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A Strong U.S. Dollar Weighs on the World

nytimes.com

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Re: A Strong U.S. Dollar Weighs on the World

#61

Post by relaxing »

po wrote: post #15

> The yen is at a 34-year low against the U.S. dollar I live in Japan and this has happened so quickly it's been stunning. While not much has changed domestically so far, I am hearing and starting to see foreign people question whether they could work and live here long term if it stays like this. It's fine if you are earning USD and visiting Japan (wow there are so many tourists this year) but if your salary is pric…

Thanks for mentioning the strong/weak terminology. It really impedes laypeople’s understanding of economic issues.

Re: A Strong U.S. Dollar Weighs on the World

#62

Post by po »

brutus1213 wrote: post #59
po wrote: post #42

Earlier quoted context omitted.

This is exactly right, and also demonstrates why the Japan is in a bind. They don't mind the currency going low as it helps exports but going too low, too fast is a problem. Increasing interest rates to narrow the spread will affect the economy. So they are walking a very tight line here between JPY/USD spreads and domestic economy/interest rates. All global economies are to some extent but since JPY is trusted and h…

What happens if the JPY appreciates against USD? Do investors hedge this (I assume this incurs a cost) or do they do this "naked"?

If JPY appreciates against USD they don't make money or can even lose money. I'm sure there is some hedging going on, but I don't know for sure the mechanics of it all: https://www.thebalancemoney.com/yen-carry-trade-explained-pr...

Re: A Strong U.S. Dollar Weighs on the World

#63

Post by Moto7451 »

a_wild_dandan wrote: post #40
Moto7451 wrote: post #33

Earlier quoted context omitted.

The Federal Reserve (The Fed) is supposed to work independently of the political process which is why we have the same Fed Chair as we did during the Trump years. Ironically this means the Fed Chair keeping rates high is the same one that set a zero base rate. The various Fed leaders operate under the same guise of serving outside the political cycles. They’re still human so they can be swayed by Presidents and obvio…

FYI, Trump has vowed to purge the executive branch of unloyal employees, aiming for unitary rule during his 2nd term. It’s unclear how much of this his conservative SC majority will allow, but…the norm of stable, institutional independence might be gone soon.

Sure, Supreme Court volatility opens that up. The last time his Chairmanship was under threat it was unclear if he could be removed by Trump simply because Trump wanted to so it would require the usual "Do the thing", get sued, take it to the Supreme Court. Such actions aren't instant even for the President, especially if he is busy having them settle his other matters he wants to bring to them.

https://www.pbs.org/newshour/show/does-the-president-have-le...

Also, removing Powell doesn't let any president put someone in who will set whatever rate they want. It must be a member of the Board, of which two are his nominees from his term. They also don't have to listen to him.

When it comes to setting rates, Powell is chairman, not supreme leader. The FOMC sets rates and that is a group of twelve.

https://www.investopedia.com/terms/f/fomc.asp

Given Trump wouldn't see sworn in until 2025 and would have the usual problems of any new President rather than the benefit of a second term, and as Powell was confirmed in 2022, under current case law, Trump at best simply gets to nominate a new chair a number of months before he'd do so in 2026.

Powell's single 14 year term on Fed board ends in 2028 so there will be a new Chair no matter what after that.

While from a Political standpoint, I don't like what he may do, I am ok with how this is setup. This is not as easy as simply replacing his cabinet members and that is a good thing.

Re: A Strong U.S. Dollar Weighs on the World

#64

Post by skybrian »

bamboozled wrote: post #30
po wrote: post #15

> The yen is at a 34-year low against the U.S. dollar I live in Japan and this has happened so quickly it's been stunning. While not much has changed domestically so far, I am hearing and starting to see foreign people question whether they could work and live here long term if it stays like this. It's fine if you are earning USD and visiting Japan (wow there are so many tourists this year) but if your salary is pric…

you can borrow JPY and invest in USD and make 4-5% on it. I have JPY, can I make money on it, or do I need to borrow it? Is the idea here to buy USD, wait for the price to go up, and then sell it back in JPY?

It’s not a risk-free trade. Borrowing yen and buying dollars is effectively shorting the yen (relative to the US dollar). The investors who did this before made money because the yen dropped, but maybe they will want to take profits, which would tend to strengthen the yen.

Borrowing yen now to buy dollars is sort of like shorting a stock when the price already dropped. The interest rate difference makes it a cheaper bet, but it’s still a bet and could go bad if the yen strengthens.

Re: A Strong U.S. Dollar Weighs on the World

#65

Post by caeril »

po wrote: post #15

> The yen is at a 34-year low against the U.S. dollar I live in Japan and this has happened so quickly it's been stunning. While not much has changed domestically so far, I am hearing and starting to see foreign people question whether they could work and live here long term if it stays like this. It's fine if you are earning USD and visiting Japan (wow there are so many tourists this year) but if your salary is pric…

> is being caused by carry trades by the financial sector.

This is a solid short-term explanation, but there's always an investment sector focused on the long term, and those guys are looking at the demographic disaster Japan will inevitably experience.

