where to wednesday, page-88

Morning all, here's a concept following from ppumpkin's post. Apologies as I tend to write essays when tryign to explain my thinking. Thanks actually to ppumpkin and paulb for planting this seed.

Charts below -

Idea (a) Any exchange index divided by it's own currency rate represents index value return per dollar of foreign dollar currency (is hence exch rate adjusted)

Idea (b) Any exchange index divided by the USD, represents index value return per USD (derivative trading using native USD, not exchange rate adjusted)

Idea (c) for equity markets only, and thinking like a large institution, where might best be the 'place' and the 'currency' to invest for the next 6 months? Using ONLY currency to determine this, the answer hands down is using USD.

Idea (d) for virtually every major, buying USD is cheap, to then invest within the US.

All idea's are important in my view when considering the USD now being the carry trade, and subdued foreign equity returns. I am now convincing myself that the US is using the opportunity of a low USD to encourage investment within itself for reasons only for the low dollar, as returns are still low.

Historically low exchange rates encourage foreign investment. So it's NOT the US Gov't funding it's own markets at all - instead the Gov't is only buying up all the MBS (housing debt) from the collapsed housing market.

This would cause a divergence of other markets by bleeding out investment capital from other currencies, into USD and hence US markets (actually taking advanatage of the low USD). The killjoy is the US propoerty market and unemployment - but this is why the dollar is weak.

Particularly given that dividend yields are low to non-existant across the board, then institutions are chasing capital gains. This leads to an extended bull run for the US market. One day it may still come home to roost, and the foreign markets will devalue depending on the amount of shift in this capital, the value of that market, and that local foreign exchange rate.

Extending this, it would mean local markets are then traded in USD from within US (via derivatives) and local capital is reduced. Opportunities then exist instead of trading organic growth locally but trading markets in USD while the dollar is so low.

Certainly food for thought. Thanks to all the posts for planting this seed for me as I think I've opened my eyes some more.

The US is still a ticking time bomb, but for the weak USD. It's not just market values that are exchange rate adjusted, but also the available capital for those markets becomes affected IMO.

rgds,
pw

FOREIGN MARKETS VERSUS THEIR OWN CURRENCIES
- indicates the value of foreign investment in foreign markets from outside currencies

AUST ALL ORDS to AUD


NIKKEI to YEN


SPX to USD


FOREIGN MARKETS VERSUS USD
- indicates the value of investing in foreign markets, from within the US using USD (derivative trading)

AUST ALL ORDS to USD


NIKKEI to USD


Thinking PER UNIT OF DOLLAR invested anywhere, it's been better to use USD than the local currency of that foreign market (for capital gains only).

pw