Tags: dollar

Politicians Are Punishing the Dollar

By    |   Wednesday, 29 Jul 2009 03:07 PM

Those of you who have followed my articles for any length of time know my feelings on the Sarbanes-Oxley Act. When the politicians were hashing it out and then voted it in, I was stating it was a bad idea back then … and I’m still saying the same thing today.

Much of the time when politicians try to fix a problem, they invent a new one. In the case of Sarbanes-Oxley, it took away some huge inflows into the United States through the IPO (initial public offering) market.

Why do an IPO in America when it will cost you millions more a year in extra accounting than it would if you just did you IPO in another country that wasn’t so burdensome to corporations?

As 2009 has unfolded so far, we’re reminded of this fact, yet again. The world’s two biggest IPOs so far this year have happened in China and Brazil, not America.

China State Construction Engineering Corp., China’s largest housing contractor, raised over 50 billion yuan (US$7.3 billion) in Shanghai.

VisaNet, the Brazilian affiliate of Visa Inc., took in 8.4 billion reais (US$4.3 billion) in Sao Paulo.

On top of this, the biggest growth areas of the world also have had the biggest stock gains so far in 2009.

So far this year, China’s Shanghai Composite Index has soared 85 percent (in dollar terms); Brazil’s Bovespa Index has soared 77 percent (in dollar terms); India’s Sensitive Index (Sensex) has risen 61 percent; and Russia’s RTS Index has gained 60 percent.

But haven’t many stock markets gained a decent amount so far this year? What about the United States and Japan and how they’ve performed in the same time period? The S&P 500 has climbed 8.4 percent and Japan’s Nikkei 225 has risen 7.5 percent. Big difference!

Can you see where the bulk of the capital is flowing? Away from the United States and into the BRIC countries (Brazil, Russia, India, and China). What’s not going there is going into other non-U.S. places like Australia and New Zealand.

Out of the four BRIC countries, I feel that China and Brazil will be the top two performers. They are likely some of the ones that will lead the world out of the global recession. We’re used to the Unites States being the leader, but I don’t think that’s going to be the case this time around.

China’s economy, which is already the third-largest in the world, grew at a rate of 7.9 percent in the second quarter of 2009 and at a rate of 6.1 percent in their first quarter.

This theme holds true when you look at the emerging economies broadly, too. In fact, the World Bank estimates that developing economies will grow at 1.2 percent this year (as a whole). In 2010 they’re expected to grow at 4.4 percent.

At the same time, the World Bank estimates that the economies of the developed countries will contract 4.2 percent this year and only grow at 1.3 percent in 2010. Again, a huge difference.

Politicians in the United States unknowingly are rerouting capital away from the United States more all the time and into the emerging and developing world where the growth rates are so much stronger.

So you see, many of these so-called emerging economies are not nearly as emerging as they used to be.

This rerouting of the flow of money will continue to help foreign currencies and will continue to, once again, hurt the U.S. currency.

Therefore, many emerging market currencies and other major currencies (like the Aussie, New Zealand, and Canadian dollars) will benefit as the U.S. dollar gets punished once again by politicians who enact laws to correct problems that they know far too little about.

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SeanHyman
Those of you who have followed my articles for any length of time know my feelings on the Sarbanes-Oxley Act. When the politicians were hashing it out and then voted it in, I was stating it was a bad idea back then … and I’m still saying the same thing today. Much of the...
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2009-07-29
Wednesday, 29 Jul 2009 03:07 PM
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