Euro almost at it's introductory value vs the Dollar!

[Kidlicious]

Originally posted by GP
I guess thinking about it a little more. (For the moment, I'm agnostic as to wether the perceived growth potential in the US market is sound or unsound.) What matters is that the market beleives it so.

Now, I am an American company CEO with a company that is positioned for this implied growth. Suddenly my stock price has shot through the roof. Being the CAPM slave that I am, I notice that my D/E ratio is now out of whack for what the optimum financing structure should be. So, I go out and raise a bunch of debt. That means I now have all kinds of cash on hand. (The debt coming froming overseas capital). That means that I have to either jump into a bunch of new projects or I have to declare a large dividend and disburse the money to my shareholders. hmmm, I guess if I just give the money to my shareholders, it will be put into circulation and there won't be much of an exchange rate effect. (The shareholders will just trade it for euros.) If the money goes into projects, some of it will be sitting in bank accounts for a bit, before the projects get going. And then it will start percolating out to pay for various projects. What will be the effect of that?

I'm not saying that your wrong, but it would help if you looked at it from the supply of dollars coming into the US point of view. Foreign investment is made in the US because importers to the US don't need all of their dollars. If they don't keep them for reserves they can speculate with them or they can buy US assets, but eventually the dollars must return to the US.

[Kidlicious]

Originally posted by DrSpike


So dollars are demanded to make trades between the UK and France? No, not all international trades. As I said, dollars are demanded to purchase US goods and assets.

And this idea you have about 'nations' keeping these huge stocks of dollars to make transactions is stupid. Everything is carried out on the forex markets. Central banks retain funds even today as a holdover from the days when interventions and exchange rate tunnels were more common, but that's a different point.

Kid the more you post the more I think you don't have a clue.

Oh well, anyone who wants to find out can do some light reading.

[Lawrence of Arabia]

Wow, it took 4 pages of spam for people to settle down and discuss the issue.

[DrSpike]

GP the price of gold is a tricky thing.......as a commodity its value in terms of all currencies can fluctuate due to entirely non-monetary factors such as the number of gold mines or tastes for jewellery etc. This is why gold standards a la Bretton Woods system (as was the case with exchange rates in the early 20th century) were abandoned.

When the capital flows in the dollar appreciates against those currencies in the countries from which the the inflow orignates.

[DrSpike]

Originally posted by Kidicious

I'm not saying that your wrong, but it would help if you looked at it from the supply of dollars coming into the US point of view. Foreign investment is made in the US because importers to the US don't need all of their dollars. If they don't keep them for reserves they can speculate with them or they can buy US assets, but eventually the dollars must return to the US.

Again this post is all wrong.

Foreign investment is made because domestic savings do not cover domestic investment. Far from investment being made because "importers to the US don't need all of their dollars" residents in countries providing those funds demand dollars precisely in order to make that investment.

The more you post about the issues the more you show your lack of understanding.......whilst still claiming to be an expert on these matters. This is why people are posting to bash you.........your ignorance is so obvious to everyone.

[TCO]

Originally posted by DrSpike
GP the price of gold is a tricky thing.......as a commodity its value in terms of all currencies can fluctuate due to entirely non-monetary factors such as the number of gold mines or tastes for jewellery etc. This is why gold standards a la Bretton Woods system (as was the case with exchange rates in the early 20th century) were abandoned.

When the capital flows in the dollar appreciates against those currencies in the countries from which the the inflow orignates.

Ahem...I had a caveat in there covering some of your caveats.

[TCO]

I have t-bone steak that was in the fridge but was grilled yesterday. For how long should I nuke it on high if I want it a little warm to eat it? Or is this hopeless and I should eat it cold?

[yavoon]

do not microwave steak, cold is the manly way to go.

get some steak sauce if u wnt.

[TCO]

Thanks, I put some 57 sauce on it and did not nuke it.

[Kidlicious]

Originally posted by DrSpike


Again this post is all wrong.

Foreign investment is made because domestic savings do not cover domestic investment. Far from investment being made because "importers to the US don't need all of their dollars" residents in countries providing those funds demand dollars precisely in order to make that investment.

That's only one side of it. You are aware that there are two sides of it aren't you? There is demand and then there is supply.

[DrSpike]

Originally posted by GP


Ahem...I had a caveat in there covering some of your caveats.

Hehe so I see.

Ok, I don't see any reason the price of gold in dollars to change. Effectively in terms of Euros (or whatever) it would rise.

And don't eat the steak cold you barbarian!!

[TCO]

1. Steak is in my tummy. Only bad part is the cold grease and fat. Need to find something to cut the lingering taste of that.

2. So you would expect the gold to stay the same wrt to the dollar and the Euro to drop wrt gold*? Why that instead of the reverse? Or even just having dollar rise wrt to gold an equal amount to the Euro drop? I'm not arguing. Just trying to think about it.

*ideal gold here (caveat protector-on).

[TCO]

Guess it is time to get out and enjoy the sun and 80 deg weather. Spike you can have the last word and than enjoy a cuppa on me.

[Kidlicious]

US imports increase the supply of dollars in the currency exchange market and the return on US assets increases the demand for dollars. The two work together to establish the exchange rate. Then there is the potential for the dollars outside the US to lose their value to the extent that they are no longer held. The result would be a massive decrease in the demand for dollars. The only way that this would not result in catastrophy in the US is if there were some other thing to offset this. That would mean that the growth rate in the US would have to be huge. But that wouldn't be the case, because if the US were growing that fast the dollar would never fall to such depths.

That's it in a nutshell. Take it or leave it. I'm out of here.

[DrSpike]

GP:

[Last word mode]

There is no reason given your caveats for the dollar price of gold to move. There is a reason for the dollar to appreciate against the euro. So this implies for consistency that the price of gold in terms of euros must rise as I said. It's just a standard arbitrage argument.

Start 1 Bar = 1 dollar = 1 euro
Then 1 dollar = 2 euros

Ergo, price of gold is arbitraged to 2 euros, or else people would just buy gold and convert to dollars. They do this until it isn't worthwhile, which is when the price of gold hits 2 euros.

Of course in reality the vagaries of the gold market are such that it is impossible to detect this effect amongst all the buffeting to supply and demand of gold. But your caveat protector stopped me making that point.

[/last word mode]

Actually I'm going for a barbecue in the sun now, so anyone that wants it can have "post (hur hur) last word".