in India companies like Tata have borrowed heavily in Yen and made conversions to dollars for their overseas aquisitions. When they have to repay, they will have to settle the tarde in Yen, which means that they will have to pay much more than they thought strengthening Yen and loosing their earnings.

Again these are short term hickups.

When i see that dollar is dwindling, i see an oppurtunity there. People might want to look at everbank.com to safe guard their dollars and its value.
This bank allows one to hedge their dollars (sort of exchange traded funds).
--sri

Quote:
Originally Posted by alterego View Post
Nice discussion guys.

The current US dollar weakness has a few reasons, of which one is not economic weakness. The massive trade deficits have always been lurking in the background, but there have been 2 new developments, both in some way related to the subprime mortgage meltdown.

Firstly the trust of foreign investors in US bonds and US rating agencies like S&P, Moodys, Fitch etc has been eroded due to this fiasco. Secondly the Federal Reserve is lowering interest rates. Billions, perhaps Trillions of dollar is moved around the global currency/bond markets by financial traders for so called "carry trades" where they borrow in one currency when its interest rates are low and falling and put them into strong currencies where the interest rates are high. This situation going forward explains the dollar weakness which will likely continue for about 6-12 months more atleast.

As far as US real estate goes. I think some parts of the US are already reasonable. We have so far seen a 5% fall averaged nationally. I think it will bottom out at 10-15% in all. However more of this will be on the coasts and Florida, where falls of up to a 1/3 can be expected by the time this is over. 2nd half of next year might be a good time to jump in. On the converse side, I remember a discussion on this board about buying real estate in India some time ago. In retrospect, with a strong economy there, rising home prices(though they have cooled a bit this quarter) and a rising rupee seem to suggest it was a great time to buy real estate there 2 yrs ago, all these factored in, you could easily have seen a doubling of your investment there in this time, and Rs to USD conversion is easy as well nowadays. We are in my guesstimation perhaps 2/3 complete in the adjustment process, so there may be a little more of this yet to come. Rupee at 39.4 to the dollar yesterday on Yahoo.

All said, the underlying US economy is currently not that bad. As people stated above, some of these structural changes happening and planned will help out the US as well. In the end if they can engineer a soft landing for the real estate market, I think near term things will improve again, atleast for another cycle of economic growth.
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  #18  
Old 09-27-2007, 10:45 AM
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Thumbs up

This is one of the best discussions I am following in IV.
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  #19  
Old 09-27-2007, 01:16 PM
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enjoy the discussion.
Quote:
Originally Posted by Suva View Post
This is one of the best discussions I am following in IV.
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  #20  
Old 09-27-2007, 01:39 PM
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Quote:
Originally Posted by srikondoji View Post
No doubt we will be in recession and a very bad one for the next few years.
It will be lot cheaper to buy a land and build your own home in another 2 years than buying an existing/newly_built home today at a discount.

However, after 5 years things are going to change..
With Dollar trading at a very steep discount to major currencies and also to yuan, euro and Rupee US will have an advantage to kick start its manufacturing and start exporting to all the major consuming countries.
As easy as this may sound reinvesting in manufacturing will have to be looked into with an eye to caution. With manufacturing comes a new wave of blue collar jobs which creates the middle class and the whole cycle starts all over again. US has seen this not once but twice early 80's and mid 90's and IMHO it is a very strong economy fundamentally to handle this wave.

Quote:
Originally Posted by srikondoji View Post
With technology in its hold and resources at hand, all United States has to do is retain the talent and tame the inflation going forward.

United States is deliberately weakening their currency. While they allow China & India to run their course for next few years, United States will fix some of their issues and ready from greater oppurtunites when Dollar settles down.

After achieving greater productivity levels, all they have to do is retain the skilled immigrants, fund their schools and control inflation.JMHO
Thats a bulls eye. Retaining talent is the key here. Not just us but there are many talented ppl who are settled but do not feel comfortable in the new wave of conservative politics. Mordern economies like US have always benefitted from the contribution of the skilled talent they have nurtured in schools and colleges. Recession or not US is +vely going see some bad times
financially. It will have to do 2 fundamnetal things like you mentioned keep th inflaton in check and keep nurturing innovation which you have mentioned.

