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THE Petrodollar Thread (merged)

Discussions about the economic and financial ramifications of PEAK OIL
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Re: Where's All The Petrodollars?

Unread postby Petrodollar » Tue 30 Jan 2007, 10:42:17

MrBill stated:
$this->bbcode_second_pass_quote('', 'T')here must be a reason why central banks and oil exporting countries reserves are still overwhelming invested in dollar assets either directly or indirectly? They all WANT to diversify for economic or political reasons, but where is the hard data that they have? Nyada.


.. FWIW, here's that hard data from the Bank for International Settlements (BIS) that shows some tectonic shifts underway...

$this->bbcode_second_pass_quote('', '[')b]Oil producers shun dollar

By Haig Simonian in Zurich and Javier Blas and Carola Hoyos in London
Financial Times: December 10 2006 20:11 | Last updated: December 10 2006 20:11

Oil producing countries have reduced their exposure to the dollar to the lowest level in two years and shifted oil income into euros, yen and sterling, according to new data from the Bank for International Settlements.

The revelation in the latest BIS quarterly review, published on Monday, confirms market speculation about a move out of dollars and could put new pressure on the ailing US currency.

(excerpt)

Russia and the members of the Organisation of the Petroleum Exporting Countries, the oil cartel, cut their dollar holdings from 67 per cent in the first quarter to 65 per cent in the second. {that's not a huge change, but the trends are growing towards the euro, and given the importance of the petrodollar recycling flows for funding the US current account deficit, these macro trends are undoubtedly worrying the Federal Reserve...}

Meanwhile, they increased their holdings of euros from 20 to 22 per cent, the BIS said. The speed of the shift may help to explain the weakness of the dollar, which recently fell to a 20-month low against the euro and a 14-year low against sterling.


...and here's how they ended the article...

$this->bbcode_second_pass_quote('', '[')b]Currency switches are likely to be progressive, subtle and discreet, as untoward attention could hit the dollar, lowering the value of depositors’ remaining dollar-denominated assets.

The last time oil-exporting countries cut their exposure to the dollar – in late 2003 – it pushed the euro to an all-time high against the dollar. Eighteen months ago, the exposure to the dollar of oil producing countries was above 70 per cent.

BIS data is the best guide financial markets have to the currency investment trends of oil producers, which otherwise do not provide figures. The rise in oil prices since 2002 means oil producing countries have amassed a current account surplus of about $500bn, according to the IMF. This is 2½ times the current account surplus of China.

{here's the hard data that you seemed to imply did not exist...}
Overall, Opec’s dollar deposits fell by $5.3bn, while euro and yen-denominated deposits rose $2.8bn and $3.8bn, respectively. Placements of dollars by Russians rose by $5bn, but most of their $16bn additional deposits were denominated in euros.

The dollar has suffered weakness because of concerns about global imbalances and the future course of the Federal Reserve’s interest rate policy.

Additional reporting by Peter Garnham in London


http://www.ft.com/cms/s/277471c2-8889-1 ... e2340.html

...and even our autocratic monarchies/US military protectorates in the Gulf are trying to slowly unload some of their dollar holdings...(hard data is listed in this article too)..

$this->bbcode_second_pass_quote('', '[')b]Falling U.S. dollar pushes Emirates to convert reserves to stronger euro
28.12.2006

The wilting U.S. dollar is pushing the United Arab Emirates, a close U.S. ally, to convert 8 percent of its foreign exchange reserves into the healthier euros, the central bank governor said on Thursday.

The Emirates' nearly US$25 billion (euro18.9 billion) currency reserves are currently 98 percent dollars. That percentage will drop to 90 percent in six to nine months if the bank's directors approve the switch as is expected, Central Bank governor Sultan Bin Nasser al-Suwaidi said.

The sale itself is a small one, worth about US$2 billion (euro1.5 billion). But the implications of a cash-rich friend of Washington selling off its dollars is a sign that central banks elsewhere may be looking to cut losses from a dollar widely expected to slip further in 2007.

"It's a prudent move and it's indicative of broader thinking," said Simon Williams, HSBC's chief Middle East economist. "It's another factor that will exert downward pressure on the dollar."


...the following excerpt relates to what has already been stated, that during the March 2007 meeting of the GCC nations the status of their currency pegs to the dollar will lilely be debated, but a discussion of where to park their investments may also be discussed...

$this->bbcode_second_pass_quote('', '[')b]A bigger worry for the U.S. Federal Reserve Bank is that the six energy-rich Gulf Arab countries may consider converting dollar holdings in their far larger government investment funds, which Williams said keep more than US$1 trillion (euro760 billion) under management. Gulf governments typically do not release the compositions of those funds.

"If they're moving those assets out of the dollar on the same scale, that's a much bigger deal," Williams said.

The six Gulf Cooperation Council countries the Emirates, Saudi Arabia, Kuwait, Qatar, Bahrain and Oman enjoy a collective current account surplus of around US$220 billion (euro167 billion) this year, which must be invested in foreign assets.

With a faltering dollar, Williams said a smaller amount of that energy surplus will flow into U.S. assets.

"A good chunk of that will still flow toward the U.S., but less than in the past," he said. "The Fed will be watching this very closely."

Other countries, including Russia, Venezuela, Indonesia and Iran also have decided to cut their dollar reserves or, in Iran's case, start pricing oil in the European currency.

During OPEC's Nigeria summit this month, OPEC President Edmund Daukoru said the organization was "not rushing into other currencies." But since global oil purchases are made in dollars, the shrinking dollar slashes the purchasing power of oil exporters, reports AP.

The Emirates decision to sell off its dollar holdings comes against a backdrop of strain in its normally warm relations with Washington.

Many here were upset earlier this year when the U.S. Congress blocked the sale of U.S. port operations to Dubai-based DP World a move that officials here said smacked of anti-Arab bias. Since then, talks on a free trade pact between the Emirates and Washington have also faltered.


