Tag Archives: Currency war

Tesla and Fiat Chrysler is up about 80% since the election

The focus now is how Donald Trumps policies are going to "Make America Great again". One of the first things Trump did was to shut down the TPP agreement, which is favoring TPPs laws before the constitution.

Trump do not blame Obama for this TPP agreement because this is something that has been negotiated in decades. Trump is a business man and he do things he belive is right for the American people.

 

teslafiat

 

Trump can start a new global trade war and that means off for global equities, but what will happen if he starts a tax-cutting war? Countries around the world will start to compete to lower tax rates and that will probably make companies to invest and hire more, which is positive for equities.

President Trump has tweeted a lot about the automotive industry over Twitter, and after a few hours in the White house, he made a point to meet with the chief executives of Tesla and Fiat Chrysler. What Mr Trump want is to press the companies to build more vehicles in the U.S and hire more Americans into manufacturing jobs.

Reduced corporate taxes will surely please executives. If the automotive industry work together with the government, it will improve the environment and jobs creation and the competitiveness of manufacturing.

Trump`s decision to withdraw from the TPP is a largely symbolic move since it was unlikely to pass Congress. It was a strong symbol of his desire to implement policies that improve competitiveness and a new renaissance in American manufacturing.

The mother of all trade barriers is currency manipulation, and TPP failed in meaningfully dealing with that, and the automotive industry appreciate Trump`s courage to walk away from a bad trade deal.

Tesla and Fiat Chrysler combined is up about 80% since the election. Tesla has been a great rally since the beginning of December last year. It has so far been a great ride since its IPO in 2010, and now the average analyst`s recommendation is a Hold.

Fiat Chrysler look very cheap but a new scandal casting a shadow over the company. The company has doubled its value in a very few months but the scandal makes it risky for investors at the moment.

Trump met Tesla`s chief executive Elon Musk and the President told executives that he intends to eliminate a majority of regulations and «massively» cut corporate taxes, but that in return those companies must keep production domestic and preserve American jobs.

Trump told the CEO`s to device a «series of actions» within 30 days.

 

trump100_b

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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The Currency King

The dollar started the big rally in July last year and are getting stronger and stronger. The dollar Index Spot (DXY) is now trading at 94,7450. Up 0,31% today. It`s been a safe heaven so far while the precious metal is still in the bearish market, struggling to break out from its downtrend. Will the dollar remain strong?

It`s all about the world of global payment were one currency is growing, and it has increased in global payment over the last two years. The change in percent is +266%! That marks the distance between the currency and its leaders. What currency is that?

Stack of $100 bills

According to BIS (Bank for International Settlements), it has moved from No 13 where it accounted for 0,6% of the global payments. Now, it`s up to No 5 with 2,2% of payments of the same currency. What about the leaders? At the end of 2014, 40,2% of global payments were in euros and 33,5% of the payments were in U.S dollars.

A big distance up to the leaders which is 1,827,3% up the Euro and 1,522,7% to the U.S dollar. That`s not gonna happen any time soon, and the government doesn`t want that to happen anyway I think. The currency I`m talking about is yuan of course. Or…..

Many things can happen in this world, You`ll never know. Game-changers can be Ukraine, Russia, Greece or Fed`s interest rate hike to name a few. Historically, we know that currency shares could shift rapidly, as it did between the world wars. What we see happens in Europe now is not good.

If the demand for the yuan goes up it will kill the Chinese economy and their growth will stop. Chinese exports comprised 26,4% of Chinese GDP in 2013, according to World Bank. Five years ago it was 26,72%, so it haven`t changed much. This why it is important for China to control their currency, because a rising demand for yan would affect their export and make them sell less products to the rest of the world. They can`t afford that because selling their products is important for them.

But what about the U.S citizens? When the demand for a currency increase, the value of the currency will go up. Just like the dollar since July last summer. It`s good for the consumers in the country with the rising currency because they can buy foreign goods at a cheaper price.

On the other hand. It`s not good for the businesses in the country with the stronger currency because they will sell less of their goods to other countries, because their goods cost more when they are priced in other currencies.

This is a double-edged sword that makes this issue a political hot potato right now.

All the central banks are talking about this issue right now, and the Chinese government pegs its currency to the U.S dollar. In an effort to stabilize is exchange rate, everyday China sets the official rate at which yuan can be traded for dollars. The yuan is allowed to fluctuate within a 2% band around the official exchange rate.

This combination of a peg and a floating rate is meant to allow market forces to work, and not go overboard. The Chinese allow flexibility, but only on their terms, and that takes us back to the issue of a rising currency.

Export is very important for China, and if they want yuan to rise in global payments, they need to make yuan more available for foreign entities. But a rising demand for Chinese currency on the world market would lead to upward pressure on the exchange rate for yuan, which the Chinese government controls. Many people blamed China for being a currency manipulator a few years ago, but that would World Trade Organization set a stop for.

A rise in yuan will hurt the Chinese export, which account for a quarter of their GDP.

