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Sunday, July 08, 2007

The Contrarian View On The US Dollar

Every country that I get into and every casual conversation invariably leads to real estate price racing ahead and a sense of a potential USD fall down further. While it is evident that a shift to other currencies is taking place so the days of the all-dominant U.S. dollar could be numbered. There are some within the US establishment who think that by bullying some nations could be forced to keep the dollar peg. I was once speaking to a central bank head – who gave this view on currency peg. Make the investments of reserves proportionate to the trading share. Singapore now reports that the proportion of trace with china has increased vis-à-vis the US. When I read this piece by Marc Faber, it makes interesting reading:

I only find one depressed and universally despised asset class: the dollar. But a dollar recovery should not be ruled out. Monetary conditions and international liquidity have tightened relatively, not because of Fed policies but because of market-induced illiquidity in the US household sector. In the past, these conditions of relative tightening have been US dollar supportive, but negative for asset markets.
What should you do? Reduce your risk exposure. Sell emerging economies' stock markets and their currencies. For the next three to six months, shift money into short-term US Treasuries.

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