Skip to main content

Will Gulf nations diversify away from US dollar?

There has been a good deal of discussion, for some time now, about the desire central banks have to "diversify" out of some of their large dollar holdings. Foreign central banks often hold dollar denominated assets as reserves, and some feel that certain banks may have far too many dollar reserves, given the US government's current financial condition.

It is with this theme in mind that I include today's article from Ame Info. What I liked about this piece was its take on the timing aspect of central bank decisions. It has often been noted that in retrospect, key moves by central banks often come at the exact wrong moment in terms of market advantage. When central banks across the globe were dumping gold in the late 90s and the early part of this decade, their sales actually coincided with the ending stage of the metal's bear market. Could widespread sentiment about the death of the dollar actually signal its return to form, thereby giving central banks a "head fake", or will the the dollar bear market prove to be a lasting trend?

My only quibble with the piece is that its author seems to take solace in the idea that inflation and dollar weakness will be averted by the current cycle of interest rate raising. While quarter point rises in interest rates may lead some to believe that central banks in US and Europe are tightening money conditions, the relationship between inflation and expanding money supply across the globe has gone largely unnoticed. Can "easy money" conditions really turn into tight money while measures of broad money supply show no shortage of money creation across the globe? It will be interesting to see how this plays out over the longer term; that much can be said.

In the meantime, officials from Gulf Cooperation Countries say they will consider moving a sizeable portion of their foreign reserves into euros. Will central banks be rewarded for their trading acumen or simply be duped into favoring one problematic fiat currency over another? Only time will tell.

Popular posts from this blog

The Dot-Com Bubble in 1 Chart: InfoSpace

With all the recent talk of a new bubble in the making, thanks in part to the Yellen Fed's continued easy money stance, I thought it'd be instructive to revisit our previous stock market bubble - in one quick chart.

So here's what a real stock market bubble looks like. 

Here's what a bubble *really* looks like. InfoSpace in 1999-2001. $QQQ$BCORpic.twitter.com/xjsMk433H7
— David Shvartsman (@FinanceTrends) February 24, 2015
For those of you who are a little too young to recall it, this is a chart of InfoSpace at the height of the Nasdaq dot-com bubble in 1999-2001. This fallen angel soared to fantastic heights only to plummet back down to earth as the bubble, and InfoSpace's shady business plan, turned to rubble.

As detailed in our post, "Round trip stocks: Momentum booms and busts", InfoSpace rocketed from under $100 a share to over $1,300 a share in less than six months. 

In a pattern common to many parabolic shooting stars, the stock soon peaked and began a…

New! Finance Trends now at FinanceTrendsLetter.com

Update for our readers: Finance Trends has a new URL! 

Please bookmark our new web address at Financetrendsletter.com

Readers sticking with RSS updates should point your feed readers to our new Finance Trends feedburner.  



Thank you to all of our loyal readers who have been with us since the early days. Exciting stuff to come in the weeks ahead!

As a quick reminder, you can subscribe to our free email list to receive the Finance Trends Newsletter. You'll receive email updates about once every 4-8 weeks (about 2-3 times per quarter). 

Stay up to date with our real-time insights and updates on Twitter.

Moneyball: How the Red Sox Win Championships

Welcome, readers. To get the first look at brand new posts (like the following piece) and to receive our exclusive email list updates, please subscribe to the Finance Trends Newsletter.

The Boston Red Sox won their fourth World Series titleof the 21st century this week.

Having won their first Series in 86 years back in 2004, the last decade-plus has marked a very strong return to form for one of baseball's oldest big league clubs. So how did they do it?

Quick background: in late 2002, team owner and hedge fund manager,John W. Henry(with his partners)bought the Boston Red Sox and its historic Fenway Park for a reported sum of $695 million.

Henry and Co. quickly set out to find their ideal General Manager (GM) to help turn around their newly acquired, ailing ship.

This brings us to one of my favorite scenes from the 2011 film, Moneyball, in which John W. Henry (played by Arliss Howard) attempts to woo Oakland A's GM Billy Beane (Brad Pitt) over to Boston with an excellent job off…