La Guerre des Changes (Episode I)
Au moment où la guerre des changes fait la une de tous les journaux du monde, Antonio Fereira a eu la gentillesse de nous faire part de son avis d’expert sur l’évolution du cours du dollar.
On y trouveras tous les arguments qui militent pour un affaiblissements marqués de la devise américaine :
· Une reprise économique qui tarde à se matérialiser,
· Le désendettement des ménages qui pèse sur la consommation,
· La bulle obligataire en devenir comme conséquence naturelle des excès de liquidité en Chine, au Japon et dans les pays producteurs de pétrole,
· La volonté délibérée de la Fed de relancer la croissance par la reprise de la politique dite de « Quantitative easing »
· L’espoir déçu des américains d’une réévaluation du Yuan.
Au mois de juin dernier Antonio avait clairement annoncé un retour cyclique de l’Euro face au Dollar, aujourd’hui il accentue le trait en indiquant que la dépréciation du Dollar sera au mieux contrôlée, mais que tous les ingrédients d’une crise du Dollar sont réunis et qu’il faut s’y préparer.
INTERFINANCE S.A.
INTERNATIONAL FINANCIAL ADVISORS
AVENUE E. SPEECKAERT 110
1200 BRUXELLES
BELGIQUE
DOLLAR FALTERING
Embryonic elements are in place for a Dollar crisis.
The economic recovery in the United States is hitting against strong impediments.
First and foremost the economic recovery continues to be limited by deleveraging as households reduce debt as a proportion of income. If previous credit crisis are any guide this process will last 5-7 years and we have just entered the fourth year of the crisis that started with the collapse of the sub-prime market in the summer of 2007.
Housing, a major component of private wealth remains under consistent pressure and a sustainable improvement remains unlikely in the near term. Although construction has slowed the supply of housing to the market remains unabated from the disposal of foreclosed mortgages. This continues to put pressure upon prices impeding a recovery in housing values and keeping a substantial portion of households in a negative wealth situation, whereby the market value of their property is below the mortgage credit taken for acquisition. As a result some households walk away from their commitment while others see the largest component of their wealth depreciate. As a result savings need to be rebuilt, liabilities reduced and the resulting reduced ability to spend suffers.
In relation to previous recoveries, the present one suffers from this structural impediment. With the process of deleveraging unfinished, consumer spending is, and will remain sub par, and a relatively jobless recovery curtails the potential for income growth.
With consumers still mired in the deleveraging process and banks unable to eschew the need to rebuild capital the availability of virtually unlimited liquidity and the persistence of a zero interest rate policy are failing to kick start credit multipliers with most of the central bank created liquidity remaining in bank deposits at the federal reserve system and the rest contributing to a potential bubble in the fixed income Treasury market where yields remain at extremely low levels in spite of the rapid deterioration of debt ratios and the persistency of extremely high deficits.
With fiscal consolidation not even on the agenda of the Obama Administration a time of reckoning will be coming even if not imminent. Look for the approach of 100% Debt/GDP ratio in 2012 and the serious risk of downgrading of the already deteriorating quality of US Treasury paper as a potential watershed.
The excess liquidity in dollars ends up also in the surpluses of large Reserve Asset holders (chiefly China, Japan and Opec). Non-residents already hold well over 50% of the US Treasury outstanding liabilities.
With over 2/3 of international reserves held in Dollars and almost ¾ of that owned by only 4 major holders (China, Japan, Opec and Switzerland) the temptation to diversify away from the Dollar can only increase.
From the reduced number of alternatives to the Dollar only the Euro (mostly German denominated paper) has any significant depth and breadth to serve as a significant redeployment area for large and rapidly growing international reserves. The sum of the Yen, the Swiss Franc, Sterling, Canadian and Australian dollars comes to less then half of the Euro’s share as a reserve asset.
We have already witnessed what has been happening to the Yen and the Swiss franc as a result of a relatively marginal reallocation of reserve assets, in spite of these countries’ attempt to resist the appreciation of their currencies with intervention. Gold and collaterally Silver’s ascent in price illustrate what happens when currency debasement by quantitative easing and a rapid and unchecked deterioration in debt quality takes place in the United States.
The Euro has been shunned until recently as a result of fears from debt crisis in some member countries. A major reassessment in perceptions about the European situation is now taking place.
The strong response to the crisis by key core countries was a first element, the implementation of substantial fiscal consolidation in the complacent European countries and the realization that Greece, Ireland and Portugal make up significantly less then 10% of Euro area GDP has placed the issue under a more realistic light. Finally the robust recovery of the German economy has been instrumental in restoring confidence in the Euro’s quality as a reserve asset.
As a result we can expect the Euro to follow a similar path to that taken earlier by the Yen and the Swiss Franc.
With fiscal policy constrained by a calamitous deficit and the unchecked deterioration of the debt ratio the Obama administration cannot make further significant use of this tool without the risk of precipitating an early downgrading of the AAA rating of Treasury ratings. Besides November mid-term elections for Congress are likely to deprive the Administration of a majority and place Republicans on a stronger footing. Zero interest rate policies have failed to generate sufficient traction as a result of the structural deleveraging process that resulted from the debt crisis.
A looming second round of quantitative easing by the Federal Reserve seems to serve the purpose of a deliberate, if unstated, attempt to resort to depreciation of the exchange rate as the tool of last resort that can, in the minds of some, eventually gear an American recovery through a beggar-thy-neighbour policy of stimulating exports, especially as China won’t derail its policies and balances by surrendering to American pressure to sharply revalue the Yuan.
Exchange rate debasement policies are however a dangerous path to follow and tinkering with the expectations of a 4000 billion a day currency market can prove, like Pandora’s box, an initiative with potentially vast consequences that can be difficult to steer.
Last June we have issued a clear call for a Euro cyclical upturn against the Dollar. At the present moment what we are saying is that, at best, the Dollar depreciation will be kept under some control but the ingredients for a potential Dollar crisis are present and can morph into momentous developments.
Complacency in the face of such risks could prove costly. Be prepared.
A. Ferreira
September 30th 2010