Money is Awesome

Posted November 28, 2008

The signs that investors are making moves into higher yielding and riskier assets are becoming more apparent. The markets are seen as being more stable now even though consumer confidence remains low.


My 10-year old nephew is a budding investor and he asked me what I was writing. I told him it was about currencies.  He said to name the article, “Money is Awesome” and that seemed appropriate given the economic crisis the world is enduring.  Money really is awesome (to borrow some vernacular) when you think about the millions of people who have taken big losses and yet are ready and willing to begin taking risks once again as soon as the markets seem a bit more stable.

That is exactly what happened on Thursday 27/November/2008.  The first signs that investors are more than ready to move back into higher yielding and riskier assets became apparent.  The dollar is weakening against most major currencies as global efforts to strengthen struggling economies are seen as signs of financial stability.  The equity markets are rising as investors begin risk-taking again.

Oh, money is awesome and it is good to see investors acting rationally once again.  Let’s hope it lasts…at the risk of sounding like a pessimist.  There is still a lot of uncertainty imbedded in the financial markets due to the deepening recessions.  For example, Japan’s economy is sinking more every day.  The country’s industrial output fell by 31% in October.

But the dollar lost against the yen as investors began to seek higher yielding investments in the equity markets.  The NIKKEI has risen to 8,512.27.  The yen had strengthened to $.01047 against the dollar.  The US stock market was closed on 27/November/2008 for the Thanksgiving holiday.

But in other parts of the world, the government bailout announcements are strengthening most global currencies and stock market increases are also ensuing.  China lowered its interest rate to 5.58% which is causing an increase in Asian stock markets.

The euro has been strengthening against the dollar.  European nations have announced a new program for $200 billion euros which will be used to bolster the economies of the euro nations.  This has led to investors feeling better about seeking riskier assets leading to less demand for the safety of US assets.  As of the evening of 27/November/2008 (CST time), the euro had strengthened to $1.29047.  The British pound has risen also to $1.5397.  It appears the US dollar will have its first monthly loss against the euro since June 2008.

As mentioned yesterday, the Australian and New Zealand dollars have been rising and that continued today.  The Australian dollar rose to $.6591 and the New Zealand dollar rose to $.5535.  These increases are also due to investors being willing once again to buy higher yielding assets. 

In India, the Mumbai terrorist attacks hurt the Indian Rupee.  It fell to $.0204 after the government closed banks and financial institutions in response to the attacks. 

The US Federal Reserve had announced an $800 billion economic stimulus plan in another attempt to loosen credit markets.  This time the money will be used to ease credit markets in the areas of student loans, credit cards, auto loans and small business loans.  The auto industry returns to Congress next week with their plans for spending another $25 billion in government bailout funds.

I bet all 3 CEOs of the US auto companies would agree with my nephew that money really is awesome….especially when it keeps you afloat.

It was an interesting week again in the financial markets as fortunes rose and fell.  There is just one more note to make.  Though investors appear to be seeking riskier assets again, consumer confidence remains at an all time low in countries like the US and Great Britain.  Hopefully the investor confidence will soon spread to consumers.  That is probably not going to help the retailers this Christmas season, but there’s a new year looming and it would be great to start it with some confidence.