November in Figures

November 30, 2009

November was a spectacular month for gold prices and saw North American and Japanese stocks follow incredibly divergent paths.  Short-term interest rates remained anchored at very low interest rates, and bond yields, which had risen in October, relinquished all those increases and more.  The dollar, pound and kiwi traded significantly lower against the euro, Swissy, Australian dollar and especially the yen.  Japan’s currency strengthened to as high as 84.83 per dollar, just 6.2% from its all-time peak of 79.85 in April 1995 and closed with a net gain against the dollar of 4.3%.  A similar advance and associated loss of competitiveness occurred against the Chinese yuan.  Beijing officials in numerous negotiations during the month refused to compromise on their policy of fixing the yuan at roughly 6.83 per dollar.  The conspicuous drop of Japan’s stock market is a ramification of the increasingly overvalued yen and a continuing cause of the economy’s chronic deflation. 

In the early 1970s, a debate was raging over the relative merits of f
ixed versus floating exchange rates.  It was a time when the U.S. Treasury could not cope with the rigidities of a pegged dollar, and market forces selected a new international monetary regime before academic economists could agree on the answer.  Many analysts welcomed the change, mindful that America’s painful effort to stay on the gold standard had aggravated the U.S. depression.  Britain’s business cycle, in comparison, became less severe when its government abandoned the gold standard relatively early.

The Great Recession in some respects has created a similar laboratory in which to compare and contrast fixed and floating exchange rates.  As a bastion of fixed exchange rates, China experienced the earliest and most dramatic return to brisk economic growth.  Floating exchange rate mechanisms, on the other hand, have produced exaggerated currency swings and, in certain instances like the yen and dollar, counter-intuitive directionality.  Although GDP fell less sharply in the United States than Europe or Japan, the dollar is weaker on balance, and recoveries in Japan, Europe and Canada could be jeopardized by appreciating currencies, especially if these patterns are not contained.  Moreover, badly needed global structural adjustments — for example, more U.S. savings and a rotation of Chinese, German, and Japanese growth toward consumption and away from exports and investment — are being impeded because the world, as in the early 1930s, operates with elements of both fixed and floating exchange rates.


10-Yr Yield 10/30/09 11/30/09 Chg vs End-Oct
U.S. 3.39% 3.16% -23 Basis Points
Germany 3.23% 3.16% -7
Japan 1.42% 1.27% -15
U.K. 3.62% 3.52% -10
Canada 3.42% 3.22% -20
3-month euros      
U.S. 0.28% 0.26% -2 Basis Points
Euroland 0.67% 0.68% +1
Japan 0.35% 0.30% -5
U.K. 0.59% 0.61% +2
Canada 0.50% 0.50% 0
Swiss 0.29% 0.25% -4
FX     Pct Chg in US$
EUR/$ 1.4704 1.5005 -2.0%
$/JPY 90.01 86.33 -4.1%
$/CHF 1.0264 1.0054 -2.0%
GBP/$ 1.6417 1.6440 +0.1%
AUD/$ 0.8990 0.9145 -1.7%
NZ$/$ 0.7162 0.7156 +0.1%
$/CAD 1.0829 1.0561 -2.5%
Equities     Pct Change
Nasdaq 2045 2145 +4.9%
Djia 9713 10345 +6.5%
Dax 5415 5626 +3.9%
Nikkei 10035 9346 -6.9%
Ftse 5045 5191 +2.9%
Canada TSE 10911 11447 +4.9%
Swiss SMI 6286 6261 -0.4%
Commodities     Pct Change
Oil, $ per brl 77.00 77.28 +0.4%
Gold, $ per oz 1045.40 1179.60 +12.8%

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.


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