Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Quantum AI Stocks Investing Priority - 26th Jan 22
Is Everyone Going To Be Right About This Stocks Bear Market?- 26th Jan 22
Stock Market Glass Half Empty or Half Full? - 26th Jan 22
Stock Market Quoted As Saying 'The Reports Of My Demise Are Greatly Exaggerated' - 26th Jan 22
The Synthetic Dividend Option To Generate Profits - 26th Jan 22
The Beginner's Guide to Credit Repair - 26th Jan 22
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Russia’s Interest Rate Hike is Negative for US Dollar

Interest-Rates / US Dollar Jun 02, 2011 - 02:48 AM GMT

By: Dr_Jeff_Lewis

Interest-Rates

While the US markets were closed to observe Memorial Day, Russia’s central bank acted to raise interest rates to cool inflation.  This may have ordinarily registered as a normal event for a central bank, but nothing is normal when the US central bank, the Federal Reserve, refuses to hike rates in the United States.


In reality, Russia’s rate hike may do very little to keep US dollars from pouring over international lines and into Russia.  Investors who see the US dollar as a perpetually weakening currency are empowered by rate hikes such as this one from the Russian central bank.  In hiking the overnight deposit rate to 3.5% from 3.25%, US dollar denominated investment capital has even more reason to flow into an already overheated Russian market.

Where this rate hike may force an internal slowdown in Ruble-denominated borrowing, it hardly stops investors who are riding the waves of 2011’s currency wars.  Instead, investors will find it profitable to borrow in the United States at 0-.25% and lend in Russian Rubles for 3.5% annually.  With 10:1 leverage, as is commonly employed in foreign exchange, investors bring home a 32.5% annual return, plus the difference in the exchange rate.  That is, if the US dollar continues to weaken, investors may make far more than 32.5% annually on their cash—they would make 62.5% if the US dollar lost another 3% of its value in the next year.

Rates are Credit Weapons of Mass Destruction

The United States is currently winning the currency war because we have no fear in our position.  With government debts soaring, and the US markets weakening, we have little to lose in pushing our currency to record lows.  Our fiscal problems, helped with foreign exchange investors, are now other country’s problems.  Russia just made it infinitely more attractive for investors to double-down on short-dollar, long-Ruble bets for long-term carry trade profits.

But where this foreign exchange effect is universal, Russia’s action is more important than other nations, mostly because they’re still a net-oil exporter.  Oil, of course, is still priced in US dollars.

So where Russia may act to raise rates and attract dollar-denominated investment capital, US dollar weakness against the Ruble should only continue.  With the Ruble gaining value against the dollar, oil from Russia that is sold in US dollars:

  1. Increases Russia’s holdings of US dollars
  2. Is less profitable domestically, since it will take more dollars to buy the same Ruble.

When oil is less profitable to produce, Russia has less incentive to produce more of it, and it is certain that they’ll start holding back in order to obtain higher prices in the future.  Therefore, on top of dollar weakness, the world markets will also have to deal with higher energy prices, which will only further stoke the fires of inflation in the United States.

Silver investors would be wise to watch carefully central bank activity around the world.  Typically anti-inflationary measures are not anti-inflationary when there is a lone central bank that has nothing to lose in pushing its currency down to zero.  This lone central bank is none other than the most powerful central bank in the world—the Federal Reserve. 

Further dollar weakness is certain, and commodity strength, especially from monetary commodities like silver, is a natural effect that stems from an inflationary cause.

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com

    Copyright © 2011 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in