Wednesday, November 25, 2009

USD and its implication

Here is the summary of the above video:
  • Since March, the USD has been dropping
  • This is because of the excess USD supply due to the bail out by the FEDs
  • The central bank has been buying 3 times more EURO than USD, implying the switching to EUROs as the reserve currency
  • Since March, USD has slide 70% compared to the Euro/Aussie and 46% to the pound
  • FEDs should not be raising their interest rates for the timing being because this will increase the borrowing cost by corporations, limiting their growth
  • Gold to go up higher, because its a safe asset

Things that I would like to add:
  • In my opinion, commodities like gold are trending up, because of 2 main reasons.
  1. The basic supply and demand. Meaning if more people wants gold, the price will go up.
  2. Gold is usually denominated in USD. So if the USD depreciates, the price will go up. (Imagine that you have a 1kg gold bar, bought with 100USD. If in 1 year's time, USD's depreciates, you need more USD to buy the same 1 kg of gold bar. Hence the price of the gold bar effectively increases, though its worth is the same.)
  • I'm actually still optimistic about the stock market. The market is still trading sideways, but if you realized, its gradually trending up. So I feel that it is actually a good time to invest, while everyone's still quite uncertain.
  • Personally, if the government have been revising our growth upwards, Singapore should be expected to do relatively well in the coming months. It is not that I am bias towards the Singapore government, but we have to admit that they do have above average foresight.
  • Actually a depreciating currency is good for people to borrow. For example, you borrow USD100 to buy gold. Assuming gold does not drop in value, with a depreciation of the USD, in 1 year time, your gold will be worth say for example USD110. So you can sell your gold, return the USD100 and whatever interest to the bank, and pocket the profit!