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Thread: How far can the dollar go down?

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    Default How far can the dollar go down?

    Theoretically, the US Dollar can go to zero. While unlikely, it should be remembered that nearly every currency that has ever existed throughout history, eventually has a crash that destroys 90% of absolute value, or more.

    Won't foreign Central Banks support the dollar?

    Why should they? If you are hungry, and your 600 lb. neighbor (who is now so fat he can't even walk anymore he needs to use one of those little carts) missed a few meals, which happen to be 5x expensive as yours, would you finance his dessert? Of course not. You are thinking many things, but supporting his habit of overeating isn't one of them. The US consumes over 25% of the world's resources but produces less than 10%. Economists may not care for such a crude analogy, but the situation with the US Dollar is very, very simple, and should not be overcomplicated. The USD has been a reserve currency for the post WW2 world, but since Nixon abandon gold standard, the USD is backed by only the belief and faith in US Government. We are seeing a commodity boom, not because of a bubble in commodity asset prices, but because of a decline in the USD, the world's reserve currency in which many commodities (especially Oil and Gold) are priced. In any event, it's not likely that foreign central banks will bail out the dollar, because that would in effect make them eat a realized loss in their current account. Moderately wealthy nations cannot afford to take the loss of the US, the largest and wealthiest economy in the world. The US has been a financial big brother who have bailed out other failing economies  but the US has no big brother to lean on, except maybe Russia, although that wouldn't go over too well in Washington. So if the US Defaults, who can come to the rescue?

    Gold is cheap

    Adjusted for inflation, Gold should be above 1500  without considering any boom. Many are wondering if commodities can continue to increase, without considering how depressed commodity prices were in the late 90's. An economy can live without services, or money, but people cannot decide not to eat or use Oil. Gold is money, the high price in Gold is reflective of investors concern about the value of money  any money. The US Dollar is a reserve currency so when USD goes down, so do many other currencies. The majority of USD holders are foreigners, but that is changing (in the past 10 years foreign USD holders have decreased from 77% to 62%).

    What to do?

    An argument of this nature should end in a that's next or that you should do. Unfortunately, this is a complex situation with no magic bullet solution. On a basic personal finances level, one should sell your mortgage at any price and become debt free with low cost of living. Don't bet on any economic upturn that will save your finances, things will only get worse. Second, do what you do well  no matter what the value of the dollar or the state of the economy, there will always be demand for goods and services (unless you happen to be in real-estate business, in which case you could start looking into farms.) The good news is that in any time of chaos, uncertainty, and reorganization, there are always massive opportunities. Taking advantage of them may not require huge amounts of capital. Knowledge of the situation can cause one to be in the right place at the right time or at least not in the wrong place at the wrong time for example it would not be smart to be in south Florida amidst economic suffering which could lead to crime, rioting, overall fraud, and a depressed local economy.

    Property surrounding small country towns has been doubling in 1 year! Farmland has increased by as much as 500% in some areas over the last few years. There are plentiful opportunities in this market, but they may not be the traditional opportunities that investors are accustomed to.

    It's 2008

    There is a new market thinking, accept it or not. We don't live in the 1970's, it's not 1970 it's 2008. In 1970 Russia was communist, now there are more billionaires in Moscow than in New York. In 1970 Oil had not yet peaked, there was no Internet, financial markets were not deregulated to the extent that they are now, there were no derivatives, no climate change, and no Oil hungry China. In 1970 Europe was scarcely organized, only 25 years of reconstruction post ww2, and there was no Euro.

    Thinking Different

    Therefore, the only way to survive in the New Investment Paradigm is to be nimble and stay ahead of the information curve. In any field, applied intelligence can earn a solid position and even great profits. Safe havens are no longer safe as they were, the bond market is getting destroyed by inflation, TIPS (inflation protected bonds) are trading negative for the first time ever, meaning you are betting inflation will be worse than the small loss you will take on the bonds.

