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The market is “up” mostly because the USD is down, not because real values are rising. USD value is going to be hit extremely hard as it loses reserve currency
by zaroth 5y ago
The market is “up” mostly because the USD is down, not because real values are rising.
USD value is going to be hit extremely hard as it loses reserve currency status. The days of the petrodollar have come to an end. It will be a typical “closing the barn doors after the horses have bolted” response which will only make things worse.
This is actively happening now, the big holders are just trying to do it quietly to get out as much as possible before the US tries to shut it down and USD fully tanks.
As this happens the market valuations will appear to rise in nominal values. If you value the market in gallons of unleaded or dozens of eggs however you will see a different story. There’s only so many years the politicians can claim it’s a “supply shock”.
- JumpCrisscross 5y ago> the USD is down The dollar is approaching a 3-year high [1]. It is up close to 9% over the past year. [1] https://www.wsj.com/market-data/quotes/index/DXY/ https://www.wsj.com/market-data/quotes/index/DXY/
- zaroth 5y agoWhat do you think that chart is showing? How do you square it with a chart of USD value versus an asset which has held consistent value for millennia? https://www.kitco.com/charts/popup/au1825nyb.html https://www.kitco.com/charts/popup/au1825nyb.html
- JumpCrisscross 5y ago> What do you think that chart is showing? The U.S. dollar index, “an index (or measure) of the value of the United States dollar relative to a basket of foreign currencies” [1]. > How do you square it with a chart of USD value versus an asset which has held consistent value for millennia? Gold has appreciated relative to the dollar since its 2016 low. Granted, it took until 2020 for gold to regain its ca. 2013 price. That doesn’t translate into any information about inflation in that interval. Nor about U.S. export/import balances or the dollar’s strength. Unless you’re in the gold business, gold prices are a facile measure of anything economically useful. [1] https://en.m.wikipedia.org/wiki/U.S._Dollar_Index https://en.m.wikipedia.org/wiki/U.S._Dollar_Index
- adam_arthur 5y agoValue of the dollar relative to a foreign currency is very different metric than value of a dollar relative to a real asset. If foreign currency has 20% inflation, and US has 10%, the dollar index will go up. But the USD still lost value in absolute terms
- JumpCrisscross 5y ago> dollar relative to a foreign currency is very different metric than value of a dollar relative to a real asset Agreed. Which is why we have different words for each. Saying “USD is down” unambiguously means the former. Inflation unambiguously means the latter. Saying inflation is up in response to an article about inflation being up is tautological. So, in the spirit of Hacker News, I assumed they weren’t being flippant but were instead factually wrong.
- adam_arthur 5y agoIt's not unambiguous. In fact when people say the dollar loses value over time they are almost always talking about local currency only, not in relative to foreign currency terms. "USD is down" is only implied to be about foreign currencies in a trading/finance context
- JumpCrisscross 5y ago> when people say the dollar loses value over time they are almost always talking about local currency only "Dollar loses value" and "USD is down" are different words. The former is ambiguous. The latter is unambiguous. Particularly in response to an article about inflation. Again, "USD is down" is, given the context, either inane or wrong. I'd prefer to be wrong than stupid.
- zaroth 5y agoThe comment was relative to why the market was up. The point is, in real terms the market is not in fact “up”. The market is repricing based on future expectations of the real value of the USD. The terms “real” and “nominal” make it abundantly clear that I’m not talking about USD versus other currencies. Why are other currencies even part of the discussion? I can only guess because it was an easy retort to “disprove” my statement and derail the discussion. The meaning should be clear enough from the context of my full comment. I’d rather hear feedback and discussion on that, than debating something I wasn’t even trying to claim (e.g. whether other currencies are rising or falling faster than the USD). Countries are beginning to do real volumes of energy trade outside of the USD. Countries are also questioning the level of USD reserves they want to be holding with the Fed. This structural decrease in the demand for US dollars will have a very lasting impact that will become clear over the next decade. This is a tidal change which was a long time coming, but I think the weaponization of the USD and SWIFT thru never-before-seen sanctions have pushed it over the edge. It doesn’t help to be reaching this point with debt levels at 140% GDP and deficit to GDP over 10%… Because demand for dollars has been so consistently high in modern history, we usually think of inflation in terms of the US economy being too “hot” or because we’ve printed too many dollars. It can be bizarre to think about changing “demand” for a currency, because, who doesn’t want more money? The light bulb is understanding there are many options for storing value, and demand for one option versus another shifts through a combination of present utility and future expectations. I believe that the structural reasons driving inflation this year and for the next decade have shifted entirely into something the US has never seen before, and it’s very interesting to consider where it will lead. The war and COVID are confounding variables which I believe some people use to try to ignore the new reality. A weak USD relative to other currencies isn’t an entirely terrible thing. It leads to massive re-domestication of production for one thing, as imports become too expensive. But that depends as much on how quickly other countries devalue their currency. In the near term the biggest hit from debasement of the local currency is to anyone with liquid savings, or anyone who has stagnant wages (e.g. once yearly wage increases become insufficient to not lose significant purchasing power).
- ChrisLomont 5y agoGold has not held consistent value for millennia. Take anything that you buy, housing, food, oil, and price it in gold, then do the same for the USD. See which is a more stable way to price goods. Gold is terrible for stability, which is why booms and busts were more common and longer before every single country learned that and dropped gold standards.
- zaroth 5y agoWe haven’t had oil long enough to do the exercise. In 500 B.C. in Babylonia apparently an ounce of gold would buy you 350 loaves of bread. It’s roughly the same today. Augustus paid his centurions about 40 ounces of gold a year in 0 B.C. Today the median wage is about the same. I don’t disagree about the booms and busts, I’m not saying that a gold standard is a solution. The fact that pricing in gold is stable over millennia even within an order of magnitude is pretty cool. Certainly no fiat currency could say the same even on a 100 year scale.