....and lastly, here's something else the Financial Times reported last month re the euro that is indicative of the global trends...

$this->bbcode_second_pass_quote('', '[')b]Euro notes cash in to overtake dollar

By Ralph Atkins in Frankfurt
Financial Times: December 27 2006 22:07 | Last updated: December 27 2006 22:07

The US dollar bill’s standing as the world’s favourite form of cash is being usurped by the five-year-old euro.

The value of euro notes in circulation is this month likely to exceed the value of circulating dollar notes, according to calculations by the Financial Times. Converted at Wednesday’s exchange rates, the euro took the lead in October.

The figures highlight the remarkable growth in euro notes since their launch on January 1 2002, three years after the start of Europe’s monetary union, which in January welcomes its 13th member – Slovenia, the former Yugoslav republic.

“After the launch, we expected growth to stabilise – but it has continued over five years,” Antti Heinonen, head of the European Central Bank’s bank notes directorate, told the Financial Times.


(excerpt)

$this->bbcode_second_pass_quote('', 'B')y the end of October the $759bn-worth of US dollar notes in circulation was only a fraction ahead of the value of euro notes, converted at exchange rates at that time.

But since October the euro has risen strongly against the dollar and this month the value of euro notes has risen to more than €610bn, or in excess of $800bn at the latest exchange rates. That level is unlikely to have been beaten by the greenback.

Copyright The Financial Times Limited 2006


http://www.ft.com/cms/s/18338034-95ec-1 ... e2340.html


Synopsis: we are witnessing the slow end of dollar supremacy/hegemony/petrodollar monopoly, with OPEC, Russia and China each trying to slowly move away from the dollar just as the highly industrialized nations moved away from the former world reserve currency in the 1920s and 1930s (sterling pound)...

Here's how I outlined that the unfolding decline of the dollar, which is due to both long-term structural problems in the US economy - and "imperial overstretch" based on a geostrategy that attempts to control the world's largest remaining hydrocarbons deposits before the onset of Peak Oil - will unleash, for better or worse, a multi-polar world order with 3 or 4 'poles' of power. The multi-polar world has been unfolding for the past couple of years, and it is loosely organized via regional trading blocs, and emerging new energy and petrocurrency alignments.

http://www.petrodollarwarfare.com/PDFs/ ... Russia.pdf

(excerpt from page 38 )
$this->bbcode_second_pass_quote('', 'T')he long-term structural problems of the US economy and the decline in the dollar’s value since 2002 were exacerbated by the Bush’s administration's flawed tax-cut policies, which created trillions in new debt while enriching a tiny fraction of the population. It is possible that economic historians may note that it was the passage of the 2001 tax cuts that most weakened the US dollar relative to the euro, yen, and other major currencies. The 2003 tax cuts foolishly passed during the early phase of the Iraq War further hastened international flight away from the dollar.

In the wake of these massive tax cuts, the European Central Bank warned the US administration of its “unsustainable” economic policies. [146] Russia significantly increased its euro holdings while divesting itself of dollars. [147] China in 2005 divorced itself from the dollar peg, and in 2006 began to diversify its large reserve holdings. [148] Leaks from OPEC meetings reveal internal deliberations about euro-denominated oil transactions. [149] Even Japan warned President Bush of “enormous capital flight” if his administration did not reverse its fiscal policies that were weakening the dollar. [150] The Bush administration did not heed these warnings, and today global movement away from the dollar as a reserve currency is accelerating. [151]

Image

With China entering the fray with its own oil bourse, the tectonic shift toward a basket of currencies for global oil trade appears inevitable. Given their oil export volumes, the oil bourses in Iran and Russia have the greater potential to impact the dollar’s relative value, and, more important, erode global confidence in a currency that is backed by its central role in global oil transactions.

Washington’s fear is that any decline of the dollar's monopoly position in oil trading might open the floodgates in other commodity markets in which the dollar is the medium of exchange but the US has only a minority market share (e.g., steel, gold, etc). The same fate befell the former world reserve currency, the pound sterling, whose reserve commodity pricing status began to wane in the 1920s and 1930s due to encroachment of the dollar.

The ill-fated unilateral invasion of Iraq that was designed to maintain US dominance of the global oil supply and enforce petrodollar supremacy has had the ironic effect of encouraging momentum toward petroeuros, as well as new geopolitical and energy alignments unfavorable to the US. Moreover, the EU, Russia, and China may not be so passive this time if Iran becomes the next target of US military action. [152] As a former KGB officer, Vladimir Putin appears to be playing a more subtle and effective game of geopolitical chess than his counterparts in Washington and London. While it is too early to predict who will prevail in this contest between the Washington/London/OPEC alliance and the emerging Moscow/Beijing/“SCO Energy Club” nexus, the end result could be a far more multi-polar world than what was witnessed during the post-World War II period.
Last edited by Petrodollar on Tue 30 Jan 2007, 12:01:45, edited 4 times in total.
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Re: Where's All The Petrodollars?

Unread postby MrBill » Tue 30 Jan 2007, 10:51:18

And yet here we are. $1.2900 versus $1.3300 when those BIS statistics were released in December, and at a 4-year low for the yen against the US dollar at 122 yen to the dollar. Less than two percent of CB reserves have been moved out of the US dollar.

And even as the percentages have dipped slightly, the nominal amounts of US dollars have increased due to large increases in CB reserves, and, of course, by OPEC and non-OPEC oil exporters as well. That is hardly wholesale dumping of positions, and is, I put it, incremental changes.

The Europeans want to make Japan's currency manipulation of the yen part of their upcoming G7 + 1 meetings with an official communique because at the end of the day the Europeans are not happy about the gains of the euro against the yen or yuan either as imports flood into the EU outpacing exports and eroding growth and jobs in the EU as well.

