Monday, January 15, 2007


"The World Is Awash With US Dollars"

The Daily FX reports on currency markets. "With the US markets closed for Martin Luther King Jr. Day, it not surprising to see currency trading grind to a halt after the London close. Even though there was no US economic data released today, it does not undermine the fact that this will be a busy data week."

"The main focus here in the US as well as globally is inflation. Both consumer and producer prices are due for release this week in addition to the Treasury International Capital flow report, the Empire State manufacturing index, the Philadelphia Fed index and the Beige Book report. On balance, the reports are expected to be positive for the dollar, but after such an extensive rally last week, the question is whether there are actually any actually buyers left in the market."

"Whether your pockets are oozing with money or not, if you are an investor or homeowner you probably have been feasting on cash during the last few years. The world has been flush with it."

"Massive flows of cash have been fueling a world economic boom, pushing stock markets globally to new heights, boosting the prices of everything from real estate to commodities, prompting record mergers and acquisitions and sending private equity firms on a buyout rampage."

"But some refer to current conditions as 'excessive liquidity' — or an unusual abundance of easy cash. And investors are watching for signs that the spigot might be turned down, perhaps cooling off stocks and other assets in the process."

"Liquidity is like fuel or lubrication for the economy, says Wells Capital Management strategist James Paulsen. 'Without proper lubrication, the economic engine grinds to a halt.' So when central banks, such as the Bank of England, raise rates as the institution did last week, and others in Europe and Asia consider similar moves to fight inflation, investors get jittery."

"'The world is awash with U.S. dollars,' said Paulsen. 'Ultimately this prolonged period of excess liquidity will result in higher inflation [destroying the purchasing power of cash] and a lower value of the U.S. dollar [damaging the international purchasing power of cash].'"

The St Petersburg Times. "Russians are increasingly losing confidence in the U.S. dollar, experts from the Public Opinion Foundation said last week as it published its report, 'The Dollar in Russia.' 'In recent years the dollar in Russia has lost significantly more in prestige than in real exchange value,' POF’s Grigory Kertman said."

"In 2002, a poll showed that 35 percent of Russians trusted the dollar more than the ruble and the euro while 37 percent said they preferred the ruble. About 11 percent of respondents preferred euros. 'Since then the situation has changed dramatically. Today almost two-thirds of respondents (63 percent) say they trust the ruble most of all, while only 5 percent trust the dollar and 15 percent the euro,' Kertman said."

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