Carry trades and yield arbitrage explain a lot, but the Hikikomori are wrecking the Yen over the long term.

Re: A Strong U.S. Dollar Weighs on the World

#66

Post by sampa »

resolutebat wrote: post #54
sampa wrote: post #46

Earlier quoted context omitted.

their debt is 230% of GDP when global crisis hits again (pretty soon, I'd say), they will have major problems for now people (carry traders) are happy to borrow yen for 0% and convert and earn 5% in USD, hence the falling yen

Like the US, Japan's debt is almost entirely to itself, they can print money to get rid of it. Of course, this won't do the already weak yen any favors.

if only printing money could solve all problems

alas, but people don't like inflation

Re: A Strong U.S. Dollar Weighs on the World

#67

Post by marak830 »

po wrote: post #15

> The yen is at a 34-year low against the U.S. dollar I live in Japan and this has happened so quickly it's been stunning. While not much has changed domestically so far, I am hearing and starting to see foreign people question whether they could work and live here long term if it stays like this. It's fine if you are earning USD and visiting Japan (wow there are so many tourists this year) but if your salary is pric…

So quickly so, that I was considering buying a new PC costing about 450,000yen, now it's over 500,000 and I'm putting it off. (For comparison I could get this for approx 3k USD).

Re: A Strong U.S. Dollar Weighs on the World

#68

Post by caf »

skybrian wrote: post #64
bamboozled wrote: post #30

Earlier quoted context omitted.

you can borrow JPY and invest in USD and make 4-5% on it. I have JPY, can I make money on it, or do I need to borrow it? Is the idea here to buy USD, wait for the price to go up, and then sell it back in JPY?

It’s not a risk-free trade. Borrowing yen and buying dollars is effectively shorting the yen (relative to the US dollar). The investors who did this before made money because the yen dropped, but maybe they will want to take profits, which would tend to strengthen the yen. Borrowing yen now to buy dollars is sort of like shorting a stock when the price already dropped. The interest rate difference makes it a cheaper…

In the early 1980s, a couple of Australian banks took advantage of very low Swiss interest rates to offer a series of apparently cheap loans to small businesses and farmers, with the catch being that the loans were of course denominated in Swiss francs.

Within a few years, those borrowers (whose income was naturally denominated in Australian dollars) got a very painful lesson in that risk, when the exchange rate between the Australian dollar and the Swiss franc moved significantly, putting them very much underwater on those loans.

(This became known as the "Swiss loans affair", with allegations that the banks in question had in many cases not adequately informed the borrowers of the risk).

Re: A Strong U.S. Dollar Weighs on the World

#69

Post by roenxi »

xnx wrote: post #60
roenxi wrote: post #23

This is one of those instances where technical language is misleading. The US dollar is indeed "strong", but it still buys less stuff than it did last year. The gold price is not impressed by this sort of strength. The news is interesting more as commentary on relative policy positions of central banks around monetary supply and how much of that is leaking into international trade. On that topic; I've been watching t…

> The US dollar is indeed "strong", but it still buys less stuff than it did last year. "...Americans can afford to buy more foreign goods and services (including cheaper vacations).

Unless you're in the habit of taking daily holidays that is practically untrue. The US dollar has been dropping in value at a rate of ~5% per annum for the last few years. And have an official policy of dropping ~2% per annum.

So even if it strengthens 10% against the Yen then that just means that someone in Japan will be feeling really poor, but a US dollar still won't be buying as much as a US dollar from a few years ago would have once inflation in both currencies gets factored in. The purchasing power of all the currencies is dropping, it is just the Yen is dropping faster. These are policy choices by the respective governments (although they often don't feel like choices).

I'm sure there are a bunch of currency traders making good money and it is certainly possible that US dollars buy more in some places. But it is more likely that a US dollar in 2024 buys less than in 2023 everywhere, because the US government has an official policy of making it so. Over 5 year timelines it is all but a guarantee that they will succeed in their policy. There isn't a global trend where the US dollar buys more than it did some time in the past; it is strengthening against other currencies, not rising in value.

Re: A Strong U.S. Dollar Weighs on the World

#70

Post by orwin »

redox99 wrote: post #20
orwin wrote: post #18

Earlier quoted context omitted.

Weirdly, there is also a premium on US multinationals. When you compare dividends+buybacks from UK/French/German companies to US companies, expected returns over 10years, and stock price, excluding "growth" companies (Tesla, netflix, Uber), you can see a 10 to 20% premium. Is it stability priced in?

If given choice to invest in a US company or an EU company, all things being equal, I'd pick US any day of the week. 10% to 20% premium seems kinda low in fact.

Yeah, i think it is a totally reasonable thing to do, if you're a day trader or a short term investor, or you invest in "growth" companies

_I_ also think it shouldn't matter in non-tech, non-growth companies. If Nestlé or lactalis crash (lactalis might be a bad example, i don't think they have public investors), i doubt Cargill or Heins will take the hit better. If you're a long-term investor (and let's be honest, most of us are) and mostly count on dividends to "make" money, you should be better off investing in old brand without paying the US premium.

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