With the U.S. dollar being so weak, should I convert all of my assets to Euro or Sterling right now?

I have some money saved in the bank and was thinking of converting it to Sterling or the common currency.

I'm no economist but my thinking is: the value of the U.S. dollar will only continue to plummet as long as George Deficit Bush remains in office, so why keep all of my assets in greenbacks?

If I had converted to Euro two years ago (as I was thinking of doing, and now I regret not doing so), I could have been thousands of dollars richer today.

I was even thinking of converting to Canadian dollars...

Answer:
I'm an economics person also, have my undergrad in Management with a concentration in Finance and a Masters in Applied Economics - and one thing I can tell you about Economists and Economics majors -- they haven't got a clue. They take all these classes and know all the formulas and graphs and think they know it all when they don't know squat. If they did, how come at market tops, the majority of economists think there is nothing wrong and the markets/economy won't sink? The famed economist Irving Fischer in the months prior to the crash of '29 said "Stocks have reached a permanently high plateau" and then proceeded to drop 90% in value.

It seems economists rely solely on their computations and throw common sense right out the window.

Yes, I am an economist, but at least I'll admit that I don't know it all and that economics, market/economic analysis is really nothing more than an educated guess. We can run through all the mathematical computations, but in the end, it's only a guess based on available data with a heck of a lot of unknown/dymanic variables.

As you can see, the dollar has fallen in value against all of the major worlds currency's (expect the Yen). The US dollar index has lost over 33% of it's value since 2002. And the thing is that right now the USDX is flirting with critical support at 80. If the USDX breaks below 80 and can not recover, we will probably see a full blow dollar crisis.

And yes, our deficit has been been shrinking for the last 18 months - what the poster failed to tell you is that is because since the dollar has fallen so greatly in value over the past 4/5 years, imports are becoming more expensive, thus we are importing less and shrinking the deficit.

I can't answer your question regarding whether you should shift ALL your assets into Euro's or the Cable. I do trade derivatives and fx and for ME, I see a full blown dollar crisis in the not to distant future. As a matter of fact, with the Euro trading at around 1.37 now, I see it trading at 1.50 to 1.70 by end of this year into 2008.

And one last point, GW Bush is not at fault - completely. The monetary policies that have driven the greenback to the edge of the cliff it's about to fall off have been in play for decades, GW is just making it worse.

Currencies trend very well and that's because the value of a currency reflects the health/financial situation of the economy of the country. So, you don't have to be an econ major or have a degree in finance, you just need common sense. Do you see a reversal of the policies any time in the future that have led to the fall in the value of the dollar? If not, then you need to adjust your investments accordingly.

The poster that's talking about arbitrage is going a little overboard. Arb trades are very short term and take advantage of a short term disparity in prices. Ben is thinking along the lines of very short term trading. And he's assuming you're going to be borrowing the funds from a bank and paying interest. These are your assets, so there is no interest. Yes, you will lose some value on the exchange, but what you'll make up in profit will more than offset. Let's say back in 2001/2 when the Euro was trading at 0.84, you converted $1000 to Euro. Now, the bank isn't going to give you 0.84, they'll give you something higher like 0.855, so you'll lose a little bit of money in the exchange. Thus instead of getting 1,190 Euro, you'd get 1,169. Well, since then, the dollar has fallen some 65% in value against the Euro (no trading at 1.38). So, you convert your Euro back to dollars, again they won't give you 1.38, they give you say something like 1.375, thus your 1,169 Euros would exchange back to $1,607 - a 60.7% return, which would more than offset the $27 you lost on both ends of the exchange.

