FINANCIAL NEIGHBOUR TALK DEC 15TH 2011

Dear Josephine,

On your worries about the euro, I read an article (Ali Bekhtaoui in Expansion –  l’euro  of  dec 14 2011)  based on research of the bank BNP-Paribas  (Clemente de Lucia) saying that the movements between dollar and Euro  in this current year were nearly entirely due to different policies as between  Federal Reserve on the US side and the BCE on the European side.First the USA was loosening and Europe strenthening monetary control.

And then,recently came  the successor of Monsieur Trichet,  Mario Draghi  who quickly lowered  the  guiding interest rate from 1,5% to 1,25%  indicating an “easier” monetary policy which might then bring the euro to lower levels.

It looks to me surprising that so small variations bring so big consequences. But that is perhaps because the markets are now so psychologically jumpy, looking also at institutional uncertainties with the euro. Surprising that the relative movements is explained by small officlal policy changes and not by a general feeling of “the market” on available broader business cycle considerations.

For the next few moth the same economist says:

En conséquence, je pense qu’il va (l’euro) continuer à chuter jusqu’à 1,28 dollar au premier trimestre. La remontée devrait se faire ensuite, à partir du deuxième trimestre ou l’euro pourrait toucher les 1,35 dollar, voire même davantage lors des trimestres qui suivront

As you remember earlier this year the euro (presently around 1,30 dollars) touched a hight of more than 1,40 dollars. So, if the BNP economist is right,  we might again come closer to that level, somewhere  in the next year.

That would indicate that you might not have to worry too much about the euro compared to the dollar. Whether the euro AND the dollar may together lose some standing is another matter. Against that possibility you may have now some protection in the physical gold or in the Norwegian crown. Gold mining companies might also be helpful. Even if the gold price does not go higher, with their present price-over- cost margin they will be very comfortable and may increase as more are already doing, their dividend pay-out.
I can send more of the article (for instance the graph over this current year.) if you wish.
I shall be attentive if I see other comments of interest to your question

Cordially yours
Olav

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About dutasia

Former Ambassador of the Netherlands, presently National Commissioner for Thailand and for Indonesia in the ICC, the International Chamber of Commerce, the World Business Organization. Chairman of China Carbon Forum in Beijing, China.
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