The so-called Bretton Woods II system that we are seeing can be more accurately seen as a shift from US dollars to euros at the moment, but still in the light of Asian CBs manipulating their own currencies to keep exports and therefore economic growth strong. That may address US dollar imbalances, but it just shifts the burden onto Europeans and the ECB.
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Re: Where's All The Petrodollars?

Unread postby cube » Tue 30 Jan 2007, 17:32:59

$this->bbcode_second_pass_quote('MrBill', '.')...
Fewer rapid reactionary forces along NATO lines, such as an effective AU one, simply equals more genocide and ethnic cleansing while the outside world looks on in horror, and the UN remains neutered by permanent vetoes in the Security Council, which will further undermine its credibility to the point of irrelevance.

It is indeed a brave new world you have planned. As I said, good luck with it.
Nobody approves of genocide. However I think we need to carefully distinguish the difference between genocide and civil war. Sadly the word "genocide" gets used to loosly IMHO....diminishing it's true meaning. Just because there's people getting killed somewhere on this planet does NOT mean it's the job of the US / UN to quickly run in and "do something".

I remember somebody foolishly arguing that "America must stay in Iraq to prevent a civil war." Here's my reply: Shouldn't every society have a right to choose it's destiny...even including civil war? When America had it's Civil War everybody else on this miserable planet stayed the hell out of the way and guess what?......things turned out for the better! :-D

Getting back to petro-dollars.
As the Chinese would say: "A journey of a 1000 miles begins with one step." We're seeing "steps" taken right now in moving away from the dollar. Sometimes the most powerful force is not a massive burst but instead a slow bleeding. Of all people I assume bankers understand this the best...the power of compounding interest is more powerful then any WMD. :P
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Re: Where's All The Petrodollars?

Unread postby MrBill » Wed 31 Jan 2007, 04:12:19

Except insurgents are not interested in having their lousy, little civil wars on their own, so they are exporting the conflict around the world in some cases. The downside of globalism. If only we COULD ignore failed states, but we do so at our peril.

The problem being that quick reactionary forces should not just be run by and funded by rich world nations and have the feel of neo-colonial occupation forces. But that is largely what is happening now. Yes, you have some troops contributed by developing countries, but the missions are by and large coordinated by the nations who contribute the hardware and the bulk of the funding.

A half dozen rapid reaction forces built along the lines of NATO, like the AU and the one proposed by the EU, but never funded properly, could fill the role that so far only nations like Australia have had to pony up for. In otherwords the same nations being called upon time and again to solve other people's problems, and their only thanks is to be accused of manipulation for their own interests.

This should be the role of the UN, but in its unreformed state it has failed miserably. Especially when viewed through the lens of post peak oil depletion and resource wars.


$this->bbcode_second_pass_quote('', 'G')etting back to petro-dollars.
As the Chinese would say: "A journey of a 1000 miles begins with one step." We're seeing "steps" taken right now in moving away from the dollar. Sometimes the most powerful force is not a massive burst but instead a slow bleeding. Of all people I assume bankers understand this the best...the power of compounding interest is more powerful then any WMD.


Yes, small steps can add up in the end to large moves. However, we have seen a real reluctance on the part of Asians to allow their currencies to appreciate because they do not want to curb their export lead growth.

Now, you can frame that as a US dollar problem if you want, but if countries peg their currencies to the dollar and/or hold them artifically low then how exactly do you expect global imbalances to unwind instead of getting worse?

Ditto for OPEC and non-OPEC oil producers. High oil prices are a net wealth transfer from oil importers to oil exporters. It does not matter whether those oil sales are denominated in euros, yen or yuan. You still end up with a trade surplus and a current account surplus in many cases (see RGE link below on exceptions). Those surpluses stem directly from high prices combined with exports and not from in which currency those sales are made.

Their options are:

1) invest those export receipts domestically in their own economy and capital markets, or

2) invest those export receipts abroad in foreign currency in someone else's economy or capital markets.

$this->bbcode_second_pass_quote('', '
')In the past, I have noted that oil exporters saved rather than spent the windfall from the surge in oil prices. The IMF calculated that the average oil producer in the Middle East “spent” 30% and “saved” 70% of the increase in their oil revenues between 2002 and 2005. I think the IMF is using spending in a broad sense – counting an increase in domestic investment as well as an increase in domestic consumption. The reason for this restraint wasn’t hard to find. Lots of oil states were budgeting for $20 a barrel oil in 2004, and oil was well above $20 then. Budgets inched up in 2005, but not as fast as oil prices.

But that seems to be changing. In 2006, both Russia and Saudi Arabia seem to have only saved about ¼ of the increase in their oil revenues. That is a bit misleading – part of the increase in spending in 2006 reflects the impact of higher oil prices in 2004 and 2005 and so on. Still, at the margins, ratios changed. In 2007, the Russian and Saudi budgets balance is their oil is a bit above $40 a barrel – which works out to balancing if WTI is north of $45 or so. That is a big change from balancing at $20 a barrel (local blend) or WTI in the low twenties.

Then again, the Saudis and the Russians aren’t the big spenders. Iran, Venezuela (at least when it comes to fiscal policy), Bahrain, Subsaharan Africa and (believe it or not) Kazakhstan are.
Hey big spender

So, if those exporters, whether we talk about goods from Asia or oil producers in the ME is immaterial, choose to buy US dollar denominated assets and securities it is going to hold down interest rates in the USA as well as help to plug the US' own current account and budget deficits.

However, if for example, they recylce those export earnings through the Dubai stock exchange then that money could stay in the region. Except in order for a stock exchange to flourish you need new listings and quality companies to invest in. You should not throw billions of dollars worth of investment at a handful of pan-Arab companies that then go out and pursue investments of dubious quality. The so-called golf course investments, so popular before the Asian currency crisis.