- ChrisLomont 5y ago>Certainly no fiat currency could say the same even on a 100 year scale. No one holds fiat for 100 years, so it's a silly thing to worry about. No one hold currency even 25 years, so again, irrelevant. Fiat is designed to make pricing predictable and smooth out the booms and busts that gold causes. It's designed to be slightly inflationary to avoid deflationary spirals. Fiat has been the most stable economic basis in history. There never was a goal that a loaf of bread is $1 usd for eternity. There is a goal that inflation targets around 2%, and the resulting stability under this system allows loans to have lower interest, for businesses to make longer term financial plans, and for solid expansion of economies. Another way to think of it over those timespans, is gold is simply a terrible thing to hold also. If you're claiming holding gold for 10,000 years breaks even, it's a terrible thing to hold. You might as well hold water or dirt. If gold is worth the same now as 100 years ago, you should have sold it immediately and invested into productive assets, such as Dow Jones index (which over the past 100 years returned 132 times the initial investment). Since no one holds currency for long term investments, and for likely centuries decent investments have returned vastly more than gold, there is nearly zero use for gold. The love of gold is simply voodoo. Currency is more stable for buying and selling and pricing over any range people hold currency. If you want an investment that has return, pick nearly anything except gold.
- UncleMeat 5y agoGold has very obviously not held consistent value for millennia.
- zaroth 5y agoWhat do you mean? Perhaps you’re looking at the change (inevitably decrease) in the value of fiat currencies, not the change in the purchasing power of an ounce of gold. The purchasing power of an ounce of gold in terms of real goods that can be obtained is remarkably consistent over human history, taking into account productivity increases which make everything actually easier to produce (rather than making gold or fiat currencies more “valuable”). This is a characteristic of gold in particular (above all other commodities), due to a number of factors related to its density/portability, longevity, malleability, and the consistent rate over history at which it’s been extractable from the earth. It’s a rather peculiar if not spectacular equilibrium. It’s a nice benefit that it’s also rather pretty, and interesting to consider to what degree that matters.
- UncleMeat 5y agoI mean, if you look at history, the perceived value of a lump of gold has changed a lot over time. Even if you assume that recent price differences are due to wild swings in the value of currency (apparently a dollar was worth twice as much in 2000 as in 1990), the claim that the value of gold has been consistent over millennia is just not true. The way I know this was because of the giant laugh that my historian wife gave when I showed her your comment.
- zaroth 5y agoI think you’d be hard pressed to find anything else in human history with a 10-year or 100-year average value as stable as gold. Do the exercise in terms of housing/lodging, loaves of bread, nice attire, annual median wages, etc…
- UncleMeat 5y agoSure. "Gold has been an expensive commodity for a very large amount of human history, and few commodities have this property" and "has held consistent value for millennia" are very different claims.
- mpalczewski 5y agoUSD is not down. The dxy index has been going up all year. Inflation is a global phenomenon.
- zaroth 5y agoComparing one pile of festering garbage against another and saying one smells better… you’re still standing in a pile of trash.
- deleted 5y ago[deleted]
- nightski 5y agoThis inflation report directly contradicts your statement. It's clearly down quite a bit in purchasing power of assets, goods, and services.
- cannonpalms 5y agoThis is not what is meant by the phrase, "X currency is down." A decrease in purchasing power of a currency is known as "inflation."
- zaroth 5y agoSorry if I’m using the wrong vernacular. The reason why market prices look so high is because it’s priced in US dollars, and US dollars aren’t worth what they used to be. The reason why markets go up when the Fed seems completely unconcerned or helpless to stop the worst inflation in decades, is because people are betting that this trend will continue. If you re-price the market in another unit of measure, like “ounces of gold”, you will get an entirely different picture.
- mpalczewski 5y ago> If you re-price the market in another unit of measure, like “ounces of gold”, you will get an entirely different picture. If you price the dollar in terms of ounces of gold, then you would think that the dollar is worth more than it was in September of 2011, and you would think that the dollar is worth more now than it was in August of 2020. While gold is stable over the long term e.g. centuries, its price can be quite erratic over the short term. You can price it in barrels of oil, silver, copper, a collection of other currencies, bitcoin, median house price and get a different answer each time. > The reason why markets go up when the Fed seems completely unconcerned or helpless to stop the worst inflation in decades, is because people are betting that this trend will continue. It's a global phenomenon. We've got less production of goods and commodities because of covid and just as much if not more demand. So supply down, demand even or even up. What do you expect to happen? While the USD has problems, other currencies seem even worse at the moment. There is not some other fiat currency at the moment that is better than the USD. Things that people think are hedges BTC(Ponzi scheme), Gold(volatile) don't always work well. e.g. here is real(inflation adjusted) gold prices. https://blogger.googleusercontent.com/img/a/AVvXsEiyWSImAdvNFecozQ_q07f_Llg2m-h16DEKGQr_NurjY3NsCwIR1R2OI8_RA00NkeT4COe6IE-9xCzI2TALE7SF6SDV_B8CRvv8oyrIq_vJaUtCMjNNDiri7KTTkgTRvBTBjCyMykUw_-U5q45GUQv8VVfAaRgIABkF9p-i2oIsyy9m6OzBl_CDRQ2L=s2445 https://blogger.googleusercontent.com/img/a/AVvXsEiyWSImAdvN... it doesn't look all that cheap at the moment. > If you re-price the market in another unit of measure, like “ounces of gold”, you will get an entirely different picture. Like this? https://schrts.co/pAKzMCFc https://schrts.co/pAKzMCFc
- xtian 5y agoI 100% agree, but is there anything that can be done if you aren’t a big holder?