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David Callaway
Oct. 22, 2010, 8:19 a.m. EDT
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Race to the bottom in currency markets
First Take "º
Freeport: sitting on a gold mine
By David Callaway, MarketWatch
SYDNEY (MarketWatch) "” The tasting menu on display outside the Japanese restaurant at the Westin Hotel in Tokyo had all the treats a foodie from San Francisco would expect from a Western business hotel in Japan's capital: fine rare tuna sashimi, fabulous beef and wine pairings for each of the handful of items. Then I saw the price: more than 53,000 yen, or more than $650.
I checked my total available cash for a 10-day business trip to Asia and wasn't even close for just that one dinner. That, and the fact that company policy provides for about $50 a day for meals, sent me over to the sushi bar instead, where five small pieces of Nigiri sushi and a beer blew through a day and a half's worth of sustenance, or ¥6,400, about $80.
Welcome to the front line of the currency wars, where quantitative easing, smothered interest rates and an absurd expectation that a weak dollar will lead to a U.S. economic recovery combine to make U.S. dollars a laughingstock abroad.
A policy decision from the Bank of Japan, AIA's initial public offering on the Hong Kong Stock Exchange and a slew of economic data will dominate news in Asia's week ahead. MarketWatch's Phani Kumar reports.
Of course, the Federal Reserve couldn't care less about tourists in Asia or Europe, especially business tourists, when it's trying to save the U.S. economy from sinking into a 1930s-style depression. But the currency war the Fed and the Treasury have started across the world "” flooding emerging markets with dollars and berating China for essentially keeping the weak currency they'd like to have themselves "” couldn't do less for American economic leadership at a time when everybody is looking for a strong example to follow. No country has ever devalued its currency to prosperity, and that's not going to happen now.
My trip to visit MarketWatch bureaus in Tokyo, Hong Kong and Sydney allowed me an opportune time to retest my self-patented, beer-to-taxi exchange-rate theory, which is like The Economist's famous Big Mac Index but more fun "” and it doesn't require a visit to McDonald's. Using New York or San Francisco as benchmarks, where the average price of a short taxi ride downtown is about equal to a $6 or $7 beer at an average bar, I always note how the ratio in cities I visit compares to those 1-1 examples.
In Hong Kong, where the ubiquitous red Toyota Crown cabs race the city's winding, elevated streets like a gigantic Bobsled ride at a traveling carnival, the ratio is about 1-3. For the price of a beer, about 75 Hong Kong dollars (just under $10), you can generally take three cab rides in the financial district.
Foster's Group A still from an award-winning commercial for Victoria Bitter, a pint of which costs about one-third of the price of a short taxi ride in central Sydney.
In Sydney, it's the reverse. A taxi downtown costs about 20 Australian dollars (about $19), or roughly the price of three pints of Victoria Bitter. In Tokyo, however, a 10- to 15-minute cab ride can easily cost about ¥4,000, or $50. Even at extraordinary prices for beer of as much as ¥1,000, or $11 to $12, that's still four beers per cab ride.
The only city close, at least that I've visited, is London, where a black cab can easily cost 12 to 15 British pounds. That's about 20 bucks, so less than half the price of Tokyo. But given the low price of beer in the U.K., about right for a 4-1 ratio. The fact that the cities with the cheapest beer have the most cabs is probably just a coincidence.
So with fine dining or any type of shopping out of consideration for my fistful of American dollars, I spent a lot of time walking around talking to people when I wasn't at the bureaus, considering just how the U.S. could right itself from this self-imposed economic exile. A couple of local market strategists I spoke with offered some guidance.
John F. Vail, chief global strategist at Nikko Asset Management Co.'s investment- strategy group in Tokyo, said he expects to see more currency maneuvers by countries hard hit by speculative U.S. dollars flooding in, including the possibility of another intervention by the Bank of Japan.
Unlike some currency experts who blasted the BOJ for what they said was a foolhardy attempt to fight global currency flows to try to weaken the yen, Vail said the central bank sent a strong message to both the markets and to the Japanese government that it won't be pushed around anymore. He didn't speculate on the level at which the BOJ might come back in. At just above ¥81 on Friday, the yen is already back below the level the bank first intervened at, and not far from its historical low of ¥79 and change.
Whether another move comes before the Group of 20 leaders' summit in Seoul in a few weeks is anybody's guess. Vail also railed against summit host South Korea, which has continually intervened to keep its currency competitive yet attracted none of the attention that Japan did with its one intervention. That may change as the summit approaches and, indeed, has already stirred the ire of the Japanese government. Read full story on this weekend's G-20 ministerial meeting in South Korea.
Francis Cheung, managing director of China-Hong Kong Strategy at CLSA Research Ltd. in Hong Kong, said he expects the Seoul summit to be important but to have little overall effect on the impact on Hong Kong of a flood of Chinese yuan into the city.
Because Hong Kong's dollar is pegged to the U.S. dollar at a little less than 8 to 1, as the U.S. dollar weakens, so does the value of the Hong Kong dollar for anyone looking to spend it across the border in China or elsewhere. That's helped fuel the property boom in Hong Kong by attracting more yuan and raised questions about the viability of the 27-year-old peg.
Cheung expects the peg to hold, he said, but he also expects a period of dual currency in Hong Kong, where soaring yuan deposits and new investment-product offerings in yuan will lead to more and more of a parallel currency system.
All of this leaves the U.S. continually in the cold. And in Australia it's no different. Last week's surge in the Aussie dollar to parity against the greenback for the first time since 1982 generated great pride in the commodity-rich country, even though its effect on the economy is somewhat neutral. Read story on Aussie parity with U.S. dollar.
Gains for importers and for Australians using Aussie dollars to travel overseas are offset by more hardships for exporters, though few expect the sucking of Australian mineral assets by China to stop just because the Aussie dollar is a bit higher.
Each country feels different about the impact of the weak U.S. dollar on its economy, but the common denominator is that just about everybody expects it to end badly, à la the Asian currency crisis of 1997. Indeed, the move by China to raise lending and deposit rates earlier in the week, even though a minor maneuver compared with really letting its currency appreciate, stopped the global commodities rally in its tracks and sank equities around the world, if only for one day. Read more about interest rates here and check currency-exchange rates in real time.
Next day, it was back to normal. But for investors scouring the globe for cheap assets in emerging markets with high yields, business executives looking for inexpensive takeover targets, or tourists searching for food with either weak U.S. dollars or strong local currencies, it was perhaps a taste of something quite unpleasant yet to come. Courtesy of an unsustainable weak-dollar, low-interest-rate U.S. policy.
David Callaway is editor-in-chief of MarketWatch.
David Callaway is editor-in-chief of MarketWatch, responsible for the global news coverage of 100 journalists in 12 bureaus in the U.S., Europe and Asia. A financial journalist for more than 20 years, Callaway has worked for Bloomberg News, the Boston Herald, and assorted television and cable stations as a reporter, columnist and commentator.
Miner's profits outpace tech giants as economic uncertainties lend support to upbeat forecast. Caterpillar is along for the ride.
4:21 p.m. Oct. 21, 2010
- anv19573 | 3:24 a.m. Today3:24 a.m. Oct. 22, 2010
"A fistful of dollars and nowhere to go in Asia: David Callaway, editor-in-chief of MarketWatch, reports from ... http://on.mktw.net/b1iZcn" 3:42 a.m. EDT, Oct. 22, 2010 from dcallaway
"Race to the bottom in currency markets: The race to slash currency values among developed and emerging count... http://tinyurl.com/26vwo3n" 7:57 a.m. EDT, Oct. 19, 2010 from dcallaway
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