Monday, October 19, 2009

Drivel About the Dollar

"another coffin nail for the dollar", "no just kidding", "well maybe"

Over the past 50 years, there must have been 10,000 articles which put "another coffin nail" in for the dollar. In the referenced article, the Financial Times says, "yes, no, do nothing, maybe". In the early 1980's, there was a streak of several years when the articles went the other way, saying, "Oh my God, the strength of the dollar is going to kill us all!".

It would be silly for oil to be repriced into something other than dollars, when America continues to be the biggest buyer on the world markets, but it would not be Armageddon if it happened. It is just as easy to calculate exchange of dollars for euros as it is to calculate the exchange of euros for dollars. There can be do excessive dumping of dollars without producing great profits for those willing to be the dumpees!

There are many countervailing forces at work. American's largest export is computer chips. The price of computer chips is falling rapidly and demand is rising exponentially. For as far as the eye can see, very strong sales and profit growth are projected for big American companies such as INTC. Over the next few years, computer chips are going to send terabytes of information from from road regulatory signs and health monitors to other chips that will resend and process this data. Your guess is as good as mine as to what innovative uses will be found for the most inexpensive and most powerful chips ever made! The source of America's oil import money is alive and prospering.

The primary source of concern, about the strength of the dollar, is not even mentioned in the FT article; yes, if democrats get their way, America will increase its domestic spending on heath care by trillions and America will be forced to raise taxes dramatically. However, in district after district, the American public is already prepared to throw the big spenders out. Intrade odds on passage of an Obama health bill in 2009 have fallen by more than half.

If investors are inclined to make very difficult and complicated bets on international finance, more power to them, but they should not rely on the "yes, no, maybe drivel" in articles such as this. More importantly, they should not be scared away from investing in equity by these kinds of articles that, decade after decade, use words like requiem and coffin nails. The thing that needs to be buried once and for all is "pornographic economic drivel".

in reference to:

"Australia has just this week hammered another nasty nail into the dollar’s coffin by – in what everyone is referring to as a “shock move” – shifting interest rates from 3 per cent to 3.25 per cent."
- / Personal Finance - It’s too early to sing a requiem for the dollar (view on Google Sidewiki)

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