Strong dollar does allow cheaper imports, but it doesn't increase the buying power. In other words since we are a nation that already relies on imports the benefit is exclusively towards the US corporations, and not to the seller. We will not increase our purchases unless demand here picks up. There is no real benefit for foreign companies. There is no longer any competition between US made and overseas. The products we do export would obviously be hurting.
The other big negative is that global commodities are priced in US dollars. Oil is a great example. It will crush the nations that rely on exporting their commodity. No coincidence that the drop in commodity prices, excluding shortfalls in production, will hurt developing nations.
Emerging markets rely on foreign investments. Their higher interest rates are the lure. If US dollar continues to strengthen than the investor could lose money despite the extra interest rate when they exchange money back to home currency. Countries already hurting economically and that rely on commodity exports will get doubly crushed. The amount lent to emerging markets is double the 2007 subprime mortgages. It can have devastating consequences. We are already relying on a huge expansion of the middle class in these emerging markets. If this gets curtailed so will future world growth.
In the last 6 months we went from 80 to 90. that is a huge move in such a short period of time. It has to disrupt foreign investments if the trend continues. Any disruption like this will be felt worldwide at a time when the major nations economy are at a precarious position.
Or I could be wrong. hey this is my analysis and I am sure others will chime in to counter this. I do know that anytime currencies move this fast there are major disruptions. We have hit and dropped from 90 in recent history. if it breaks out I believe it will spook the markets. It certainly will not help commodities stabilize.
One other observation: Recent articles are now declaring smooth sailing for 2015. One mentioned that years ending in 5 have an 11 to 1 odds of ending positive. That may still hold true but the dramatic fall in OIL, and the 12 percent rise in US currency over last 6 months might cause some world wide disruptions for the first half of 2015. Combine that with the 3rd longest bull run and the possibility of a drop soon increases. My final decision was made for me by the markets reaction, or should I say dismissal of recent events. It doesn't seem logical that such fast developments can be corrected so quickly.
I could be totally wrong and in fact have debated this with myself for a while. The behavior of US market seems to contrite. That indicates a sense of complacency when there just shouldn't be any. Oil is like the mortgage debacle was. It will affect all since it is "the" energy source. To have US investors re-adjust their investments where the net result is new highs smacks against common sense. It also was done in one month's time. The last 6 months of currency strength combined with freefall in OIL resulting in new highs in our stock market? Perhaps I have assessed this wrong and smarter heads have prevailed. We shall soon see.
AI
