investing in emerging markets or trading emerging market currencies

Foreign Exchange - Currency Outlook

We keep getting letters from readers asking whether we like investing in emerging markets or trading emerging market currencies, among other questions. Supposedly there are no dumb questions, just dumb people who don’t know enough to ask the question in the first place, but we are starting to get worried that most people still don’t get it.

The ten D's are accurate. We are all about to get poorer. Demand destruction, deleveraging and downsizing are going to hit even the richest, who will be less rich after all the boom-time frauds are disclosed. If Japan has falling steel output by nearly 40% in a single year and failing/contracting auto companies, how can anyone imagine that a developing country can do better? If the big economies of the West, notably the US and Germany, have failing banks, how can anyone think that banks in emerging markets are going to do better? And banks are the centerpeice of a thriving economy.

No banks, or disabled banks—no economy.

This is what's wrong with the new US government plans. We are worrying about preventing new mortgage defaults and saving GM, but the real problem is in the banking sector, and where is Mr. Geithner’s Plan? The real risk to the world economy is that the US doesn’t get it right in fixing the banking sector. It doesn’t matter what unemployment becomes in China or how far construction falls in Germany if the US doesn’t fix its banking sector. Like it or not, this is the key driver of the world economy. No functioning US banking sector, no world economy. This is the sense in which Mr. Greenspan is, alas, correct - the US is not focussing on the right problem. But Mr. Albertson is also right - we need to acknoweldge that we will all be a lot poorer when this is over in three years, or five. Europeans' talk of the crisis ending this year is a pipedream -and the euro exchange rate will suffer for it.

Pounds to US Dollars = 1.4287
Pounds to Euros = 1.1330
Euro to Pounds = 0.8817
Pounds to Australian Dollars = 2.2390

Bye For Now
Barbara Rockefeller
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