Over the past 2 years, the Philippine currency, the Piso, has been strengthening against the weak U.S. dollar, as have pretty much all currencies in the world. The Piso had historically been at around 55 to the dollar, but in a short period of time, it had strengthened to almost 40 to the dollar... a more-than-25-percent gain. That doesn't mean much to the average American or Filipino citizen, but for American and Filipino citizens earning money in dollars, but living on Pisos (like myself), this has meant a 25-percent reduction in income: For every $1,000 I earn, I am only receiving $750 worth of pisos (based on the prior price); $250 of every $1,000 is simply gone.Anyway, over the past month, the Piso has been experiencing a bit of a turnaround. It hit a low of about 40.2 to the dollar, had a quick rebound, and then has started creeping slowly (but very steadily) back upwards into less-strong territory, and now is hovering at 42.3 to the dollar.
However, at this point in time, it is really too early to declare an end to the strong Piso, and breathe a sigh of relief that the worst is finally over: Historically, over the past 5 years, major advances in the value of the Piso tend to occur after a brief climb similar to what is being seen now.Additionally, not all Asian currencies are relfecting this rebound: The Thai Baht, Malaysian Ringgit, Indonesian Rupiah, and Chinese Yuan are all holding steady value (or advancing) against the dollar, while the Japanese Yen, Korean Won, Vietnamese Dong, and Indian Rupee are reflecting a small bounce similar to the Piso's. With the major Asian currencies evenly split on whether the dollar has been strengthening or not over the past 30 to 50 days, that makes the certainty of a full-blown turnaround even more vague.
Somebody the other day at lunch said that he had heard that we could expect the Piso to reach 50 to the dollar by the end of this year. I think that is definitely overly optimistic. But, I would make this prediction: If the Piso manages to cross back over the 45-Piso-per-dollar mark, it would probably be safe to breathe a sigh of relief that we won't be seeing a Piso valued below 40 to the dollar anytime soon.
Whether the Piso will weaken further upward from that 45 barrier, hold or start to advance again really is anybody's guess. My guess would be that with the Olympics coming up in August, the American elections in November, the nations coming together to address the food crisis, and the beginning of the end of the Iraq occupation, it is a time of optimism and positive emotions in the world, and that should benefit the dollar.
25 comments:
"Historically" peso was at 25-26 to the dollar for many many years until the asian currency crisis. Has been slowly getting back to its normal level ever since. (IMHO)
jil dont you save any money?
you seem to be living pay check to pay check
and i seem to remember you saying a few months ago that the dollar would strenghten because of turmoil in the global economy " who is going to want to invest in a bolivian telecom"
now you predict dollar to rise because everything is all good
hmmmmm
Iain: Historically, I'm sure that the piso has been lots of different values; however if you go back more than 5 years, prices have had time to adjust to those changes. The Piso went from 50 to 40 in just 4 or 5 months, and prices haven't changed to reflect that. In order for the Piso to drop further, you have to have price deflation (or American inflation).
Star: (1) Yes... I do pretty much live paycheck to paycheck. But I have a savings account, which I keep at the IRS in the form of taxes. I save about 20% to 25% of my salary each week, I would guess. Can't spend it until next year though.
(2) I'm an optimist. However, you did misinterpret my previous statement a little bit: I said that if the world economy spirals out of control or falls into a deep depression, it is the "major" currencies like the dollar (euro, pound, yen) that peole will flock to, while "minor" currencies like the Thai Baht and Philippine Piso that will take the hits.
"however if you go back more than 5 years, prices have had time to adjust to those changes. The Piso went from 50 to 40 in just 4 or 5 months, and prices haven't changed to reflect that. In order for the Piso to drop further, you have to have price deflation (or American inflation)."
Hmmm ? Are you entirely sure about this ?
Well Iain, I would say it is self-evident: Either prices have adjusted or they haven't. If I am mistaken and prices have NOT adjusted, then the following would be true:
In 1997, a 1.5 liter bottle of coca-cola at 35 pesos cost the equivalent of $1.40, and today it costs the equivalent of $0.83.
If prices HAVE adjusted, obviously that would not be the case.
Do you think that pricing as above would be accurate or not? If you think that most likely the real price of a 1.5 liter bottle of Coke in the Philippines has not declined 40% in the past 10 years, then... yes... you would have to agree I am right: Prices have adjusted.
It sure seems like everyone is in a 'wait and see' mode, concerning the US dollar.
Wouldn't you agree that 2008-2009 will be a pivital financial time?
I would say that we've been in "pivotal financial times" for the last 6 years; the last 8-10 years if you want to be finicky... ever since the Asian Crash and Dot Com Bust. However, the housing crisis of the last 12-24 months is probably the biggest threat to global financial security currently, and that will probably have resolved itself (most likely for the worst) in the next 6-8 months. I have a feeling that we will know the lay of the land long before "2008-2009" is in the here and now.
pivital lol
i'm afraid pivotal points are not telegraphed for Joe's like you two
the snake that bites Joe is the one he cant see
funny isnt it how all Jils predictions seem to correlate with whats best for him.......
greater housing declines ( he doesnt own a house in US) and yet this also corresponds somehow to a stronger dollar and more spending power for him
What's the problem? I take the result I want, and then reason how current factors are favorable to that result coming to fruition. Heh... that's a problem or something? You no like-a my wish-a-ful thinking señor?