To make it worse. Once sufficient amounts of yuan were available away from China, more of their currency would trade outside of their governments control. Offshore yuan trading already occurs. In this unpegged environment, the yuan is free to move against other currencies based on market conditions without constraints.

More offshore trading will make the Chinese governments to lose control over the exchange rate, and thereby lose the ability to set one of the most important components of its very large export business.

While the Chinese might rail against the U.S dollar from time to time, and might even talk about how the yuan should occupy a more prestigious place among world currencies, it makes little sence for a country that uses a command economy to turn control of its currency over to international forces.

The yuan will not be the worlds currency leader tomorrow or anytime soon.

 


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Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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Who will win the currency war?

Let`s face it; there is a war out there. Not World War I or World War II, but a currency war that started five years ago. Who was the winner in WWI? And who was the winner in WWII? And who do you think will win the currency war that is going on now?

This currency war is also known as competitive devaluation. Countries compete against each other to achieve a relatively low exchange rate for their own currency. As the price to buy a particular currency falls so too does the real price of exports from the country. Imports become more expensive.

Stack of $100 bills

(Picture: U.S Dollar)

Employees in domestic industry will face a boost in demand for their products and services from both domestic and foreign markets, but the price will increase for imports and that can harm citizens` purchasing power, and that in turn can lead to a reduction in peoples standard of living.

The problem is when all the central banks are doing the same and this situation can lead to a general decline in international trade, which can harm all countries.

The world`s biggest financial center Singapore is the latest to take part of this currency war. The Singapore dollar tumbled to a four-year low against the US dollar after the Monetary Authority unexpectedly stymied currency appreciation.

Singapore is a compact financial center, uses exchange rates instead of lending rates to control its currency, as it is a very trade-oriented economy. The bank also reduced its inflation target, forecasting a negative 0,5 percent in consumer prices for 2015.

The reserve Bank of India also decided to cut reserve rates by 25 basis points to lower the inflation, they may again lower its lending rate next week. India, Japan and Russia have all seen a drop in the value of their currencies. Nine countries eased policy in January alone.

What is their goal? Their goal is to weaken their currency and gain an economic edge.

Japan is still «printing» money and ECB announced a week ago a €1,14 trillion quantitative easing plan and that sent the euro down to an 11-year low. The Swiss National Bank took precautions a week before that by removing the peg between the Swiss franc and the euro, and that sent the currency soaring 15 percent in a few seconds.

A negative interest rate of 0,25% a year on deposits means putting Swiss francs in a bank account will cost you 0,25% more than keeping them under the mattress. The plunge in the Russian ruble this year is down about 50% against the U.S dollar.

Check out the Japanese yen, which is down 25% over the past two years. It`s down about 20% against the U.S dollar since the summer. It is cheaper to buy a new iPhone in Tokyo and have it shipped over than it is to buy one in the U.S.

A cheap renminbi was a cornerstone in the Chinese industrial revolution, but renminbi has increased about 20% in the past four years because of the plunge in the yen. A weaker yen is good for Japanese jobs and industry because it makes foreign imports more expensive in Japan, while making Japanese exports cheaper abroad.

They all want to make their own currency cheap to boost exports and inflation.

But how can someone win if everyone is weaken their own currency against everyone else?

If you are familiar with fx trading, you know that if you buy one currency, you sell another at the same time, for example EUR/USD. If euro goes down, USD goes up, but both can`t go up or down at the same time. Here is the point.

Everyone can`t win and some of them have to lose, but who?

The U.S dollar have so far been a safe heaven and is getting stronger every day. So far, a great winner. Yen and Euro have been big losers. The U.S dollar soared while others plunged. This is expensive for U.S exporters, and Fed will probably do something very soon to fight back. This is a zero-sum game.

For the first time in history, all the worlds central banks are «printing money» as all the countries have generally preferred to maintain a high value for their currency. Countries have generally allowed market forces to work, or have participated in systems of managed exchanges rates. An exception occurred when currency war broke out in the 1930`s. As countries abandoned the Gold standard during the Great Depression, they used currency devaluations to stimulate their economies.

Since this effectively pushes unemployment overseas, trading partners quickly retaliated with their own devaluations. The period is considering to have been an adverse situation for all concerned, as unpredictable changes in exchange rates reduced overall international trade.

According to economist Richard N. Cooper, a substantial devaluation is one of the most «traumatic» policies a government can adopt (1971). It almost always resulted in crises of outrage and calls for the government to be replaced. A strong currency was commonly seen as a mark of prestige, while devaluation was associated with weak governments.

President Barrack Obama has defended the QE program, saying it would help the U.S economy to grow, which is good for the rest of the world. ECB will start their new QE program in a few weeks and if the economy improves in order to avoid inflation, there may be a promise to destroy any newly created money.

A reason for preferring devaluation common among emerging economies is that maintaining a relatively low exchange rate helps them build up foreign exchange reserves, which can protect against future financial crises.

The battle goes on between the Fed and the rest of the world`s foreign central banks. It`s war.

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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