Prospects for the Dollar?

[Rubber Duck]

The crash that could come
By Robert Kuttner | July 30, 2007

HISTORICALLY, October has been the month for big financial busts. But this year, October could come early.

Investors and ordinary citizens have good reason to worry about a perfect economic storm: a deepening loss of confidence in the dollar leading to higher interest rates; the higher rates bringing a crashing end to a hedge-fund, private equity, and merger binge that has depended heavily on cheap borrowed money; the boom in bait-and-switch mortgages ending in a morning-after of rising defaults and sinking housing values; inflationary pressures in food, oil, and other commodities leading to still higher interest rates -- all unsettling stock and credit markets and putting a new squeeze on consumers borrowed to the hilt.

The historical parallels aren't comforting. In the years 1971-73, the United States devalued the dollar and went off the gold standard. Oil exporting countries, compensating for a weaker dollar and angry at US support for Israel, hiked the price of oil. This set in motion a decade-long period of stagflation -- high inflation, tight money, sluggish growth, shaky banks.

If anything, the United States is more vulnerable today. In that era, America enjoyed a net inflow of earnings from global investments, ran a trade surplus, and lent far more than it borrowed. As tourists of the 1960s appreciated, visiting Europe on a pittance of $5 a day (in 2007, $5 buys coffee), the dollar was way overvalued relative to Europe's play-money currencies and overdue for a correction.

But today, our trade deficit is more than 6 percent of gross domestic product, and we borrow heavily to finance both private capital needs and government debt. Until lately, optimists insisted that cheap foreign debt-financing would continue indefinitely and prop up the dollar, because it was in China's interest to keep underwriting American purchases of its ever-expanding exports.

But, swollen with dollars, China is behaving more like an activist investor. The Chinese government's investment arm has begun buying not just debt but real assets, including 9.9 percent of the private equity fund Blackstone and a big chunk of Barclays bank. We can't count on China -- or anyone else -- funding America's burgeoning foreign debt at bargain rates indefinitely.

If the dollar slide turns into a crash, the Federal Reserve would face the unhappy choice of either hiking interest rates to raise foreign confidence in the dollar (thus deepening domestic recession) or letting the dollar sink further and increasing imported inflation.......

http://www.boston.com/news/globe/editorial_opinion/oped/articles/2007/07/30/the_crash_that_could_come/

[touchring]

This is how i see it. American real estate is a goner - the question is not if, but when the mortgage bonds and CDOs will all announce they are zero.

Even if they don't collapse this month, every month that goes by, it will become more and more severe. If they do collapse, the Feds will have to lower rates, and so the dollar will collapse.

So unless there is some law that prevents foreclosure ... and soak up the supply of homes.

[xxbossmanxx]

It's not that bad. Houses in my neighborhood sell for 700k, an all time high. I work for a land company and times are better than ever with them.

There is a lot of room to wiggle when you are this big. Besides, us fat ass americans cant stop consuming lol, it's the driving force behind the economy.

[touchring]

It's not that bad. Houses in my neighborhood sell for 700k, an all time high. I work for a land company and times are better than ever with them.

There is a lot of room to wiggle when you are this big. Besides, us fat ass americans cant stop consuming lol, it's the driving force behind the economy.


So i guess this is only a florida problem? pls keep us updated, this is exciting time. :)

[gammascalper]

Seems like the Fed wants to protect consumer spending more than the dollar, and since most wealth is tied up in home prices, makes sense that they'd lower rates to see if they can surf out the problems over a longer horizon, instead of taking the tough medicine of higher rates now.

Economists are probably intently studying the Japan model of persistantly low rates which helped the consumer at the expense of the banking industry... but if the stock market is a measure of that policy's success, 18 years later, the Nikkei is still less than half of what it was in 1989.

Definitely interesting times, and the problems are evident, but it's difficult to predict timing of either a dollar drop or wider real estate crash. IMO when there's alot of talk in the media about a watershed event in the market, it doesn't happen until it's unexpected, or happens very slowly.