That's pretty much it though: I figure that the dollar simply cannot get any weaker than it already is and no matter what happens, it is not going to go any lower. Can't go any lower.
good link I found - not about economy but something you may want to post on your blog. http://www.missphilippines-earth.com/
i dont beliueve there will be any serious consequences for the world economy from the US housing decline.
Housing in the US is the cheapest on the planet. to see a bubble go back to Japan. prices have been flat to declining for 20 years and are still the most expensive in the world
did that effect the global economy? not really, it corresponded with unprecedented global growth
there is always a leaner hungrier country waiting to take over the mantle of growth when one falls to the way side
and its a big one - China
Ding... thanks for the link, but Epril already has plans for May 11, 2008, and won't be able to participate. Besides, she'd like to give the other ladies a reasonable expectation of winning, which if she shows up to participate, simply wouldn't happen.
Star... I lost the link, but I was reading about how the government of China, in trying to protect workers by introducing new laws, are putting lots of factories out of business. In addition, no country is harder hit by a weak dollar than China. Chinese companies have made their profit margins so miniscule that their growth cycle is more vulnerable to currency and market fluctuations than any other country on earth. Chinese internal economic indicators right now are very very shaky.
Yes margins are miniscule. But revenues are huge, 20 x market cap
The only US companies trading on 20 x revenue also have debts of 20 x market cap
Chinese manufacturing companies purpose was to get China's foot in the door
it is now able to compete in more lucrative cutting edge industries
which together with its manufacturing strangle hold, will dominate the world like no other before it
Would you stay in Phil if the US dollar were to drop by near 30% in value from where it is today (in terms of the US dollar index)? I'm sure that it will. Today the US dollar index is at 0.73, so it will drop to around 0.50.
Makopa... that would be 28 pisos to the dollar. If it went that low then no... I don't think I would continue to stay in the Philippines. It would erode my quality of life too much.
If that happened, Epril and I would go to Cambodia, where the currency is U.S. dollars.
Makopa... just remember though that if the dollar depreciates 30%, and the rest of the world currencies don't experience massive deflation, that means that all imports to America will increase in price by 30%.
That means a huge drop in export income for China and the rest of Asia... and a huge boost for American exports... which in turn will once again cause upward pressure on the dollar.
Currencies do not deflate. Currency appreciates and depreciates relative to another currency. Inflation and deflation are purely monetary phenomena. When a country, like the USA is doing, increases its money supply (measured by M3) there is monetary inflation. Deflation is a reduction in the money supply. I rather doubt that you will see deflation as long as the Over The Counter Derivatives market is kept liquid. It is too easy to print money in a fiat currency system.
One day, then the derivatives market fails there will be a depression, but until then you will see inflation and hyperinflation. Unless the US is willing to contain their inflation, they will keep printing more and more money to try to keep up with the decline in the value of the dollar (caused by printing more and more money). See Zimbabwe for a good example of a modern day hyperinflationary depression.
Hmm... Usually I'm months if not years ahead of the experts when it comes to them coming around to them seeing things my way... I usually have to wait longer than this to have the experts agree with me.
There's a growing sense among currency traders that the US dollar might finally stop its long slide against other major currencies.
But since then, the buck has been on a modest upswing. The euro traded at $1.54 on May 2, and the dollar index is 3 percent off its lows. "We think the dollar is carving out a bottom," says Meg Browne, senior currency strategist at Brown Brothers Harriman."
(Hey... I used to work for BBH as a graphic artist, full disclosure.)
And... the best line is this one, which proves my point when I said, "Iain: Historically, I'm sure that the piso has been lots of different values; however if you go back more than 5 years, prices have had time to adjust to those changes. The Piso went from 50 to 40 in just 4 or 5 months, and prices haven't changed to reflect that. In order for the Piso to drop further, you have to have price deflation (or American inflation)." The 'experts' say exactly the same thing in not so many words:
Even if the dollar stops its slide, it will remain quite cheap by historic standards.
In other words, everything I have been sensing, everything you folks have been telling me I'm wrong about... well, I've got at least a couple of "experts" who say I'm 100% right.
Boo-yeah.
really nice work jil. but how much money have you have staked on it?
whats the point in being right if you dont gain out of it
btw if you say your dollar pay checks, then you have been wrong for a long time ha ha ha
Star, that makes no sense whatsoever.
Are you saying that even if I'm right, it doesn't make any difference because it only benefits me now?
What kind of weird reasoning is that? Can you post your comment again with a little bit of a better explanation of the point you thought you were making?
i'm saying it makes no difference becuase you would have benefited or lose out whether you are right or wrong.
it is not so clever to not benefit from your cleverness
these experts have loads of cash staked on their expert theories
surely buy the dollar and short the peso
I see now, Star.
So, since you are playing protagonist to my theory that the dollar is about to rebound, and accusing me of not being clever because I am benefitting from being right, then I assume that you are "clever" (in your own special way), and have all of your investments in non-dollar foreign currencies at this moment?
Hmm... So let me sum this up: I'm not clever, because even though I'm smart enough to figure out which way the dollar is going, I don't have any money invested in it. Meanwhile because you are guessing wrong as to which way the dollar is going, but at least because you have money invested in it, you are clever.
That's a very interesting theory.
Hmm... Brown Brothers Harriman, you should check up on their history.
How are they feeling about their investments in mark to model mortgage backed securities? Hehe
Makopa...
I barely remember the place actually. I was a contract worker there for a few months. In truth, I couldn't even remember where I was when I worked for them... and I went to look on their website, and google earth, and it looks as if they have changed locations since I was last working there since I never worked in 140 Broadway, which is where they say their offices are.
What about their history anyway?
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