Ditto for China. Some investment banks are warning that there is too much money chasing too few genuine investment opportunities in China at the expense of quality. Assets are easy to buy, but then you need to generate a return on that investment. So much harder if you over-pay for them.

$this->bbcode_second_pass_quote('', 'S')hanghai -- China's stock markets risk disruptions from record turnover and growing volatility, the Shanghai Stock Exchange has warned in the latest sign regulators are alarmed over the market's recent surges.

"We must pay close attention to risks in the market, chiefly whether the technology system and trading platform can handle such large trading volumes," the head of the exchange, Geng Liang, said in a statement seen Tuesday.

Trading volumes in Shanghai have soared since the beginning of the year, with turnover in the first two weeks at 1.2 trillion yuan (US$154 billion) compared with 6 trillion yuan for all of 2006 (US$772 billion), said the statement, posted on the Web site of the exchange.

And last year's figure was triple the turnover in 2005, it said.
Surge in trading threatens to disrupt market



So you can talk about baby steps away from the US dollar, but then you have to explain to me where that money is going to go instead.

If these exporting countries would let their own currencies appreciate; develop their own capital markets and domestic economies; and diversify their outward investments into other markets then the value of the US dollar would fall; US interest rates would rise; and global imbalances would start to shrink.

$this->bbcode_second_pass_quote('', 'U')pdate: I would happily take 3% on 3 year Chinese sterilization bonds plus any RMB appreciation over the next few years over 5% on Treasuries or 4% (ballpark) on safe euro denomianted bonds. 3% + 5% (appreciation) = 8%. 3%+3% = 6%. And my worst case scenario is that the RMB is basically stable ... and I lose 2% a year. I rather suspect that I am not the only one itching to do this trade if China dropped its capital controls.
Capital freedom, not exchange rate freedom …

If the pace of that transition is 2-percent per year then it will simply take that much longer to accomplish. Much like the 1000 mile journey taken two steps at a time. In the meantime, the yen carry trade is alive and well thanks to Japan's ZIRP.
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Re: Where's All The Petrodollars?

Unread postby FatherOfTwo » Wed 31 Jan 2007, 17:07:39

I'm curious about something MrBill. Let's assume the following:
For one reason or another, the US economy goes into a prolonged recession. The stock market continues to drop, investments such as real estate start to swoon. To most investors it doesn't look like a great time to invest in the USA markets. Also assume that energy prices continue to escalate, meaning large surpluses for oil exporters.

What do those oil exporters do with their money? Throw it into a sinking US market or into an immature, overvalued non-US market? In your opinion, which is the safer bet? Or do they take some other course of action?
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Re: Where's All The Petrodollars?

Unread postby MrBill » Thu 01 Feb 2007, 05:27:29

$this->bbcode_second_pass_quote('FatherOfTwo', 'I')'m curious about something MrBill. Let's assume the following:
For one reason or another, the US economy goes into a prolonged recession. The stock market continues to drop, investments such as real estate start to swoon. To most investors it doesn't look like a great time to invest in the USA markets. Also assume that energy prices continue to escalate, meaning large surpluses for oil exporters.

What do those oil exporters do with their money? Throw it into a sinking US market or into an immature, overvalued non-US market? In your opinion, which is the safer bet? Or do they take some other course of action?


Well, first of all, those a quite a few assumptions. Not just one. But for the sake of argument let us assume the US economy turns pear shaped and this effects all US dollar assets such as real-estate and US stocks.

Forgeting for a moment that many US companies invest abroad and therefore have their revenue from abroad as well.

So our choice are lousy returns in the US market or immature, overvalued non-US markets? As an individual investor I would choose the emerging market. By picking and choosing the country as well as the company or sector to invest in I think the investor would do better than, say, 3-percent real interest rates in the US less any US dollar risk.

And by and large this is what private foreign investors are doing. They are mainly shunning the US bond market unless it is for market timing purposes or part of a mandated balanced portfolio investment.

The flows into the US government bond market are overwhelmingly by central banks who are much more restricted in what they can invest in. They are safe guarding funds under management. Those funds they need to invest are not theirs. They have both assets and liabilities on their respective balance sheet. Many people forget that simple fact. A central bank cannot give away money, an asset, without reducing a liability on the other side of the balance sheet.

So, if they aggressively invest in the Egyptian stock market, for example, and it drops by 50% then it leaves a hole, or a loss, on their balance sheet. It is real, not play money. Something that people who insist that fiat currencies are worthless also tend to forget.

Now, technically they could take a directional bet on the strength of the Japanese yen for example. It looks pretty stable and the economic fundamentals are quite strong. However, it costs them money to sterilized inflows into their domestic economy for example. If they then buy yen that has a real yield of zero percent in interest (ZIRP), actually negative after inflation, then they are paying interest on central bank deposits while investing at close to zero percent creating a net income loss each year. Central banks do not necessarily like to lose money either. Hence, why not many central banks have parked the bulk of their reserves in low yielding currencies, although some do have some small change in yen as diversification of their reserves.

But back to your question. If we assume the USA will run close to $1 trillion current account deficit, and this is approximately 70% of the global current account deficit, then there is a worldwide current account surplus of approximately $1.43 billion looking for a home. What works for the individual investor, to cherry pick investments in emerging markets, does not work on a macro-scale. Simply, too much global liquidity chasing too few real investments. Hence, why we have seen low interest rates and asset price inflation as this wall of money goes in search of a return.

Low interest rates and fast growth tend to mask many poor decisions. This is one of the reasons that some pundits were worried about the unwinding of the so-called yen carry trade. They worried that expensive assets bought while money was cheap would not look as attractive as the cost of money rose, making funding more expensive naturally, while reducing the future value of cash flows by discounting for example. And as those assets were sold it would create a glut and drive down real returns and/or create capital losses. Real losses. Not just paper ones.

