But there are clear signs of an overshoot on the upside - an 'echo bubble'. Sensible analysis of stock prices for instance suggests that after the run-up of recent months, markets are clearly overvalued. A recent rash of IPO's (NHPC, Adani Power, Oil India), follow-on offers and QIP's (Axis Bank) and large bond issues can be seen as a return to business as usual.
Investors are also tired of talking about the macro issues. That's understandable given the return of a modicum of stability to markets. Yet the things that keep people awake at night are still the big macro concerns:
- Is the US consumer going to pull back further?
- Is a continuing downturn in commercial property going to undermine the credit recovery?
- Are bad things still lurking in the banking system?
The fact is that the foundations of a recovery are scarcely in place, yet the optimists are already looking for the lift to the new skyscraper's observation deck.
6 comments:
How many years do you think the USD has before its demise?
-Mr. Anonymous
The USD is still the most important reserve currency in the world and will remain so for the foreseeable future. This is mainly because of the TINA (There Is No Alternative) factor.
Which currency will take the place of the USD? The Euro? Yen? Chinese Renmembi? Indian Rupee?
Yes, the importance of the USD will reduce, but the process will much slower than the press will have you believe.
Thanks for the reply.
The people of the US are still adding tremendous value to the world but their government policy/spending is putting a lot of pressure on things. Yes, currently there is no alternative to the USD, but given the direction in which the US is heading it doesn't seem that long before the death of USD.
China issued its first bonds in HK today, Iran switched to Euro for its Oil exports recently.
It will be very difficult for the FED to pull back given that the political will is so weak in the US to do anything constructive.
Pardon the Iran comment. I was misinformed.
Yes, the political will in the US to do anything constructive is very weak. But the current dollar weakness has nothing to do with that.
The dollar's weakness over the last few weeks is simply a reflection of the increase in risk appetite in the world.
Investors are selling low-yielding US assets and moving to emerging markets and commodities.
Remember 1 year ago when the crisis was raging, investors flocked to dollar assets even though the US was the epicenter of the crisis !!
The USD is the most important currency in the world because the US is the biggest economy. As the relative importance of the US to world growth reduces over the next few years and decades, the importance of the USD will also reduce.
But, don't hold your breath waiting for it to happen !!
Thank you for your comments.
I look forward to your next post.
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