    A trader named Paulson made a record Wall Street profit on single trade, shorting SubPrime loans. Gold investors are happily sitting on 300%+ returns since 2002. Those holding US Dollar short positions have doubled their money in several years. CTA programs have achieved 70% - 150% in 2007, trading currencies, commodities, and futures. Anyone long Oil or Gasoline futures in the past months would have been very profitable.

    Clearly, there are hundreds of opportunities but no clear magic bullet solution that could be recommended, compared to 5 years ago when a US Dollar short or Long Gold portfolio could have been safely recommended. It is for this reason Elite E Services is launching a Global Opportunities Hedge Fund, which should be ready by late spring. If you are trading for yourself, take quick profits and don't hold any positions for the long term, and seek new opportunities. Keep in mind the opportunities may be biased toward the Short side than the long side, as DOW and NASDAQ components will be hit by a sinking dollar, sinking US Economy, and credit problems.
    Recommended Forex Trading Platforms

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    Why US Interest Rates and the US Dollar Will Continue to Fall
    Reason 1
    The dead cat bounce in the US dollar that I was looking for this week did not last long. The combination of weaker US economic data and stronger Eurozone data has taken the Euro to a high of 1.5760. I was looking for German IFO to beat expectations because the flash estimates of manufacturing and service sector PMI in Germany both reported improved business conditions in the month of March. If business activity was stronger, there was a slim chance that business confidence would be weaker. The market or bank analysts in particular are notoriously wrong about predicting German business confidence. They have a preconceived notion that a strong Euro, slower US growth and high interest rates will make business less optimistic. But if the numbers do not indicate that growth in Germany is slowing, then we shouldn’t assume so.

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    Reason 2

    The Big Guy Says Don’t Bother
    French President Sarkozy said that France and the UK should join forces to pressure the US into strengthening the dollar. There is zero chance that the US will be bowing to these pressures especially without a similar call from ECB President Trichet.

    Trichet called the Big Guy because he never wavers on criticism or pressure from politicians and reporters. His word is generally as good as gold. This is why when Trichet said this morning that “there is no need to change the framework due to market turmoil,” Euro traders quickly shrugged off the complaints from Sarkozy.
    eason 3
    The US needs a weaker dollar to spur growth, just as much as the Eurozone needs a stronger Euro to curb inflation.

    Reason 4
    US Data Continues to Weaken
    In contrast to the stronger German IFO report and Eurozone Industrial Orders, Durable Goods in the US plummeted. The monthly decline for February was the largest on record. Even new home sales fell to a 13 year low with average prices declining from $250,800 to $244,100. The housing market is trouble which means that the Federal Reserve still has a lot of work to do.


    Expect interest rates to fall below 2 percent in the next 3 months.

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    Will there be Intervention?
    Not anytime soon. The Japanese have expressed concerns about disorderly movements, but since their last intervention in 2004, their top priority has been to convince China to revalue their currency. I doubt that they will be willing to risk the past 4 year’s efforts 3 weeks before the finance minister’s meeting in Washington DC and 4 months before the G7 meeting that they will be hosting.

    As for the ECB, they are worried about sharp and excessive moves, but they have their eyes peeled on 1.60. As long as we hold below that price level, I don’t expect any verbal intervention because in 2004, the EUR/USD rallied 13 percent in 2 months before the ECB called the move brutal. If we count 1.59 as the high today, the EUR/USD has only appreciated 10 percent over the last 2 months. The ECB’s top priority is inflation. The strong Euro is cushioning the pain on high commodity prices.

    Don’t expect the Fed to come out and buy dollars either. They need a weak currency to draw in foreign investors that may be looking for value and to boost exports.

    However this is not to say that there couldn’t be a coordinated liquidity injection or a similar move reflecting solidarity amongst global central bankers.
    What about Carry Trades?
    With high volatility in the stock market, and 300 point swings in currencies, don’t expect a recovery in carry trades either. If anything, expect further weakness in USD/JPY to drag the other yen crosses lower. The demise of Bear Stearns has made everyone gun shy. I am sure that risk managers across Wall Street banks are on red alert, forcing their traders to minimize risk.