[xxbossmanxx]

So i guess this is only a florida problem? pls keep us updated, this is exciting time. :)

Florida is in trouble, michigan and some other states as well. I dont really like alot about america but hey it could be much worse :) I am not a fat ass and dont own one of those 700k houses here but there is plenty of wealth and prosperity happening and the states are all scrambling to rebuild their biz models for the 21st century.

The problem is that the kids wont be smart enough and hard working enough to compete with the rest of the world soon. (10-20 years?) Seems like if you want to succeed in the world you have to have desire to elevate yourselves, poor countries bust ass while american kids are spoiled.

Florida will be underwater within 40-70 years I wouldnt buy real estate there lol.

[Rubber Duck]

The problem is that the kids wont be smart enough and hard working enough to compete with the rest of the world soon. (10-20 years?) Seems like if you want to succeed in the world you have to have desire to elevate yourselves, poor countries bust ass while american kids are spoiled.


No, in 20 years the kids will have made the adjustment.

The problem is between now and then, and the big pay back for having lived beyond your means for over a decade.

The crunch on the stock market last week was caused because the banks having been underwriting aquisitions in the US market, but they were unable to lay of the loans (money normally comes from Middle East or Asia). Wall Street wobbled which set off the other markets around the World. That is the usual pattern. Most traders understand f*ck all about economics, so they just follow one another like Lemmings. Of course then the dollar hardened, because their gut instinct is to flee into dollars when the going gets tough. What the dumb arses don't understand is that is the stability of the dollar that is the underlying problem. The dollar has effectively been propped up for several years on Chinese financing. The Chinese now consider that they have better things to do with their money.

The argument goes that China has to keep lending so America can keep spending. Ask yourselves whether you keep lending to your Clients if they don't pay up. There is always a point where you have to walk away.

[touchring]

Definitely interesting times, and the problems are evident, but it's difficult to predict timing of either a dollar drop or wider real estate crash. IMO when there's alot of talk in the media about a watershed event in the market, it doesn't happen until it's unexpected, or happens very slowly.


There is now extreme exuberance in Asia (outside Japan), and no one here believes that the bull can be stopped. Fits your unexpected description.

If there were to be fallout or recession, it will be a good opportunity to acquire value assets, particularly so in post-Asian crisis economies like singapore, hong kong and south korea, the rebound will be quick. :)

[gammascalper]

The problem is between now and then, and the big pay back for having lived beyond your means for over a decade.

The baby-boomers who bought their $2mm house for $50k in 1960s won't flinch if their house valuation drops by $1mm. They still need a place to live and they don't have a mortage.

But I think you're right on when it comes to the Gen-Xers who bought on the margin in the speculative areas, like Vegas. There's going to be some pain there.

There's also a ton of supply coming on stream in major cities, like SF, when the builders couldn't say 'no' when the writing was on the wall. Thousands of them are luxury apartments built on landfill (not as desirable to seasoned earthquake riders in SF), so it'll be interesting to see the magnitude of discounts that are upcoming.

There is now extreme exuberance in Asia (outside Japan), and no one here believes that the bull can be stopped. Fits your unexpected description.

If there were to be fallout or recession, it will be a good opportunity to acquire value assets, particularly so in post-Asian crisis economies like singapore, hong kong and south korea, the rebound will be quick. :)
Never been to Sing, but pollution in HK is unbearable which makes it lose points imo. The only weeks I see blue-skies in HK is when they shut down the factories in China for a week in winter.

I'm thinking more on the lines of Qingdao, where you can still get a villa on the coast for a reasonable sum -- last I heard at least :)

[touchring]

Never been to Sing, but pollution in HK is unbearable which makes it lose points imo. The only weeks I see blue-skies in HK is when they shut down the factories in China for a week in winter.

I'm thinking more on the lines of Qingdao, where you can still get a villa on the coast for a reasonable sum -- last I heard at least :)


Seems that Singapore is getting some of the action because of this. :)

[Rubber Duck]

You are correct of course that all the action and all the pain is at the margins. There are vast swathes of homeowners that never transact. Some of it get passed down the generations. However, what happens at the margins is important because that is a huge economic driver. Movers buy furniture, soft fittings and appliances. They also provide a lot of business for the financial and legal sectors. When the housing market freezes, a lot of people are in pain. It impact on employment, which then has further impact on the housing sector itself. Those without jobs don't buy house and can become distressed sellers. Even those that don't move feel less wealthy when the valuations of their Real Estate Falls so they tend to be more cautious about buying cars, motor homes or luxury holidays etc.