Obviously, the solution is as painfully obvious as my posts are always needlessly long and boring. Oil producing countries and Asian exporters need to re-invest all those excess procedes not in low-yielding interest bearing assets or financial derivatives, but in reforming and improving the performance of their own domestic economies. Those huge current account surpluses and official central bank reserves would disappear very quickly if they collectively made an effort to upgrade their domestic infrastructure and improve the quality of life for their citizens.

But in countries with official corruption, theft, excessive bureaucracy, lack of transparency, graft and immature markets to allocate capital efficiently the temptation to keep assets safe off-shore is very high. Especially, if it drives faster export growth and creates jobs. However, it also creates a dependency on those export jobs at the expense of growth of the real domestic economy. The payback on good public policy and the investment in roads, schools and other works is longer and more uncertain than the immediate gains from trade. But at the end of the day it is a conscious choice these countries are making.
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Re: Where's All The Petrodollars?

Unread postby threadbear » Thu 01 Feb 2007, 13:47:57

$this->bbcode_second_pass_quote('MrBill', '')$this->bbcode_second_pass_quote('FatherOfTwo', 'I')'m curious about something MrBill. Let's assume the following:
For one reason or another, the US economy goes into a prolonged recession. The stock market continues to drop, investments such as real estate start to swoon. To most investors it doesn't look like a great time to invest in the USA markets. Also assume that energy prices continue to escalate, meaning large surpluses for oil exporters.

What do those oil exporters do with their money? Throw it into a sinking US market or into an immature, overvalued non-US market? In your opinion, which is the safer bet? Or do they take some other course of action?



But in countries with official corruption, theft, excessive bureaucracy, lack of transparency, graft and immature markets to allocate capital efficiently the temptation to keep assets safe off-shore is very high. Especially, if it drives faster export growth and creates jobs. However, it also creates a dependency on those export jobs at the expense of growth of the real domestic economy. The payback on good public policy and the investment in roads, schools and other works is longer and more uncertain than the immediate gains from trade. But at the end of the day it is a conscious choice these countries are making.


In other words, countries who hold dollars shouldn't follow the US's example, outlined above.

The idea that pursuing a glacial pace of domestic growth through offloading of yankee bucks rests on the assumption of a certain amount of political stability, Mr. Bill. That becomes more and more difficult when the US is pursuing a suicidal military policy.

As the neoconservatives shoot themselves in the foot, the bullet blasts through to the house of cards resting on confidence in their currency. War requires excessive deficit spending, not good for the dollar. On the other hand, if the Yankees pull out of the Middle East it will signal to the world they are unable to spank the oil producers into using the buck as reserve currency. Either way--the dollar is screwed.
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Re: Where's All The Petrodollars?

Unread postby MOCKBA » Thu 01 Feb 2007, 14:33:57

$this->bbcode_second_pass_quote('MrBill', '
')Low interest rates and fast growth tend to mask many poor decisions. ... Real losses. Not just paper ones.

$this->bbcode_second_pass_quote('MrBill', '
')Oil producing countries and Asian exporters need to re-invest all those excess procedes not in low-yielding interest bearing assets or financial derivatives, but in reforming and improving the performance of their own domestic economies. Those huge current account surpluses and official central bank reserves would disappear very quickly if they collectively made an effort to upgrade their domestic infrastructure and improve the quality of life for their citizens.

But in countries with official corruption, theft, excessive bureaucracy, lack of transparency, graft and immature markets to allocate capital efficiently the temptation to keep assets safe off-shore is very high. Especially, if it drives faster export growth and creates jobs. However, it also creates a dependency on those export jobs at the expense of growth of the real domestic economy. The payback on good public policy and the investment in roads, schools and other works is longer and more uncertain than the immediate gains from trade. But at the end of the day it is a conscious choice these countries are making.


So everybody hear that Russia is doing good, paying of its debt and will be guarantor of European energy security. Yet, very few are aware that *total* Russian debt is growing from $177,7B in 2000 to $274,7B in 2006 or about 9% annually. (You could see it yourself - first line in a table from Russian Central Bank for 2006 and 2000). This is in time of extraordinary hydrocarbon prices.

Apparently what happening is… from oil/gas revenues RCB grows reserves by buying Euro, USD, obligations in Euro, in USD, etc, Putin assures Europeans that everything is peachy and so on, yet at the same time Gazprom is more or less bankrupt to exaggerate or to be real – has no money to develop all those riches that Russia has and Europe needs. So what they are and will be doing is attracting foreign capital paying appropriate risk premiums while depositing the same capital with the very same capitalist they are borrowing from, alas deposits with capitalist carry extremely low premiums compared to the premiums they are paying borrowing from them… And interest costs are just a tiny fraction of overall costs of those senseless transactions. So to answer the question raised - The Petrodollars (or excess or whatever) are wasted. They are wasted in Russia, they are wasted in Venezuela, they are wasted in China, they are wasted in ME – everywhere.

Moving from USD to EUR is the same senseless transaction, so is doing an attack on USD – Soroses and such would skim their share and trim the waste but at the end it would be the same as the Russian scheme outlined above – if say Russia would dump dollar in favor of Euro and cripple US and then European economy – they would cripple their ability to sell those hydrocarbons and pay interest on their loans, thus forcing themselves to default and at the end it would balance out and everything would move back to where it was – Chinese would struggle to get enough rice to feed themselves, Africans would keep on dieing from AIDS, Russians would dream of being Europeans while Europeans would look suspicious at Russians and North Americans would keep on peddling iPods/creative financing/etc. to the rest of the world.
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Re: Where's All The Petrodollars?

Unread postby MrBill » Thu 01 Feb 2007, 18:04:41

Threadbear,

Mockba answers your question much more succintly and accurately than I could because I am far too verbiose. Thank you, Mockba.

