Monday, November 24, 2008

Money is Moving From Europe to Asia

... at least that's my semi-literate take on these three charts.

The first thing you need to realize is that you can't buy US securities and bonds with Euros or Yen. You first need to convert your foreign currency into dollars. That means there is a supply and demand for dollars and euros and yen. Similarly, you can't buy Australian securities without Australian dollars and so on for each country. There's a market for currency and it reflects, in part, where investment money is going.

Right now, the big investors are fleeing the market for the safety of short-term Treasury bills. These are short-term loans to the US government. Here's why.
The whole world, it seems, is rushing into Treasurys, and with reason. As asset prices melt globally, managers steering pension funds, foundations, hedge funds -- you name it -- are running for shelter.

They can't just dump tens of millions of dollars or more into their local bank. They need the liquidity of the Treasury market.
That won't last forever.
When the panic trade ends (Friday's markets offered a glimmer of hope), the pros will seek some degree of risk and will pull money out of Treasurys.
In any case, for the time being, the movement of money is clearly west-to-east.

2 year dollar vs. Euro chart. The dollar is worth a whole lot more Euros than it used to be. Money is fleeing Europe and coming to the US.

2 year dollar vs. Yen. Money is leaving the US and heading for Japan.

Money is leaving Europe.


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