The UK has been through all this big time at the end of the last century. There a virtuous circles and viscous circles in economics. It can be very hard to break out when you fall into a negative cycle. The US has a lot of problems at this level. The demographics is not good. The baby boomers are getting old and that will put a big drag on the economy. Japan and Germany have similar problems short-term, and even China has a big problem brewing on the demographic front longer-term.

The basic problem is that huge debts ultimately result in weak currencies and high interest rates, which result in high unemployment and weak asset values, which then feed through into low investment. The problem is that the strong dollar has provided an Alice in Wonder land environment. You are now going to have to live without it and trade in a very competitive global market on a level playing field. Indeed, in the short-term to medium term you are likely to find yourself playing uphill against the rampaging new economies, not only of China but also of India and Eastern Europe. It will be tough, and the US will never again enjoy such a privileged position in the World. Even Western Europe is becoming relatively much more competitive.


The baby-boomers who bought their $2mm house for $50k in 1960s won't flinch if their house valuation drops by $1mm. They still need a place to live and they don't have a mortage.

But I think you're right on when it comes to the Gen-Xers who bought on the margin in the speculative areas, like Vegas. There's going to be some pain there.

There's also a ton of supply coming on stream in major cities, like SF, when the builders couldn't say 'no' when the writing was on the wall. Thousands of them are luxury apartments built on landfill (not as desirable to seasoned earthquake riders in SF), so it'll be interesting to see the magnitude of discounts that are upcoming.

[jacksonm]

It will be tough, and the US will never again enjoy such a privileged position in the World.

Not without taking it back by force, which could very likely happen if it really comes down to the doomsday scenario being forecast here.

.

[Rubber Duck]

Not without taking it back by force, which could very likely happen if it really comes down to the doomsday scenario being forecast here.

.

Yes, I am sure that after his successes in Afganistan and Iraq, he must be feeling that selling invasion of China, Russia and India, would be an easy sell to the gullible American public. :rolleyes:

[jacksonm]

Yes, I am sure that after his successes in Afganistan and Iraq, he must be feeling that selling invasion of China, Russia and India, would be an easy sell to the gullible American public. :rolleyes:

I would love to continue this discussion, but i digress; we're here to discuss domains, not politics. Suffice to say, the w and his cronies won't be in washington much longer.

.

[Rubber Duck]

Interesting extracts from article San Fransisco Chronicle on Robin Meredith of Forbes:

....A comprehensive primer on the development of these Asian tigers, Meredith's book shows that the fear behind alarmist predictions is not entirely unwarranted. In 1996, China exported $20 billion worth of electronics. By 2004, those exports had grown to $180 billion. A stunning 75 percent of all new toys in 2005 were made in China. Its economy has grown an average of 9.6 percent a year since it began to embrace a market economy in 1978 (the United States grew roughly 3.5 percent last year). The same country that was issuing ration coupons in 1992 now features a Starbucks on the Great Wall and one in the Forbidden City. China's economy is expected to overtake the United States' by 2030.

India's emergence, though more recent, is no less impressive. The country has grown at an average annual rate of 6 percent since beginning its economic reforms in 1991. India had 300,000 cell phones in 1996, but Indians today buy nearly 7 million cell phones a month. Foreigners have invested in more than 1,000 Indian companies -- a record for any country outside the United States. Of the world's 500 largest companies, 400 send work to India. As Meredith puts it, China has become "factory to the world" and India "back office to the world.".....


...The best way to deal with these problems, Meredith rightly argues, is neither apathy nor aggression. "Forget protectionism. Forget letting the free market ride," she insists. "To meet the challenges, the United States must choose a third way: the nation must focus on creating jobs." For Meredith, that means improving education, increasing personal savings, balancing the federal budget, upgrading infrastructure, funding basic research and providing a safety net for displaced workers....

http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/07/29/RVGQCR3OO81.DTL&type=books

[touchring]

The baby-boomers who bought their $2mm house for $50k in 1960s won't flinch if their house valuation drops by $1mm. They still need a place to live and they don't have a mortage.


