No doubt you are aware the US Fed funds rate is currently 5.25%. You may be surprised to know the overnight rates from some countries.
South Korea left rates unchanged today at 4.5%
Malaysia approximately 3.55%
Poland 4.00%
Chile 5.25%
OK, Chile isn't lower than the US but would you have thought it would be the same? There is nothing unprecedented about this but it is interesting to me that money can be cheaper in some emerging markets.
Currently there is an ambiguity as to what will happen in the US with rates. The Fed has had the market on pins and needles for the last the last couple of months as the hike/pause/done debate has continued. It may be correct to take the view that the Fed really does not know what it will do.
Are there market implications? I'm sure there are. My own take on this is big, slow moving macro stuff. This is something I have touched on a few times since the start of this site. I think the US as sole world reserve country is coming to an end. The US will be one of a couple (or maybe a few) reserve-type countries.
Despite the concerns about our deficits and various other problems, a toppling of the US is unlikely, in my opinion. The world has too big of a vested stake in the US for something catastrophic unwinding over the course of a decade or so.
I think a likely outcome is higher, not crippling, interest rates, a somewhat, but not dramatically, weaker currency and milder economic cycles. I would expect the impact on the stock market would be average annual growth that is lower than what we think of as normal. This does not preclude the occasional big year in either direction but investors, I think, will need to be a little more resourceful to get that average 10%-ish they are used to.
I would not view this as bad or good, assuming for a second I turn out to be close to right. Markets do what they do and success hinders on seeing changes and then reallocating accordingly.
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4 comments:
Roger, I've heard a number of comments that if oil gets traded in Euros instead of dollars that too could have a serious consequence for the dollar. I don't share that concern as it seems like two different issues: what currency is used to purchase oil and where the petro dollars are invested although if I can see the connection between trading in a currency and demand for that currency.
I wonder if you or anyone has any thoughts on this?
I basically agree with your decreasing importance of the dollar going forward, but why would that affect interest rates?
The fed will loosen or tighten as they see needed based on our economy. The fed will not defend the dollar.
Well, well....very interesting.
What happens when the dollar goes UP?
-We have money to buy cheap foreign goods. Since we don't make anything in America anymore, it keeps prices low.
What happens if the dollar goes DOWN?
-dollar looses it's luster ( bd )
-Foreign goods cost MORE ---->>>>>>>>>> INFLATION
-what we do make gets sold quickly to foreigners because it is cheap
So, a weak dollar will be good for those companies like KO, GE. But will be inflationary to our economy because the stuff we buy is made elsewhere.
The 24/7 news cycle has made every single,itsy-bitsy, tiny, speck of news into a cataclysmic event. I think the mood of the US and the civilized world at prsent is to be in panic fatigue. As investors, we should not let the selling of news be a beacon for investing (better to buy CBS instead of taking notes on what the new Couric is reading off cue cards). This fatigue is another reason I don't like gold or silver at present. I think that signs point to less international turmoil (see fatigue factor), a soft landing with the economy and a slightly weaker dollar which is good for exports. If I am wrong and the world spirals into chaos with Muslim extremists backed their minions and the BOMB winning hearts and minds, I can adjust and rule as master with five or six beautiful wives in burkhas executing my every desire. I might even buy some gold.
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