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    US Economy Is Still in Trouble, Weaker Dollar Needed
    Even though sales of existing homes rose for the first time in 6 months, today’s reports on house prices and consumer confidence tell us that the US economy is still in trouble. According to S&P CaseShiller, house prices dropped over 10 percent, the largest decline on record. With the values of homes quickly slipping, it is hardly surprising to see consumer confidence drop to a 5 year low.

    The weakness of the housing market spells trouble for the US dollar because housing is the backbone of the US the economy. The Federal Reserve will be forced to reconsider their plans to slow monetary easing.

    As one of the lowest paid central bank Governors (if not THE lowest paid), Bernanke’s job is at stake. He can be dismissed by the sitting US President for practically any reason. Therefore he will do all that he can to avert a serious recession in the US economy in fear of backlash from US politicians.

    If the US housing market weakens at a time when the slide in the dollar begins to moderate, the US economy could find itself in even more trouble. Over the past 6 quarters, exports have on average contributed nearly 1% to annualized economic growth whereas housing has subtracted slightly more than 1% during the same period. Therefore if the housing market continues to deteriorate and the dollar simply stays at current levels, GDP growth could quickly deteriorate.

    That is why the path to a stronger dollar must be through a weaker one.

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    thank u for this important information

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    Dollar has gained strendth in last 3 montsh enough against many pairs excpt JPY

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    Quote Originally Posted by the ikoder View Post
    Theoretically, the US Dollar can go to zero. While unlikely, it should be remembered that nearly every currency that has ever existed throughout history, eventually has a crash that destroys 90% of absolute value, or more.

    Won't foreign Central Banks support the dollar?

    Why should they? If you are hungry, and your 600 lb. neighbor (who is now so fat he can't even walk anymore he needs to use one of those little carts) missed a few meals, which happen to be 5x expensive as yours, would you finance his dessert? Of course not. You are thinking many things, but supporting his habit of overeating isn't one of them. The US consumes over 25% of the world's resources but produces less than 10%. Economists may not care for such a crude analogy, but the situation with the US Dollar is very, very simple, and should not be overcomplicated. The USD has been a reserve currency for the post WW2 world, but since Nixon abandon gold standard, the USD is backed by only the belief and faith in US Government. We are seeing a commodity boom, not because of a bubble in commodity asset prices, but because of a decline in the USD, the world's reserve currency in which many commodities (especially Oil and Gold) are priced. In any event, it's not likely that foreign central banks will bail out the dollar, because that would in effect make them eat a realized loss in their current account. Moderately wealthy nations cannot afford to take the loss of the US, the largest and wealthiest economy in the world. The US has been a financial big brother who have bailed out other failing economies  but the US has no big brother to lean on, except maybe Russia, although that wouldn't go over too well in Washington. So if the US Defaults, who can come to the rescue?
    Doesn't this sound baised if you have to say that?

    I know obesity is a problem in US BUT seriously with the price of food skyrocketing. I know that it would hurt American's wallet which altered their physological mindset. The key ingredient you are missing is physcology.

    People thought gas price get higher and higher thus tried to save more and more gas. Recession kick in and the demand for gas even lower more than what anticipated because construction crews don't build houses on a falling home value.

    "Ron Paul" extremist that have expertly stock trade stated that lowering federal reserve rate and oil price is an indication of failing economy but have expressed that lowering federal rate doesn't do much help.

    Honestly. I don't see much different in mortgage price minus the federal reserve rate. It take credit score to get loan from bank that used the federal reserve. In a failing economy, a credit bureau become a barrier in a business revival or expansion for ex-employee. The CDO doesn't want any part because of the sub-prime mortgage crisis.

    Which trick are you trying to pull when come to federal reserve rate cut?

    This is basically my opinion with the help of other expert trader's points.

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