But what he says, basically, is my main point of view. It does not matter in what currencies these surpluses are generated - dollars, yen, yuan, euros, rubles or carob seeds - surpluses are surpluses and need to be re-invested.

Mockba.

It is nice to see you back. Your personal experience for me is worth more than any other feedback.

I hope that my opinions reach a certain audience that wants to know. However, I do not EVER expect that opinion to be in the majority. In fact, I would be worried if it was. But I was getting lonely. Thanks.
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Re: Where's All The Petrodollars?

Unread postby MrBill » Tue 06 Feb 2007, 04:02:42

$this->bbcode_second_pass_quote('FatherOfTwo', 'I')'m curious about something MrBill. Let's assume the following:
For one reason or another, the US economy goes into a prolonged recession. The stock market continues to drop, investments such as real estate start to swoon. To most investors it doesn't look like a great time to invest in the USA markets. Also assume that energy prices continue to escalate, meaning large surpluses for oil exporters.

What do those oil exporters do with their money? Throw it into a sinking US market or into an immature, overvalued non-US market? In your opinion, which is the safer bet? Or do they take some other course of action?


This MarketWatch link posted orginally from Mockba, but thought it addresses many of your questions in this thread as well. Thanks.

$this->bbcode_second_pass_quote('', 'T')he latest COFER data, an IMF database that tracks the currency composition of official foreign-exchange reserves on a quarterly basis, support that thesis. Read IMF COFER report.
In the third-quarter, the dollar's share of global reserves increased slightly to 65.6%, from 65.3% in the second quarter. The total value of dollar reserves rose to $2.07 trillion, up $74.7 billion from the previous quarter and $252 billion more than they were in the third-quarter of 2005.
In the same period, the value of euro reserves rose to $794.8 billion, up $18 billion from the previous quarter and $125 billion from a year ago. The value of sterling holdings increased $5.6 billion from the second and was up $36 billion from the third-quarter in 2005.
And surprisingly, the total value of yen reserves rose just $250 million in the third-quarter from the second and was actually down almost $5 billion from levels a year ago -- even though several central banks are said to have increased the share of yen in their reserves over the past year.
Challenging the dollar's dominance

That article in turn has many links for those interested. I will try to post them below. Cheers.
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Re: Where's All The Petrodollars?

Unread postby MrBill » Tue 06 Feb 2007, 04:18:19

It is easy to argue with my opinions. It is more difficult to find hard data to support your case. It is even harder to argue with the numbers themselves. Here is a summary of links from the previous article and some I added myself. Cheers.

$this->bbcode_second_pass_quote('', 'F')or instance, in the 1970s, more than 70% of foreign currency reserves were held in U.S. dollar-denominated assets. The dollar's share dropped to less than 50% by the end of the 80s, before regaining ground and peaking at about 70% in 2001, according to BIS data.
The euro is the second-largest reserve currency in the world, with the share of euro holdings in reserves standing at about 25% in 2006.
The yen's share of reserves has steadily declined since the 1990s from a high of over 10% to less than 5% by 2006, and as a result, the pound has recently replaced the yen as the third largest currency in reserves.
The Swiss franc, the last of the major five, has fallen out of favor since the 1970s, with its share falling to less than 1% last year.




Dollar's role as lead reserve currency


From the IMFs data.
Currency Composition of Official Foreign Exchange Reserves (COFER)

Factors effecting reserve balances
Federal Reserve Statistics

From the BIS
The Changing Composition of Foreign Exchange Reserves

$this->bbcode_second_pass_quote('', 'S')afe-haven role exaggerated?
Historically, the Swiss franc was considered the currency safe haven of choice thanks to the country's low inflation, current-account surpluses and once-vast gold reserves. It also benefited from Switzerland's centuries-old and jealously-guarded political and military neutrality, which has kept the land-locked country clear of external influences.
Its famous banking secrecy laws, which critics charge offer anonymity to sometimes-shady transactions, also help attract international investment.
But the Swissie's longstanding role as a safe haven started to wane in the mid-1990s. The European Union's increased integration, the gradual opening up of Switzerland's banking sector and the launch of the euro late in the decade all contributed, analysts said. Other factors included the rise of new derivatives to hedge risk and the modernization of a number of emerging economies.
The Changing Role of the Swiss Franc

Tim Geitner
$this->bbcode_second_pass_quote('', ' ')Part of this recent dynamic in financial markets is a consequence of the present state of the international monetary system, in which a substantial part of the world economy runs exchange rate regimes tied in some way to the dollar. This has entailed a sustained period of very substantial official accumulation of dollar reserves, putting downward pressure on U.S. interest rates and upward pressure on U.S. asset prices.

These forces are surely transitory, but their impact on capital flows, interest rates and asset prices are important, not just in terms of their short-term impact on growth. If they are large enough, they have the potential to alter or distort current decisions about investment and consumption in a way that could be detrimental to our longer-run growth prospects. And they are important because they work to mask or dampen the effects on risk premiums in financial markets that we might otherwise expect to be associated with the expected trajectory of the fiscal and external imbalances in the United States."

New York Fed Developments of Global Economy

$this->bbcode_second_pass_quote('', 'A') frustrating TIC data release
Brad Setser | Jan 17, 2007 I guess all TIC releases are frustrating, but I found today's release especially frustrating. Total net monthly inflows -- $75b -- are just enough to cover the current account deficit (which is running a bit under $900b). Though, consistent with recent trends, net long-term inflows ($58b) weren't quite large enough to cover the deficit. Foreign demand for US long-term debt and equities was strong ($107.5b), but so was US demand for foreign assets ($39b in November). Incidentally, net inflows are a bit different than the difference between foreign and US purchases because of an adjustment for principal repayments on agencies and mortgage backed securities

But that isn't the frustrating bit. The frustrating bit is that the split between private/ official flows simply doesn't make sense, nor does the geographic breakdown.
RGE Monitor Central Bank Reserves


But of course keeping in mind that no one has an overview on all flows. Public and private, official reserves and those placed through investment agencies and funds. That is why these various sources are always forced to interpret the numbers and fill in the blanks where official data is missing.