Ben is confusing currency arbitrage and FX trading with long term currency value appreciation/depreciation. FX trading (which I do) takes advantage of currency value flucuations over a relatively short time frame (anywere from a few minutes to a few hours to a few days) and is very difficult to gauge - you have to be right on it. Arbitrage takes advantage of pricing disparity. I'll give you a non-currency example of arbitrage. Let's say you're looking at IBM stock. IBM trades on more than just the NYSE, there are other exchanges it trades on. Let's say it's trading on one of the regional exchanges, the the Philadelphia Stock exchange. Let's say on the NYSE, IBM stock is trading for $50, but on the PHLX, it's trading at $49.75. You'd buy the stock on the PHLX at $49.75 and simultaneously sell it on the NYSE for $50, thus locking in a $0.25 profit on the pricing disparity. Ben is getting confused with "Arbitrage" and Currency trading. Arbitrage takes advantage of pricing disparity. In the currency markets Arbitrage (at least from my understanding) takes into consideration that the pricing between multiply currencies has a disparity such that as you exchange the currencies for each other, you lock in a guaranteed profit. For example, let's say that the pricing of the USD, YEN and GBP are such that there is a disparity such that if you trade your dollars for yen and yen for GBP and GBP back to USD that the pricing disparity gives you a locked in profit - it's called Triangular Arbitrage.

The bottom line is that I see a dollar crisis in the not too distant future and I feel that the Euro and the Pound are going to increase in value against the USD much further. Should you convert all your assets out of dollars? Only you can answer that.

I agree with fefe, the U.S. will have no choice but to hyperinflate the economy. If the dollar breaks below 80, the current pattern in the USDX suggests a target of 40. At that level, it would be a full blown dollar rout and the dollar would cease to be the world's reserve currency and inflation is going to be very high here in the U.S.

Can the dollar rally? Sure, anything is possible, but I doubt it. The fed hasn't raised interest rates in over a year (and they'd need to to bolster the dollar), but the BoE, ECB and other major central banks are raising their rates, making their currencies more attractive. The fed is in a real pickle. If it raises rates to save the dollar, it will put additional pressure on the already collapsing housing market. And if it cuts rates to save the housing market, it will kill the dollar.

Either way, I see the sunset of the dollar. My analysis and opinion.
Yeah, great idea. Could cost you thousands but go ahead.
Hey Sean,
this is a very good question. However, while it is nice to think that you can easily convert your dollars into Euros (or sterlings, or whatever), you would have to put a lot of money into the foreign markets to see any significant increase over what you'd be "making" with U.S. dollars. This is because of two things: a) when converting currency, there is a 5% interest penalty, and b) the currency market is volatile -- the U.S. market will surely make a comeback in the not-too-distant future, and the European markets cannot stay this hot forever without running into severe inflation. Which helps explain why you would need to convert A LOT of $$$ to see what you propose above.

BTW, this is known as arbitrage.

What I've listed is known as the interest rate parity, a subset of arbitrage:

Here's an example:

At the end of 12-months

1. 0.67£ becomes 0.67£(1 + 8%) = 0.72£
2. Convert the 0.72£ back to $ at 1.5$/£, giving $1.08
3. Pay off the initially borrowed amount of $1 to the US bank with 5% interest, i.e $1.05

* Making an arbitrage profit of $1.08 − $1.05 = $0.03 or 3 cents per dollar.
<<<the value of the U.S. dollar will only continue to plummet as long as George Deficit Bush remains in office, so why keep all of my assets in greenbacks?>>>


That's a great theory, except that the deficit has been shriking over the past 18 months.

Trying to speculate in currency markets without interest rate information is a great way to lose money.
Convert them to gold or metals. The petrodollar is going down and will take the rest of the currencies with it. We will eventually go back to the gold standard since governments have shown to be incapable of behaving decently.

They first told us: "This bill is as good as a gold coin because you can change it at any time". Later they said "Only governments can change it". Then "no one can change it, currency is backed by the economy". Ultimately the economy goes down the drain and your fiat money is worthless.

Happens all the time, the USA will not be an exception. In fact, hyperinflation will probably the only way the USA is ever going to be able to get out of debt. Its like pressing the reset buttom.

Check your personal balance. If your net worth is negative hyperinflation is your friend.
yea and while your at it why don't you emigrate

this is an economics forum not a political one

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