For the first time in history, the GBP has treated me badly. I am holding some that I bought at 22 pesos pero a couple of years ago! Don' have that many Euros but bought them at 18 2 years ago too.
An interesting article entitled:"Play catch-up with Mexico Often considered NAFTA's weakest link, the emerging market is coming on strong On Monday, the Mexican Bolsa index, the country's top equity benchmark, hit a new high, only to soar even higher yesterday. The Mexican peso, meanwhile, reached its highest level since early October 2008 yesterday and remains the top-performing currency among emerging markets this year." The whole article here: Play catch-up with Mexico
Peso Thanks for reminding us, Jim. Many currencies suffered greatly against the dollar in 2008. While many of them have recovered a great deal of their lost ground, the peso, it seems, has lagged behind, somewhat, making it a currency with good potential for further gains, in the short term. Last year, we had a heavy stake in the Mexican peso but became impatient with it when it didn't recover as fast as some of the others did. It could still represent a good way to enjoy a nice gain this year, now that the identification of Mexico with the swine flu, and its impact on tourism, is over.
Yet the prices at most (greedy) stores for everyday goods are still increasing as if the peso is weakening... my cost of living is up about 10% so far this year on top of the 15-20% increase last year and the 20% the year before when the peso started its decline.
The U.S. economy is showing signs of stabilizing, if not growing, and the stock market has responded to that news, but what concerns me, when I step back and look at it, is that the U.S. economy is where it is despite being under tremendous stimulation- the massive tax cuts enacted early in the last decade are still in place, the expenditures involved in conducting operations and maintaining forces in two theaters of war continue, historically low interest rates are where they've been, and the money supply has been rapidly expanded over the last eighteen months (2.5X, as I understand it)- yet the economy remains laggardly. Can the U.S. economy simply be "tired" after everything that's happened, burdened with a continuing housing debt crisis as it is, and prove to be much like we've seen with Japan's economy, staying more or less where it is for the next decade, or longer, in spite of all efforts to stimulate it?
Have your sheep been fleeced, yet? Get ready.... The pattern in which, when U.S. markets head up the dollar heads down, which I had not seen until the financial collapse of 2008, remains in place, and will probably do so until full confidence returns to the markets, home prices stop declining, and the Federal Reserve starts to raise interest rates. The peso, it seems to me, benefits (in value against the dollar) from this, too, but also has its own strengthening trajectory, based on Mexican economic factors. So far as I know, Mexico was not victimized by a housing market inflated by that innovation in the financial world known to some as the SIV- which encouraged untold billions to flow into the pool of money available for new home mortgages in the U.S., and led to the collapse. ____________________ Nothing has been done to reform the financial markets in the U.S., to date. Having been bailed out by the U.S. taxpayers, its back to business as usual at the big investment banks. All of the things that led to, and aggravated, the collapse of western economies are still in place in the markets, including OTC derivatives, which Warren Buffet has all but called the economic terrorist weapon of choice, if the wish is to destroy the economy. Goldman Sachs (didn't we hear their name mentioned, just recently, in an SEC prosecution for fraud? one and the same!) just announced a 3.5 billion USD profit for the quarter. Whose sheep will end up being fleeced for that tidy sum, do you suppose, along with other billions, before the excesses again lead to a collapse? [That you were a victim becomes apparent only when things go south- broadly speaking- making it one of those things you wake up to, over coffee, while reading your paper some fine morning.] [In case you weren't following the news, Goldman Sachs was accused in the SEC complaint of offering for sale, and encouraging people to buy- by representing them to be safe- securities that they themselves believed, and had secretly bet, would collapse, which they did and from which, Goldman Sachs made billions- first by selling the things, then by betting they would fail. Are your sheep feeling the breeze, yet?] _____________________ We, like many others, suffered losses, but not as a direct result of the collapse of the housing market or the sharp downturn in the markets that occurred late 2008- because we'd seen this coming for a long time, like a slow motion train wreck- but, rather, as a result of the general economic collapse and the dislocations it caused, which changed many of the rules we were familiar with, like strong economies producing strong currencies. The unwinding