This is a gr8 discussion and would like more ppl to contribute.
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  #21  
Old 09-27-2007, 02:52 PM
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Default

This discussion was mainly for those who are fearing a dollar downfall.
It was an effort to temper worst fears of a downfall and see through things and help take a better decisions.
Again, India & china survived and thrived in the worst times. During such worst times, people take smart decisions and get better. At best times, it is the government which should take smart decisions and help build on that.
Lets keep it going..
--sri

Quote:
Originally Posted by dagabaaj View Post
As easy as this may sound reinvesting in manufacturing will have to be looked into with an eye to caution. With manufacturing comes a new wave of blue collar jobs which creates the middle class and the whole cycle starts all over again. US has seen this not once but twice early 80's and mid 90's and IMHO it is a very strong economy fundamentally to handle this wave.



Thats a bulls eye. Retaining talent is the key here. Not just us but there are many talented ppl who are settled but do not feel comfortable in the new wave of conservative politics. Mordern economies like US have always benefitted from the contribution of the skilled talent they have nurtured in schools and colleges. Recession or not US is +vely going see some bad times
financially. It will have to do 2 fundamnetal things like you mentioned keep th inflaton in check and keep nurturing innovation which you have mentioned.

This is a gr8 discussion and would like more ppl to contribute.
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  #22  
Old 09-27-2007, 03:04 PM
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Default

Quote:
Originally Posted by srikondoji View Post
This discussion was mainly for those who are fearing a dollar downfall.
It was an effort to temper worst fears of a downfall and see through things and help take a better decisions.
Again, India & china survived and thrived in the worst times. During such worst times, people take smart decisions and get better. At best times, it is the government which should take smart decisions and help build on that.
Lets keep it going..
--sri
I think this is the perfect time to invest in inverse ETFs... DXD for eg is leveraged twice the percentage fall in DOW!
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  #23  
Old 09-27-2007, 04:50 PM
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Default

Just keep investing and investing all the time. Do not worry about currency movements. Keep well diversified. Thats a golden rule!
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  #24  
Old 09-29-2007, 12:24 AM
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Quote:
Originally Posted by gc_chahiye View Post
Yup, like Rome in the year 100AD, Spain in 1200, England in 1800, USSR in 1960. We know what state all these are now in. Every few hundred or whatever years some country becomes the dominant world power. The latter half of teh 20th century it was the turn of the US. Something tells me China is going to be the next one...
It was just a joke (wasn't mine, but I do think it is hilarious). That said, I don't know which empire will be next. Perhaps the next world power will be Canada? Have you seen this frightening map? http://cwd.ptbcanadian.net/rmap2.html).
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  #25  
Old 09-29-2007, 12:34 AM
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Thumbs up Then do it...now!

What....is the delay?

Quote:
Originally Posted by immi_2006 View Post
One Canadian Dollar = (Almost) US Dollar
Canadian $1 = US $0.99

Check this link

http://www.x-rates.com/d/CAD/table.html

I guess its time to rethink on applying for Canadian Green Card.

Even Australian Dollar is equaling US Dollar. Last year it was very low to US dollar
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  #26  
Old 09-29-2007, 06:31 AM
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Default

Hvae you people seen this site

www.not-canada.com

It gives you a realistic perspective on what Canada is.
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  #27  
Old 09-29-2007, 09:10 AM
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Default You forgot per-country caps...

Quote:
Originally Posted by gc_chahiye View Post
Two things the US should learn from the neighbors up north:

- Fiscal responsibility: the canadians have been running a budget surplus for 10 years now.