You can't depend on old people to kick start a slow economy when the younger ones lost their money in the stock and mortgages. Japan got lots of old people with that $1mm or $2mm house, and they don't spend money.

They go to the market once a week, buy rice, tofu and soy sauce, cook and eat at home. Entertainment is the TV. It's incredible how little millionaires can spend, and they live to 90 years old in the same old house, so the money is trapped for a long time.

[L@@K]

Very interesting thread.

But to come back to domains (!), what could be the effect of a recession or crisis on domain market please ? :confused:

Can domains be some good invests instead of stock exchange or real estate... (for investors that are not webmasters or domainers, ie: hedge funds or individuals for example) ?

My opinion is domains can up and down but in the long way, domains always up because they are linked to a real business which grow and will grow.

What are your thoughts about it please ?

ThX

[jacksonm]

Very interesting thread.

But to come back to domains (!), what could be the effect of a recession or crisis on domain market please ? :confused:

Can domains be some good invests instead of stock exchange or real estate... (for investors that are not webmasters or domainers, ie: hedge funds or individuals for example) ?

My opinion is domains can up and down but in the long way, domains always up because they are linked to a real business which grow and will grow.

What are your thoughts about it please ?

ThX

Many people dumped domains in 2002 following the dot-bomb - domains which were picked up and sold for considerable sums of cash in the past year or two.

.

[touchring]

Many people dumped domains in 2002 following the dot-bomb - domains which were picked up and sold for considerable sums of cash in the past year or two.

.


Damn, why didn't i thought of domains then? :O

Yes, I am sure that after his successes in Afganistan and Iraq, he must be feeling that selling invasion of China, Russia and India, would be an easy sell to the gullible American public. :rolleyes:


Easier said than done. Well, you can stop upgrading your company's software (well, we didn't have software 50 years ago, didn't we?), and you can get used to an american voice when you call a hotline..... but you can't stop going to the supermarket!! :o

http://edition.cnn.com/2007/LIVING/wayoflife/07/26/china.products/index.html

[L@@K]

Many people dumped domains in 2002 following the dot-bomb - domains which were picked up and sold for considerable sums of cash in the past year or two.
.

Absolutely, and now a lot of people know that...
So, some could act thinking what happened in the past ;)

So, do this information go to individuals or hedge funds, banks, etc ?
Is there, I don't know, advices or else to invest in domains from massmedia for example ?

In that way, they (individuals as banks, hedge funds...) could invest in domains instead of stock, and other traditionnal investments, in the case of a recession or crisis.

Can anyone think it's possible?
Maybe domain market can grow as well by individuals who just want to invest..

Thanks

(sorry for my very bad english)

[Rubber Duck]

It is complexed. The Dot Bomb crash was largely a fall out of the high tech sector, so domains went down with the stock market but even more heavily.

There is no real suggestion that the next bust in the US is closely linked with domains so this time things are not likely to be closely coupled.

When one area of investment is played out money tends to switch to other areas. When there are real problems on a wide front as there appears to be in the US then people are likely to go for safe haven investment. Gold will probably do well in the short-term, although the yellow metal is a bit like IDN in that it yields no income. Other investments that can be favoured in tough times are Art and Foreign Currency investments. Domains especially IDN could easily fit into this category. It is all down to perception.

At the moment US Real Estate is dodgy, nobody really loves the dollar or Treasury Bonds and Wall Street is looking rocky. Fleeing capital has to go somewhere, although much of it just evaporates as valuations are squeezed and currency is devalued.

[touchring]

It is complexed. The Dot Bomb crash was largely a fall out of the high tech sector, so domains went down with the stock market but even more heavily.

There is no real suggestion that the next bust in the US is closely linked with domains so this time things are not likely to be closely coupled.

When one area of investment is played out money tends to switch to other areas. When there are real problems on a wide front as there appears to be in the US then people are likely to go for safe haven investment. Gold will probably do well in the short-term, although the yellow metal is a bit like IDN in that it yields no income. Other investments that can be favoured in tough times are Art and Foreign Currency investments. Domains especially IDN could easily fit into this category. It is all down to perception.