of positions caused the dollar to strengthen (my interpretation of this otherwise counter intuitive result), even as the U.S. economy was collapsing and the Federal Reserve was chopping interest rates (this also helps understand the gains many currencies have experienced in the last year- in some cases, like the AUD, of 50% against the dollar- where rising interest rates in economies that are recovering more quickly than our own, coupled with investors moving out in search of foreign denominated investments, and reestablishing much of the carry trade, have combined to drive other currencies higher). ___________________________ For anyone curious to know more about derivatives, these financial instruments traded privately, and completely unregulated which Warren Buffet warns about, read on- The most common types of derivatives are futures; forwards, which are futures traded outside of a regular exchange; options, which are the right to buy or sell something at a specified date and price; and swaps, contracts involving an exchange of assets or payments. In recent years, a bewildering variety of derivatives have been developed. One kind that played a central role in the financial crisis are credit default swaps, which are in essence a form of insurance policy, and whose value swings with the fiscal health of the transaction or asset it is written to cover. Swaps and other derivatives were often sold and resold in ways that attenuated the link between a party who created the thing of value being covered, and helped disguise the level of debt financial institutions were taking on. In the later stages of the housing boom, credit default swaps written in reference to mortgage-backed bonds were themselves bundled into financial instruments, known as synthetic CDOs, or collateralized debt obligations. Investors buying CDOs were essentially placing a wager on whether bonds held by someone else would turn a profit or fail. At the end of 2008, the Bank for International Settlements in Switzerland estimated the face value of all derivative contracts across the world to be $680 trillion, up from $106 trillion in 2002 and a relative pittance just two decades ago. Theoretically intended to limit risk and ward off financial problems, the contracts instead have stoked uncertainty and actually spread risk amid doubts about how companies value them.
Euro Well, Greece's inability to manage it's debt is in the news, again. From the N.Y.Times- People know that, because of interlocking debt obligations in which one redemption leads to the demand for another, a chain reaction can occur, leading to a general collapse. Last I heard, Greece was having to agree to pay 7% in interest above the Eurozone average to get anyone to buy their debt; and, yesterday, their credit rating was again cut by the credit rating agencies, which will make it even harder for them to finance the debt they have. _____________________ Notice the way in which the situation in the U.S. is already worse than it is in Greece. The time has long passed in the U.S. in which the government could borrow money- like it did up to the fall of 2008- to pay interest on its debt when due, and to satisfy redemptions, on the debt it already had. The only way the U.S. Government can stay current on its debt obligations, now, is to do what it is doing- something no individual can do- print money, as necessary, to cover interest and redemptions of its debt. That is a thing known to lead to a currency collapse, when pursued too long, as people will begin to lose confidence in the value of the debt they hold, and start liquidating, as the Chinese appear from the data to have begun doing. If the currency collapses, it will not be without warning, anymore than the collapse of 2008 was, though it may come suddenly. The credit rating agencies continue to suggest they may soon cut the U.S.' credit rating. Everyone who follows these events knows the situation in the U.S., at this time in its history.
The trigger A U.S. currency collapse, if it comes, will probably have a trigger event, something that causes a sudden loss of confidence. Such an event could include a failure, at auction, of an offer of U.S. Treasury Debt. The psychological impact of that on the markets is hard to estimate, but it would be negative. The U.S. continues to offer modest amounts of its debt at auction, with the ever present possibility of buyers simply not bidding sufficient sums to cover all of it; or, demanding higher interest as a condition of extending further credit. Either could act as a trigger to a collapse.
I've assumed, in the past, that if anyone reads this they have familiarity with the terms; but, it's been called to my attention that there are readers who, while lacking in familiarity with the subject matter, are trying to follow what's being said, here. That being the case, I'm going to start offering short explanations of terms, at times, just as I did, above, with "derivatives". I'm just like any other poster in the sense that I like to write about what interests me, and this is one of the things that does....
