Monday, January 10, 2011

Second Week of the Year - Trade War? Collapse of USD?

I was told pics of hot chicks would increase my blog's traffic...

It's just the second (working) week of the year! KLSE and markets around the world have pulled back a little - minor correction? or profit taking mostly?

Still a relatively New Year I say and I have been thinking about some stuff I have written and realised I did neglect to mention one concern which seems to be brewing these days - A currency/trade war and perhaps a word on the USD/US stock market.

Commentary: Currency/Trade War or Collapse of the USD?,s01=1.html

Reading around this issue, I think I can best sum it up this way - Western developed nations like Japan, US, UK are net lenders of the world running humongous deficits but also in an attempt to spend their way out of the downturn, pumped even more money increasing the supply of their currencies. The effect of this is of course to devalue their debts as well.

So, some countries like Brazil are shouting: Hey, That's not fair! And we're suffering because the value of your currency is way too low and ours is way too high because we're not flooding the markets with printed money.

The result of that is their exports are more expensive and less desirable than their goods which are artificially cheaper because of a weak currency.


Another commenter is Stephanie Flanders who does point a finger at the US and with good reason perhaps-

How serious are these things? Well, currency/trade war - With US pumping more money in the middle of the year and stubbornly going ahead with it - this is one to watch. It may just be noise but the market is reacting to it. I think its more saber rattling than anything and more for the benefit of the voters at home.

As for the devaluation of the USD or worse, the collapse of it, I say it may happen but not so soon. The US is still the largest economy and the world can afford it to collapse and China is holding ka-zillions of US bonds and would sink along with the Titanic that is the US!

Yes, the US is still quite in a mess and they cannot seem to get their act together but I do invest in the US stock market because it is still the biggest of markets (spoilt for choice in terms of stocks!) and my current portfolio there has more international exposure than US exposure. I also think there's more fear than rationality there so there is value there and it's always good to diversify your holdings.

Then again, for the medium term with the rise of China and all - I should really start looking at the markets closer to home - ie: SGX and Hang Seng!

The Week Ahead

Also, for this week I have decided I shall analyse my gains/losses in the last year. Well, half of the year because I only started investing in stock the 2nd half of the year!

Perhaps, my dear readers, serve as a word of caution of what to do and what not to do!

I have made my fair share of mistakes and I hope there's something you can gain from my follies!

Till' next time.


Image Credit : Melis82 (dreamstime)

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