Ray Hendon

Currency Bundles Pegged to the Dollar

Hi, Desi:

Thank you for your kind words.

Your questions are cogent reminders that nothing is permanent in the world of currency investing, and what's hot today may be decidedly cooler tomorrow. I wish I could give you a definitive answer to your questions, but I can't. I have only weak opinions on both questions. Remember, my opinions are free, and worth every penny!

A strong dollar would be a relief to all the gulf and asian countries in PGD, since they have been forced to follow the dollar down (for the most part) for about the last eight years. Higher dollar prices with respect to the Euro, e.g., would allow the Saudis to buy more European goods. But, it would diminish the chance of a revaluation and actually increase the odds of a devaluation for the weak currencies. But, I doubt that the dollar will make a dramatic turnaround. It is more likely that it will stop falling, and, perhaps, rise at a moderate rate. But, this guess can easily be wrong. So many things of a political and economic nature can occur that would turn everything in the opposite direction.

Your second question is equally difficult to be definitive with. But, the inflation we have experienced the last few years has been caused largely by increasing demand from the emerging markets. Their increasing incomes have pushed up their demand for food and energy, and their increasing industrial productivity has pushed up demand for metals and energy. In one sense, this type of inflation is greatly benefiting those emerging markets that sell food stufs, metals and energy--Brazil, Chile, Mexico, Russia, Australia,etc. So, this would actually benefit their economies, and, by implication their currencies.

Best wishes,

Ray