Archive for the ‘U.S. dollar’ Category
Currency Wars: Where Investors Are Vulnerable
By Mitchell Clark, B.Comm. for Profit Confidential
“The supreme art of war is to subdue the enemy without fighting.” The author of this quotation is Sun Tzu (544–496 BCE), a Chinese general and the author of The Art of War, the classic manual on warfare tactics.
Eons ago, I had a summer job in golf course construction. It was tough, dirty work, but it was great to learn how a golf course gets made. There was a lot of manual labor, but to move stuff around, my boss bought Kubota tractors. We pounded the daylights out of those machines. They were tough little tractors, for sure.
Kubota Corporation (NYSE/KUB) is, of course, a Japanese outfit. The company’s shares have been soaring on the stock market—a massive breakout after a seven-year consolidation. The entire Japanese stock market has broken out.
Prospects for the Japanese economy are a little brighter, but the soaring Japanese stock market also has to do with the weaker yen. Japanese Prime Minister Shinzo Abe wants to employ massive fiscal and monetary stimulus this year and a weaker yen policy against the U.S. dollar.
Bloomberg quoted Kubota’s President, Yasuo Masumoto,noting the company is expecting an extra 20% gain in revenues starting this fiscal year because of the yen’s drop compared to the U.S. dollar. Kubota’s stock chart is featured below:
Chart courtesy of www.StockCharts.com
Kubota is pining to get into big tractors (those used in agriculture), and management is targeting the U.S. market big-time. Such an outspoken and decisive new policy to weaken the yen versus the U.S. dollar, to sell more tractors, to boost the stock market and everything else, is … Read More
What’s with Russia Buying All This Gold?
By Michael Lombardi, MBA for Profit Confidential
As currency devaluation is becoming a new goal for countries, central banks in the global economy are losing trust in each other.
The notion followed by central banks is that if they devalue their currencies, the prices of their goods become competitive in the global economy. Unfortunately, this may work in some situations, but right now this strategy is questionable. Why? Because to achieve their objectives of devaluating their currencies, central banks are printing money like never before.
Now with all this, think about what happens when central banks increase the circulation of their own currency while the value of their reserves starts to go down as well.
Let me explain…
Most central banks have the U.S. dollar as their main reserve currency. But, as the greenback is also depreciating in value, central banks need to replenish their reserves. And central banks are starting to look elsewhere to top up their reserves. For many central banks, gold bullion is the only option for sound reserves.
The activity of the central banks in the gold bullion market has increased since 2009 when they collectively became net buyers of gold. As I have mentioned in these pages before, central banks will not say when they are going to buy gold bullion or how much they are going to purchase, as they often want to keep their purchases under the radar.
At the World Economic Forum that is going on in Davos, Switzerland, right now, the First Deputy Chairman of Russia’s central bank, Alexei Ulyukayev, said, “We are buying metal and will continue to pursue this course.” He also added, “This is a … Read More
The Severity of the Municipal Budget Deficit Situation
By Michael Lombardi, MBA for Profit Confidential
How severe is the municipal budget deficit situation? In some cases, it is getting to the point of no return. And it’s not just Californian cities that are in trouble; other municipalities in the U.S. economy are struggling to keep up as well.
For instance, San Diego could face a budget deficit of $84.0 million in 2013, compared to a $5.0-million surplus anticipated by the city’s mayor. (Source: U-T San Diego, November 22, 2012.) San Diego’s bigger-than-anticipated deficit is mainly due to investment losses in the city’s pension fund, infrastructure repairs, and the shutting down of its redevelopment agency.
Similarly, the Michigan state treasurer has warned Detroit about troubles ahead. In August of this year, it was estimated that Detroit would have a cash deficit of $62.0 million by June of 2013, and by this November, that number increased to $122 million. (Source: Reuters, December 15, 2012.)
The scrutiny for municipal bonds investors doesn’t end here; they have more reasons to be worried. The main reason municipalities in the U.S. economy are faced with such large deficits is because they promised generous salaries and pensions to their employees, but the tax revenues that would pay for those promises have deteriorated.
After the housing collapse, their property tax revenues fell short, but the obligations of municipalities remained the same. Municipalities issued bonds to fill their pension funds, thus, today’s municipal bond concerns.
Now Moody’s Investor Services is warning municipal bonds investors about cities involved in the practice of raising money simply to fill pension gaps. The rating agency believes that the cities are simply adding more to their liabilities and … Read More
Currency Wars; Who Will Win the Race to the Bottom?
By Michael Lombardi, MBA for Profit Confidential
As the U.S. dollar continues its slump, central banks around the world are questioning the value of their own currencies. The reasons for this are very simple. As the greenback declines in value, other countries are experiencing higher American prices for their exports, stunting demand.
To fight the falling U.S. dollar, world central banks are taking matters into their own hands. They are either printing more of their own money or buying U.S. dollars using reverse-dollar swaps. But no matter what technique these central banks choose to devalue their currency, inflation is the ultimate destination for their country.
The Central Bank of Brazil is continually intervening in its currency market. Brazil’s central bank is holding its country’s currency, the Brazilian real, below the two-reais-per-dollar level. The central bank believes that this level is sufficient to see continued growth in its exports. (Source: Reuters, October 23, 2012.)
Similarly, the Central Bank of Peru made a big U.S. dollar purchase over the past six weeks to fight the rising value of the its currency, the Peruvian sol. This central bank bought $130 million in U.S. dollars to keep the sol from appreciating. (Source: Bloomberg, October 15, 2012.) This is aside from its $158-billion purchase of U.S. .dollars near the end of August.
On the other side of the world, the Hong Kong dollar has also been feeling pressures due to the falling U.S. dollar, even though the currency is pegged at 7.80 Hong Kong dollars to one U.S. dollar. The Hong Kong Monetary Authority, Hong Kong’s central bank, has flooded the currency market with 14.3 Hong Kong dollars to keep the currency … Read More
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