AND of course we know the party cannot last forever given the USA already consumes 70% of the world's current account surplus, it is unlikely they will be able to hoover up 99%, and it is impossible for them to use more than 100%. But the pie can and is expanding for the time being.

$this->bbcode_second_pass_quote('', 'D')eborah Solomon of the Wall Street Journal explains how the US was able to have guns (and some though may be not enough up-armored humvees), butter (or at least over-priced prescription drugs), low interest rate, rising asset prices and rising Wall Street bonuses all at the same time over the past few years.
Borrowing from abroad.

Lots of it. Almost unimaginably large amounts of it. At very attractive interest rates, thanks to the yen carry trade and our friends in the central banks of China, Russia, Saudi Arabia and a few others (Korea, Taiwan, increasingly Brazil and a host of small oil exporters). Emerging market central banks and oil exporters almost certainly added $550b to their existing stock of dollars (I’ll provide the details later) in 2006 – some of that directly financed the US current account deficit, some of that was held offshore where it indirectly financed the US deficit, and a tiny fraction was invested in the dollar denominated sovereign bonds of other emerging markets.
Not even worth mentioning anymore
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Re: Where's All The Petrodollars?

Unread postby threadbear » Tue 06 Feb 2007, 16:57:01

$this->bbcode_second_pass_quote('MrBill', 'T')hreadbear,

Mockba answers your question much more succintly and accurately than I could because I am far too verbiose. Thank you, Mockba.

But what he says, basically, is my main point of view. It does not matter in what currencies these surpluses are generated - dollars, yen, yuan, euros, rubles or carob seeds - surpluses are surpluses and need to be re-invested.

Mockba.

It is nice to see you back. Your personal experience for me is worth more than any other feedback.

I hope that my opinions reach a certain audience that wants to know. However, I do not EVER expect that opinion to be in the majority. In fact, I would be worried if it was. But I was getting lonely. Thanks.


Transferring out of the US dollar into Euros is likely equivalent to trading terminal cancer for a heart attack. You might recover from a heart attack, but terminal cancer is just that--terminal.

I hold no euros and very limited US dollars. Have limited Canadian dollars and lots of physical gold.
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Re: Where's All The Petrodollars?

Unread postby MrBill » Wed 07 Feb 2007, 05:06:30

threadbear wrote:
$this->bbcode_second_pass_quote('', 'T')ransferring out of the US dollar into Euros is likely equivalent to trading terminal cancer for a heart attack. You might recover from a heart attack, but terminal cancer is just that--terminal.

I hold no euros and very limited US dollars. Have limited Canadian dollars and lots of physical gold.


I am about two thirds invested in euros versus US dollars with smaller holdings in Canadian dollars and Sterling. But I earn in US dollars, so I have to actively hedge out of the dollar. Hopefully, on an uptick. But c' est la vie.

I try to invest in companies that earn their revenue across a wide range of countries and markets to spread my currency risk further. It could be a European company, but then their exports might suffer as the euro appreciates. It could be a US company with significant overseas revenues. Ideally, I might see capital gains of 15% versus currency losses of 10%. So long as the gains outpace the losses in real terms.

I also look to hold real-estate for rental income as a hedge against asset price inflation and to generate cash flow. I reduce my growth potential, but also my risk by carrying zero personal debt.

I own no precious metals. I do own energy stocks. If paper becomes worthless at least I have my real-estate as a hedge. I am more interested in wealth preservation than income from investing. That is why I work, and part of my overall compensation comes from performance bonuses. However, a nice profit on investing is always appreciated if and when it comes. It is just not my primary motive.

I see the benefit of working and saving for 40-years as outweighing any clever market timing in the long-run.
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Re: Where's All The Petrodollars?

Unread postby Bas » Wed 07 Feb 2007, 05:15:29

$this->bbcode_second_pass_quote('MrBill', 'A')nd yet here we are. $1.2900 versus $1.3300 when those BIS statistics were released in December, and at a 4-year low for the yen against the US dollar at 122 yen to the dollar. Less than two percent of CB reserves have been moved out of the US dollar.

And even as the percentages have dipped slightly, the nominal amounts of US dollars have increased due to large increases in CB reserves, and, of course, by OPEC and non-OPEC oil exporters as well. That is hardly wholesale dumping of positions, and is, I put it, incremental changes.

The Europeans want to make Japan's currency manipulation of the yen part of their upcoming G7 + 1 meetings with an official communique because at the end of the day the Europeans are not happy about the gains of the euro against the yen or yuan either as imports flood into the EU outpacing exports and eroding growth and jobs in the EU as well.

The so-called Bretton Woods II system that we are seeing can be more accurately seen as a shift from US dollars to euros at the moment, but still in the light of Asian CBs manipulating their own currencies to keep exports and therefore economic growth strong. That may address US dollar imbalances, but it just shifts the burden onto Europeans and the ECB.


The US is possibly positioning itself for a race to the bottom of the likes we haven't seen since 1929.
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Re: Where's All The Petrodollars?

Unread postby MrBill » Wed 07 Feb 2007, 05:51:37

$this->bbcode_second_pass_quote('Bas', '
')
The US is possibly positioning itself for a race to the bottom of the likes we haven't seen since 1929.


The more I think about it. The more I think there will be no financial crisis and sudden shift out of the US dollar. UNLESS this discontinuous change is caused by a) a successful terrorist attack on S. Arabia's oil infrastructure that leads to widespread civil war in the ME; b) a successful terrorist attack using a nuclear device against a major western city that leads to some sort of clash of the civilizations; c) a major outbreak of a deadly strain of human to human transmitted avian influenza that disrupts physical markets for food and fuel; d) or some other event unrelated to financial markets that none the less disrupts trade and/or causes a serious re-assessment of risks.