- Skilled immigration timelines and quota-free nature: while the points system kind of sucks (allows PhDs in fields where there is no employment demand to come over and they then end up driving taxis) the processing timelines are really neat. Most people who apply from US get the canadian PR within a year or 15 months. Also no stupid per-country quotas, everything based on just merit/points. The employer sponsored nature of the process in the US is better than the canadian simple points based model. The processing times in teh US are what suck.
- The elaborate 3-step process
- The unreasonableness of having a petition for a non-immigrant worker (I-140) AND adjustment of status/registration of immigrant visa (I-485) as separate processes
- The unreasonable per-country quotas, even for merit/talent/employment-based green cards (employers are not supposed to discriminate based on country of birth, but the United States government is free to do so... )
- The ridiculousness of the FBI getting paid $2.00 for security clearnaces/namechecks
- The sad fact that green card numbers will likely be wasted AGAIN this year, in spite of all the fuss Immigration Voice makes about this and how it impacts all of us

jazz
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on Sep 18th 2007

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  #28  
Old 10-01-2007, 11:12 PM
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Default

Quote:
Originally Posted by srikondoji View Post
alterego,
Trade deficits will turn to trade surplusses when dollar weakens.
The biggest trade deficit is with China and United States has repeatedly warned China to stop from currency manipulation. While that (china stopping its manipulation) won't happen, United States will get a major reprieve with dollar slide.
Subprime mortage issues, trust deficit in US will add to the list of negatives and will help United States to adjust and get smarter at it going forward.

Again carry trades (Borrowing from Japan and investing back in US, India etc) will affect everybody and not just US. Even in India companies like Tata have borrowed heavily in Yen and made conversions to dollars for their overseas aquisitions. When they have to repay, they will have to settle the tarde in Yen, which means that they will have to pay much more than they thought strengthening Yen and loosing their earnings.

Again these are short term hickups.

When i see that dollar is dwindling, i see an oppurtunity there. People might want to look at everbank.com to safe guard their dollars and its value.
This bank allows one to hedge their dollars (sort of exchange traded funds).
--sri
The trade deficit will certainly fall, in fact it already has started falling. I am not as optimistic in a full reversal, that would require a massive rout in the dollar and that will have all sorts of unwanted destabilizing consequences for both the domestic and global economy. Actually a small current account deficit is not that bad for the USA, it is one of the countries that is strong enough to sustain it for a very long time. However 65-70 billion monthly is rather huge and unsustainable.
The rather dependable capital inflows and US company/Pension fund repatriation of profits etc each month is quite reliable. Foreign investor interest might be damaged but is certainly not dead. With the USD falling and US real estate prices depressed, count on some foreigners to take advantage.
Just imagine a Canadian retiree, who longed for a regular winter escape from the great white north. Just a year ago, the Canadian dollar was about 20% weaker. Florida real estate was about 20% higher. Put those together and you have what that same Canadian retiree sees as a 40% off fire sale. Similarly the Europeans and Japanese. I just got back from Las Vegas after a few days R&R and the place was teeming with Europeans. There were an unbelievable number of British and French tourists there. They told me the deals were too good to pass up!

All of this however brings me to something you mentioned in your post. The largest (and fasted growing) segment of the US trade deficit is however with China. The Yuan is however pegged to the US dollar so there is no devaluation there. The ability of the market to adjust for trade is not there with China. That won't do much for the trade deficit in that segment. So no reprieve there! The deficits with the EU and Japan will improve however so the overall picture might look better, but the concern is more about the deficit with China. So the cure does not really match the diagnosis here!

Indian Multinationals will not lose on Yen or Dollar carry trades invested in rupees. The Rupee is the strongest performing currency in Asia this year, they are smiling all the way to the bank! They have not invested carry trades in US dollars. Most of their investments are either in Indian rupees or in Europe.
The US dollar has had its adjustment. We might see 1.45 to the euro, 2.1 to the pound and maybe 38 to the rupee but not too much more than that in the near term, this adjustment will be given time to play out in terms of structural changes of the economies and trade.

Last edited by alterego; 10-01-2007 at 11:31 PM.
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