The Junk US Dollar Skyrockets but whose fault is it?

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Oct 28 2008
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Another slaughter day (Monday) in the global stock markets *yawn* and the yoyo is expected on Tuesday as well. I wonder if all the governments worldwide instructed their print and electronic media to announce fictitious news such as Dow Jones jumped 1,000 points or 1 million tons of gold suddenly found hidden in some caves or every citizen will be given free cash of 1 million to buy stocks, will the confidence suddenly reverse for the better. After all it was all about peoples’ sentiment when come to stocks. As much as I would like to day-dream *smack me* we’ve to accept the fact that the global economy is in total chaos. Unlike 1997 Crisis this time it would be more serious because the U.S. is in the center of the problem. And guess what, the Bush administration is not super-worry about it because they know someone will definitely offer the seat for the super-power in this musical chair game.

US Dollars IOUsWe’ve not talk about credit-card debts yet; hopefully it will not burst, mind you. Some (of you) may argue or even clueless why the U.S. dollar is exceptionally strong as if it had taken excessive dose of Viagra. It does not make sense that a country with national debts of over USD$10 trillion is enjoying such a strong currency. Remember my previous article when I mentioned that if you wish to be in debt make sure you owe hell lots of money, not millions or billions but trillions. As individual you should owe the banks millions; as a corporate you should owe foreign debts in billions and as a nation you would be accorded the “VVVIP” privileges if you owe in trillions. That’s the rule of the game and U.S. is the master in this area. Yeah, U.S. owes everyone monies so what? In fact Americans are spending excessively on your money to ensure their debts continue ballooning. In the process rich nations such as Japan, China, United Kingdom, Germany, Hong Kong and Gulf countries are at U.S. mercy due to huge “IOUs” accumulated inside their vaults.

Nobody dares to quit the musical chair game simply because the stake is too high. Imagine the Japanese and Chinese suddenly decided to quit the game and demanded US$600 and $500 billion in gold respectively from U.S. in exchange for the worthless papers to which the U.S. do not have. It will create panic selling on the U.S. dollar and the domino effects are beyond imagination although it would be fun to see an exchange rate of US$100 to RM1 (Malaysian Ringgit) or US$300 to 1 Chinese Yuans for that matter. It would be super-cheap to buy Boeing jumbo planes or their AH-64 Apache helicopters, so much so the Malaysian de-facto PM Najib Razak can get his personal Apache parked on his helipad. But then the U.S. will not be able to buy from the rest of the countries because the manufacturing goods from these countries will costs a leg and an arm.

CAD to USD currency rateEuro to USD currency rateIn order not to interrupt the cycle, the rich nations continue to subsidize and feed the Americans – and continue to accumulate “IOUs”. As much as you like to replace U.S. economy with BRIC (Brazil, Russia, India and China) the time is still too distance for it to materialize. Heck, the Chinese might even collapse despite its huge reserve if the U.S. enters depression, lost its dollar’s shine and never recovers for a couple of years similar to 1929’s dark moment. That hopefully will not and should not happen, going by the U.S. artificial intelligence (AI) model’s logic. U.S. is just like the dark hole in which the gravitational field sucks up all the goods manufactured elsewhere. The biggest debtor has the market huge enough to take this role and you do not want to poke her nose with a stick lest you have an alternative market to import all your goods. So naturally other nations will push up the U.S. dollar so that it would “appear cheap” to the U.S. consumers.

Hence, don’t expect Malaysian Ringgit to strengthen anytime soon because it won’t. The central bank (Bank Negara) has been intervening for many weeks to stabilize the Ringgit else it should have nose-dived to RM3.80 to a dollar long time ago. Even if it drops to RM4.00 to a dollar I’m not complaining because inflation will continue to rise regardless of RM3.50 or RM4.00 to a dollar as long as the incompetency, cronyism, corruption and nepotism are still very much alive. Short the ringgit as much as you like because it’s going down the toilet anyway. The next move from the Feds is to cut the interest rate again but I doubt it will help much. And the reasons why Malaysian Central Bank stubbornly maintained the interest rate were to attract foreign hot monies (hopefully) and the so-called inflation (what inflation?) but again I doubt they can hold on to it for long.

SGD to USD currency rateRM to USD currency rateFrankly I don’t think the local stocks have reached the “cheap level” yet, at least to me. IOICorp at RM2.19, Resorts at RM2.23, Genting Berhad at RM3.94, Maybank at RM5.00, Tenaga at RM6.15, Public Bank at RM7.85 and others are still “very expensive” relative to the 1997 Crisis. But if your objective is to boast that you managed to buy at the bottom and catch the knife, nobody is stopping you from buying one share everyday *grin*. I want to see real panic selling.

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I don’t understand though why the AUD is so low against MYR. I would have thought Australian economy is in better shape than Malaysia. What’s your opinion?

hello henrie,

compared to MYR, the AUD is more “open” and the authorities rarely intervene to support the currency and when the crisis hits the AUD had a greater free-fall …

AUD also plunged against YEN and as a result the currency carry trading worsen the currency when speculators dumped the AUD …

the interest rate cut didn’t help the currency with expectation of more cut in the future – if situation worsen …

above are just my humble opinions …

cheers …

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