U.S. housing collapse spreads overseas

[Markor]

I've been waiting for articles like this. I've been trying to decide if I should put a significant % of my net worth in foreign currency. My gut says there's a bubble in major foreign currencies, alternatively a negative bubble in the US dollar, that will be popped when housing bubbles worldwide pop. The counterargument says that the US is wasting money to a far greater extent than other countries are, so the US dollar is toast in the long run. The truth may be somewhere in between. What do you think?

[deejayoh]

I'd say follow your gut.

I think the opportunity to get your money into foreign currencies was ~6+ months ago - and I expect them to come back in line with the USD again as the same factors come home to roost in their markets. I am betting the USD will strengthen considerably against the Pound/Euro/Canadian/Yen in the next year.

Getting your money out of $ now will just result in your getting whip-sawed, IMHO (which is worth what you paid for it )

[Markor]

Thanks for the affirmation deejayoh.

[redmondjp]

And the tone of these articles (mostly coming from foreign news outlets) implies that somehow the US is responsible for the entire world's housing bubble. Sheesh!

The global credit bubble created a global housing bubble which played out in most developed countries. One of my wife's classmates now lives in Australia, and they are seeing the same type of housing bubble that we are here (they even flipped their first house and built a new one).

When this bubble pops, the whole world is going to get wet.

[Notabull]

[Notabull]

Here we go - some information on the ECB, rates and inflation.

http://www.bloomberg.com/apps/news?pid= ... fer=europe

"Oil rose to a record $113.93 a barrel today. In France, consumer prices increased 0.8 percent from February, the biggest monthly gain on record. France's 3.5 percent inflation rate matched the euro-region average in March, which is the fastest in almost 16 years. "

"``We'll set rates so that inflation moves toward that objective and inflation expectations are anchored,'' ECB council member Ordonez, who heads Spain's central bank, told reporters in Madrid. Inflation is ``what has caused us since June not to lower interest rates when other banks have been doing so.''

I am not an economist, but this just seems wrong to me. In the US, the Fed has a dual mandate to price stability *and* employment, which roughly translates to economic growth and stability. The ECB, however, simply responds to the inflation figures. This makes me wonder why they don't replace the ECB with this highly complex algorithm:

if (inflation < 2%)
rate = rate - 0.25%
else if (inflation > 4%)
rate = rate + 0.25%
else
print "thinking...."
print "thinking...."
rate = rate

It seems to me that inflation is high right now in Europe because things are getting more expensive (duh) due to demand and not because there is too much money in the system. If food and energy prices continue to go up due to external factors of demand at the same time as the economy falters, you end up with the worst of both worlds: expensive things, and no job to pay for them.

The ECB mandate of simply relying on statistics seems to be a way of not having to make decisions. You can simply shrug you shoulders and say "hey, ze inflation iz too high. I cannot lower rates". You can't ever be wrong if you're just following policy...

[lamont]

I agree that the time is probably past to get into foreign currencies. I'm concentrating right now on what the signals are going to be to get out. Once the US Fed is down to 1% and the ECB starts to lower rates that should
stabilize the dollar.

As for the Fed vs. the ECB... Many people view the actions of the Fed after the 2001 recession as having engendered more of the climate of moral hazard (with the Greenspan/Bernake "put" supporting whatever leveraged bets wall street could think of), sent real interest rates negative which ignited the housing bubble, failed to recognize the obvious housing bubble and do anything about that kind of asset inflation, and then applied massive monetary easing in harder times which prevents the natural corrective forces of the market from correcting overbuilt sectors of the economy and returning it to health.

[Notabull]

[rose-colored-coolaid]