At the moment US Real Estate is dodgy, nobody really loves the dollar or Treasury Bonds and Wall Street is looking rocky. Fleeing capital has to go somewhere, although much of it just evaporates as valuations are squeezed and currency is devalued.


Refinery and oil companies are also good long term investments. Btw, just read news that mortgage companies going bust now has gone beyond subprime. If this goes on the contagion will spread to UK in no time. Good time to consider cashing out.

[Rubber Duck]

Refinery and oil companies are also good long term investments. Btw, just read news that mortgage companies going bust now has gone beyond subprime. If this goes on the contagion will spread to UK in no time. Good time to consider cashing out.

The UK financial sector is really sick. The only thing that banks and other financial institutions are interested in, is whether you own your own house. The Real Estate market is largely a racket that the banks have created for their own ends. Wonder if they will stop using that yard stick when half the country is carrying negative equity?

[touchring]

Bear Stearns Halts Redemptions After Hedge-Fund Investors Seek Withdrawals

The fund's stumble is a setback for New York-based Bear Stearns and illustrates how the crisis in the subprime mortgage market has spread. The fund had less than 0.5 percent of its assets in securities linked to loans to subprime borrowers, Sherman said. The two funds that collapsed invested almost fully in subprime bonds. Losses have spread to banks, insurers and hedge funds in France and Australia, including one run by Macquarie Bank Ltd.

``This shows you don't necessarily have to be a subprime fund now to be having problems,'' said Bryan Whalen, a portfolio manager in Los Angeles at Metropolitan West Asset Management, which oversees more than $21 billion in fixed-income assets.

http://www.bloomberg.com/apps/news?pid=20601087&sid=as4Ljb0FH2kY&refer=home

[Rubber Duck]

Probably a useful time to revisit this article. If Ben Bernanke is about perhaps you could pass it on to him?

The crash that could come
By Robert Kuttner | July 30, 2007

HISTORICALLY, October has been the month for big financial busts. But this year, October could come early.

Investors and ordinary citizens have good reason to worry about a perfect economic storm: a deepening loss of confidence in the dollar leading to higher interest rates; the higher rates bringing a crashing end to a hedge-fund, private equity, and merger binge that has depended heavily on cheap borrowed money; the boom in bait-and-switch mortgages ending in a morning-after of rising defaults and sinking housing values; inflationary pressures in food, oil, and other commodities leading to still higher interest rates -- all unsettling stock and credit markets and putting a new squeeze on consumers borrowed to the hilt.

The historical parallels aren't comforting. In the years 1971-73, the United States devalued the dollar and went off the gold standard. Oil exporting countries, compensating for a weaker dollar and angry at US support for Israel, hiked the price of oil. This set in motion a decade-long period of stagflation -- high inflation, tight money, sluggish growth, shaky banks.

If anything, the United States is more vulnerable today. In that era, America enjoyed a net inflow of earnings from global investments, ran a trade surplus, and lent far more than it borrowed. As tourists of the 1960s appreciated, visiting Europe on a pittance of $5 a day (in 2007, $5 buys coffee), the dollar was way overvalued relative to Europe's play-money currencies and overdue for a correction.

But today, our trade deficit is more than 6 percent of gross domestic product, and we borrow heavily to finance both private capital needs and government debt. Until lately, optimists insisted that cheap foreign debt-financing would continue indefinitely and prop up the dollar, because it was in China's interest to keep underwriting American purchases of its ever-expanding exports.

But, swollen with dollars, China is behaving more like an activist investor. The Chinese government's investment arm has begun buying not just debt but real assets, including 9.9 percent of the private equity fund Blackstone and a big chunk of Barclays bank. We can't count on China -- or anyone else -- funding America's burgeoning foreign debt at bargain rates indefinitely.

If the dollar slide turns into a crash, the Federal Reserve would face the unhappy choice of either hiking interest rates to raise foreign confidence in the dollar (thus deepening domestic recession) or letting the dollar sink further and increasing imported inflation.......

http://www.boston.com/news/globe/editorial_opinion/oped/articles/2007/07/30/the_crash_that_could_come/