Archive for December 2nd, 2008

Peter Schiff Analogies

This guy’s ideas never fail to amaze me. Lately though I felt that he has been saying things over and over again until I came up with this video.

For the general public which really isn’t much into Economics, this video shows some really good analogies. For those who understand Economics, one really starts to wonder whether or not America is in such a bad mess.

I particularly like the way he explains that “the boom is the problem, the bust is the solution”. People usually assume that an economic boom is good for us while a recession is bad and should be corrected. I also like his last two analogies when he talks about five Asians and one American stranded on an island. The last analogy is when he talks about the story of Tom Sawyer.

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Boo Chanco writes for the Star:

I came across an analysis of the Philippine situation in the context of the global financial crisis that’s the best I have seen so far. It was prepared by Deutsche Bank – Equity Research about two weeks ago. The title of this column today is from that study and I think it captures the picture. I want to share it with our readers in the public interest because it would help them get the proper perspective of where we are at.

See the rest here.

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From a client folio prepared by Morgan Stanley. Very illuminating analysis on the USD trends:


The Fed’s QE Operations and the Dollar
November 28, 2008

Summary and Conclusions

The Fed has commenced QE (quantitative easing). In this note, we review the concept of QE and analyse the likely impact of this extraordinary operation on the dollar. The upshot is that, since monetary policy, including QE, is a ‘nominal’ operation, the operation itself should not have significant implications for the real value of the dollar. The nominal dollar value should, thus, only be affected if QE alters the outlook of inflation in the US over the medium term. Also, whether QE by the Fed should erode the value of the dollar should be assessed relative to what other central banks do. To the extent that the ECB and the BoE also conduct QE – which is the case – the impact of QE on the dollar is not necessarily negative.

Having said this, though QE per se should affect the dollar through relative inflation as well as inflation expectations, the underlying structural problems that forced the Fed to conduct QE in the first place should alter the fundamental value of the dollar, relative to those of other currencies. The parlous state of the US financial system should, in theory, be reflected in a lower value of the dollar, had it not been for its hegemonic reserve currency status propping the dollar up during this deleveraging phase. The bloated fiscal deficits (which we assume will exceed those of the G7 countries) will further weigh on the intrinsic value of the dollar.

In sum, whether QE by the Fed is negative for the dollar depends on the inflation outlook of the US and the resulting inflation expectations. But at a fundamental level, the dollar’s intrinsic value has indeed deteriorated with its severely weakened financial sector. We maintain our core view that the dollar should continue to appreciate as the world slows – which we assume will last until next summer – but could give back some of the gains when deleveraging stops and the recovery phase for the US economy proves to be more protracted and treacherous than for other economies. The size and vigour of the dollar rally against the majors in the next six months or so are also likely to be more tempered than we have had in mind, in light of the deteriorating fundamentals in the US. Our call on EM currencies remains unchanged.

See the rest of the analysis here.

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