Right after posting about FDIC yesterday and that USD and gold post a day before (click on the name links to read previous posts). I was still following currency movements. 2 days ago I found gold way down and USD way up and all that when Lehman was going down in one of the biggest bankruptcies of the world. Alan Greenspan referred to it as : Economy in ‘once-in-a-century’ crisis.
Today shockingly found out that Rupee had gone sharply lower actually so much lower that RBI had to step in to stop the fall.
Rupee posts biggest daily fall in a decade
http://in.news.yahoo.com/137/20080916/371/tbs-rupee-posts-biggest-daily-fall-in-a.html
Rupee lower, $ strong - it’s not making any sense. Generally speaking when investments are made in a country value of it’s currency goes up. When investments are withdrawn the currency value goes DOWN. This is how it works…..knowing this I started a hunt to find out if this still applies.
Remember - Rupee actually was so much in trouble that RBI had to step in to prevent the free fall in Indian Rupee.
“MUMBAI (Reuters) The rupee posted its biggest fall in a decade on Tuesday, hit by risk aversion and banks arbitraging a weaker offshore rate, although suspected Reserve Bank of India (RBI) intervention stopped the slide just short of 47 per dollar.
The partially convertible rupee ended at 46.89/90 per dollar, off a trough of 46.99 which was its lowest since July 24, 2006.”
Dealers estimated the central bank had sold $1.5-$2 billion to put a floor under the rupee on Tuesday.
Like I said earlier, for Rupee to go down investments must be withdrawn from the country. Given that lot of money has to leave India at a very fast pace for the rupee to go down at such an accelerated rate. And that turned out to be true…….
Capital outflows from the local shares so far in 2008 total a net $8.4 billion, including $1 billion in September, a sharp turnaround from a record net inflows of $17.4 billion in 2007.
OK so the rule works investments are leaving India and so the Rupee is down.
But at the same token investments have to be made in US for the USD to go up….
Those are two part of the equation…….
And bingo !! the 2nd part………
Repatriated funds aid dollar’s advance
By Peter Garnham
Published: September 15 2008 10:26 | Last updated: September 15 2008 16:46
http://us.ft.com/ftgateway/superpage.ft?news_id=fto091520081157160475&page=2
Good I found both parts of the equation it’s balanced. Funds left Indian (Rupee) and Funds were repatriated in US (USD). But if you thought I was just going to balance the equation and prove my point well, let us just say….that wasn’t the case….
Equation is just one thing…….this is actually where it gets interesting…..if you read the link given above you will find following in that article….and this is where I want to draw your attention….
Investors’ immediate reaction to the Lehman collapse was to sell the dollar against the euro and sterling as confidence in US assets was undermined.
However, the US currency rallied sharply after hitting a one-week low of $1.4479 against the euro and trading down to $1.8128 against the pound.
Rightfully so when a country is in trouble all investments tend to flow out NOT IN. So, how the heck that happened ? why USD went up ? why the funds were repatriated ? and look at the answer from these genius analysts defying all logic.
Analysts said recent evidence suggested that any weakness in the dollar would be short-lived as investors turned their attention to the growth implications for the rest of the world from the financial markets turmoil.
Indeed, the dollar has benefited in recent weeks as US investors cut positions in asset markets across the globe and repatriated funds.
Will you make investments knowingly in a country and repatriate funds where future of every bank, every financial institute, Stock Market, Bond Market, Housing market, Insurance Company, Job Market is bad ?
Here is today’s headline….on CNN.
N.Y. Fed pumps $50B into Wall Street
Federal Reserve Bank of New York injects fresh capital into ailing financial system on top of regular $20B ready for release.
WASHINGTON (AP) - Urgently trying to keep cash flowing amid a Wall Street meltdown, the Federal Reserve on Tuesday pumped $50 billion into the nation’s financial system to help ease credit stresses.
Click here to read that article
Horror story does not stop here seems like world market were going to slip deep into red so central banks from around the world pumped money into the system to keep it running.
Finacial crisis: World Central banks pump $300 bn
16 Sep, 2008, 1753 hrs IST, AGENCIES
FRANKFURT: Central banks pumped billions into money markets for a second day on Tuesday as efforts intensified to stop the demise of Lehman Brothers turning the year-old credit crunch into a credit freeze.
Click here to read that article
Read it again…..the article above - demise of Lehman Brothers….it’s a US company, it’s weakness in US, it started from US……so the question again is
Why will funds repatriate the money ? and invest it in US ? when everything here is just going south…so much so that there are in fact more companies waiting to just go belly up………here is one yet another largest company waiting to go down.
WaMu Rating Lowered to Junk by S&P on Mortgage Losses (Update4)
Sept. 15 (Bloomberg) - Washington Mutual Inc., the biggest U.S. savings and loan, had its credit rating cut to junk by Standard & Poor’s because of the deteriorating housing market.
click here to read that article
- will you be bullish now, right now, to invest in any US company ?
Chances are your answer is “NO” common sense dictates that.
- So why were funds repatriated ? Now common sense indicates that what if you were told to make those investments and not use your common sense.
And suddenly everything that is being done starts to make sense…..doesn’t it !!
My guess is - people of certain level and beyond already knew the problems about Lehman, AIG and Merrill and Wamu, they also knew that if corrective steps were not taken either voluntarily or forcefully. $$ will be history…….
However since fundamental of economics don’t change for any country this is just a stop gap solution. As far as I can see with my limited knowledge and thinking. Nothing has changed.
Fannie is given Fed’s support , Merrill may have been sold off, Lehman has gone down, Wamu may go down next………AIG has trouble……feds pumped in 20 billion…and the list goes on…..but………
Has any of this enabled re-payment of mortgage ? are house price going up again ? which are the root cause of this problem.
On the contrary things are going in reverse at higher speed….there are more layoffs…less people will be able to pay mortgages. Corporate tax revenues for state will fall since companies have gone out of business, Income tax revenue for IRS is going to fall…property tax revenues are going to fall…it’s all linked…..
If I have to - I can only draw one conclusion - USD is going down.
As a matter of fact $$ was in deep trouble back in March itself and a well coordinated plan was put in place to rescue $$. Hard to believe right ? but that is why you read my post….
UPDATE 2-US, Europe, Japan planned March dlr rescue -Nikkei
NEW YORK, Aug 27 (Reuters) - The United States, Europe and Japan had planned to intervene and rescue a weak U.S. dollar in March, business newspaper Nikkei reported on Wednesday.
As measured by the U.S. dollar index .DXY, the currency hit bottom on March 17, the first market day following the Bear Stearns deal announcement. It retested those lows in April and again in July, but is now nearly 9 percent stronger against the basket of major currencies included in the index.
Much more has gone wrong and much more is waiting to go wrong since Bear….my guess is that $$ is artificially supported without any fundamentals and it’s only a matter of time before the reality will catch up with world’s reserve currency………
[ideas and opinions expressed here are mine and you need not agree with them. You should not make any decisions financial or otherwise based upon material you read on this website. For that you must contact an expert professional in the relevant area of your need.]
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