Dennis Tubbergen Writes About New Zealand and the Currency Devaluation Race
Tubbergen's radio show is available as podcasts at www.everythingfinancialradio.com.
Grand Rapids, MI -- (SBWire) -- 05/22/2013 --For those of us who are too busy to stay on top of events in the world's economy, financial advisor Dennis Tubbergen lends a helping hand.
Tubbergen is a financial advisor, author, radio show host and CEO of PLP Advisors, LLC. Tubbergen does his best to give brief updates when it comes to some of the latest significant events in U.S. and world economics and politics and how these events may impact the average American.
Whether people enjoy his weekly newsletter at www.moving-markets.com or his blog at www.dennistubbergen.com, Tubbergen can be counted on to share his viewpoints and opinions. On May 15, 2013 his blog was titled New Zealand Enters the Currency Devaluation Race
"A Bloomberg article reported that the central bank of New Zealand took action to 'protect economic growth' and devalued the country's currency," began Tubbergen. "It seems that these headlines appear almost daily with one country trying to gain a competitive trading edge against another country by taking action to weaken its currency."
Below he quotes from May 8, 2013 Bloomberg article.
The New Zealand dollar plunged after Reserve Bank Governor Graeme Wheeler said the central bank sold the kiwi and can do so again to protect economic growth.
"There has been some intervention," Wheeler told parliament's finance and expenditure select committee in Wellington today, driving the New Zealand currency down as much as 1.1 percent to 83.60- U.S. cents, the lowest level since April 1. The central bank last confirmed a currency intervention in June 2007, when it sold New Zealand dollars.
"The kiwi has been the flavor of the month and Governor Wheeler would like the market to choose a new flavor," said Sean Callow, a senior currency strategist at Westpac Banking Corp. (WBC) in Sydney. "There have been a lot of people that have been caught very long in kiwi." A long position is a bet a currency will rise in value.
Policy makers from Zurich to Tel Aviv and Tokyo have sought to limit currency gains even as the Group of 20 last month affirmed pledges to avoid deliberately weakening exchange rates. Wheeler's action contrasts with Australian counterpart Glenn Stevens, who has said he'd need to be convinced the Aussie dollar is "seriously overvalued" before intervening to weaken it and is using interest rate reductions instead.
The RBNZ publishes monthly figures for its net currency sales that may or may not involve direct intervention, which show it sold NZ$2 million ($1.7 million) in March, and NZ$199 million in December. It had an intervention capacity of NZ$8.7 billion at March 31, the data shows.
The so-called kiwi dollar surged 4.2 percent this year against developed-market peers, the strongest gain among the 10 currencies tracked by Bloomberg Correlation-Weighted Indexes. Wheeler is resorting to currency intervention and lending restrictions to steer the economy as surging house prices rule out interest rate cuts and the kiwi's strength bars rate increases.
The currency bought at 84.02 cents at 5:39 pm. in Wellington.
The central bank is "on-the-record that it is prepared to intervene in the exchange rate," Wheeler said. The currency, which he described earlier today as significantly overvalued, needs to be lower to boost exports, which make up 30 percent of the economy, he said.
"It's ironic how history repeats itself," notes Tubbergen. "During the last economic winter season of the 1930s, trade contracted worldwide as a result of protectionist actions taken. I believe, based on the evidence, that we are heading down a similar path today with significant trade contraction once again the likely result."
Tubbergen goes on to say in the 1930s, according to the U.S. Department of State, U.S. imports from Europe declined from a 1929 high of $1,334 million to just $390 million in 1932, while U.S. exports to Europe fell from $2,441 million in 1929 to $784 million in 1932. Overall, world trade declined by some 66% between 1929 and 1934.
"During the 1930s a trade advantage was sought by raising tariff levels," explains Tubbergen. "The Smoot Hawley Tariff Act of 1930 raised U.S. tariffs to historically high levels. The end result was a decline in world trade levels. While the historically high debt levels that existed in the 1930s would, in my view, have had a negative impact on world trade anyway during that time frame, the Smoot Hawley Act likely made the decline in trade worse than it would have otherwise been."
Tubbergen notes that today, countries are seeking a trade advantage through the devaluation of their respective currencies, which is accomplished through money printing. This action was not possible in the 1930s due to the fact that many countries were on a gold exchange system which prevented the printing of money. The only option then for these countries was to raise tariffs.
"Printing money to devalue a currency or raising tariffs as a policy response results in the same outcome," states Tubbergen. "The end result of both of these policy responses has to be a decline in trade; they're both zero sum games."
By definition a zero sum game has an equal number of winners and losers.
"That, in my opinion, will spell bad news for traditional asset classes moving ahead," concludes Tubbergen.
To read Tubbergen's blog in its entirety go to http://www.dennistubbergen.com and select his May 15, 2013 entry.
Tubbergen’s syndicated radio show can be heard on metro Michigan stations WTKG 1230 AM and WOOD Newsradio1300 AM and 106.9 FM.
About Dennis Tubbergen
Dennis Tubbergen has been in the financial industry for over 25 years and has his corporate offices in Grand Rapids, Michigan. Tubbergen is CEO of PLP Advisors, LLC and has an online blog that can be read at www.dennistubbergen.com. To view Tubbergen’s latest Moving Markets? newsletter, go to www.moving-markets.com.
The opinions expressed herein are those of the writer and not necessarily those of USA Wealth Management, LLC. This update may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Therefore, no forecast should be construed as a guarantee. Prior to making any investment decision, individuals should consult a professional to determine the risks, costs, benefits and fees associated with a particular investment. Information obtained from third party resources is believed to be reliable but the accuracy cannot be guaranteed.
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