This is not to say it will not happen. Just like events leading up to WWI or WWII had profound effects on The British Empire and the end of colonialism in general. But I just do not see a financial meltdown in isolation. Of its own accord. Without some sort of outside influence.
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Re: Where's All The Petrodollars?

Unread postby Bas » Wed 07 Feb 2007, 06:09:41

Well, how about if Europe starts joining in the devaluating game, I think that's all that stands between a race to the bottom. On the other hand the ECB is unlikely to go that course for various reasons (not least of which being that they are still building a name for themselves/division between memberstates)

Still, an oilcrisis might be able to spark a race to the bottom. And the Euro area would be most likely the biggest victim of such a race. (Everybody would suffer from such a race though)

Otherwise, I see the dollar weakening further as long as the imbalances remain the same; but a crash, probably not (though there are too many variables to totally exclude this as a possibility)

PS indeed, it needs a little push for a race like that or a meltdown to happen.
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Re: Where's All The Petrodollars?

Unread postby MrBill » Wed 07 Feb 2007, 06:35:55

$this->bbcode_second_pass_quote('Bas', 'W')ell, how about if Europe starts joining in the devaluating game, I think that's all that stands between a race to the bottom. On the other hand the ECB is unlikely to go that course for various reasons (not least of which being that they are still building a name for themselves/division between memberstates)

Still, an oilcrisis might be able to spark a race to the bottom. And the Euro area would be most likely the biggest victim of such a race. (Everybody would suffer from such a race though)

Otherwise, I see the dollar weakening further as long as the imbalances remain the same; but a crash, probably not (though there are too many variables to totally exclude this as a possibility)

PS indeed, it needs a little push for a race like that or a meltdown to happen.



Ironically, I do not think the ECB can make the euro devalue. That will either be done by prolific national governments like Italy issuing too much debt and undermining The Maastrict Treaty that underpins the EMU. Or by China dumping euros. Also, unlikely.

More likely is that the euro will gain nominally against the dollar while remaining overvalued against the yen and the yuan causing trade distortions. In this respect the euro is just as helpless as the US dollar in the face of current account surpluses and capital flows. Or indeed like Sterling that seems too strong for its own fundamentals outside the eurozone.

The ECB could cut interest rates, but only at the expense of inflation. Something they would then have to explain to national governments who charged them with price and stability including a targeted inflation rate in the first place. Although they may secretly welcome higher inflation and a weaker euro, but that is a slipperly slope and likely to ruin the ECBs reputation as you suggested.
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Re: Where's All The Petrodollars?

Unread postby Bas » Wed 07 Feb 2007, 06:49:24

So basically what we're left with in Europe is cheap stuff from asia as much as we want without a depreciating currency (for now) and an unemployment problem that won't go away. (as the states can't have deficits, and the ECB can only fight inflation)

The only thing I can think of that will likely happen in this situation is that at some point the different nations agree to "liberalize" the maastricht treaty.
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Re: Where's All The Petrodollars?

Unread postby MrBill » Wed 07 Feb 2007, 08:05:43

$this->bbcode_second_pass_quote('Bas', 'S')o basically what we're left with in Europe is cheap stuff from asia as much as we want without a depreciating currency (for now) and an unemployment problem that won't go away. (as the states can't have deficits, and the ECB can only fight inflation)

The only thing I can think of that will likely happen in this situation is that at some point the different nations agree to "liberalize" the maastricht treaty.



well, this is effectively what the finance ministers DID agree by NOT imposing fines on those countries that violated the 3% deficit rule. at least in the short-term. Germany will finally bring its deficit under 3% this year after about 3-years of breaching the limit. other countries will not be as lucky.

if you go to The Economist article, 'Beggar thy neighbor', January 27th, 2007, you will see a chart on real effective exchange rates based on relative unit labor costs from 1993-2006.

Germany's economy has regained its lost competitiveness

essentially what this graph will tell you is the history of the ERM crisis in 1993 when the Club Med countries like Spain and Italy devalued their currencies against the Core currencies anchored against the deutschmark. which gave birth to the EMU and the euro.

in 1993-95 the deutschmark appreciated in value to 115% of base 100 in 1993. while the lire and peseta dropped to 80% and 90% respectively. what this entailed was that they were able to join the EMU and therefore the euro at an advantageous rate viz a vie the deutschmark that was locked into the euro at a higher nominal exchange rate.

this gave the Club Med countries two one-off advantages. one they locked in a competitive exchange rate. and two they benefited from lower interest rates due to convergence.

however, as the chart clearly indicates as well as trade and budget statistics the Club Med countries did not reform their real economies fast enough, so not only have they lost those one-off benefits, but are actually now in much worse shape. without the monetary policy tools - control over interest rates and their national currencies - to address these problems.

the real effective exchange rates based on relative unit labor costs for Germany have fallen from 115% of base 100 in 1993 to 90% now due to a decade of slow growth, high unemployment and painful adjustment, not unlike Japan. while Spain's real effective exchange rate has climbed to 115%. And Italy's is approaching 130% making Italy extremely uncompetitive against the Chinese imports that it competes against in textiles for example. except this time they cannot devalue their way out of trouble.

what hurt Germany in the beginning was to burden them with neighbors who could devalue their currency ahead of EMU, but in the long-term this was a sustainable competitive advantage for those German industries that could compete, and do compete successfully by exporting machinery and capital goods to Asia, depsite the strong deutschmark, which is now the euro. Germany is the world's largest exporter for the second year in a row despite a strong euro against the yen and the yuan.

so be careful what you wish for? pressuring China to adopt a stronger yuan may only succeed in making China more competitive in the long-run due to a stronger yuan.

Toyota famously said in 1995, when the yen was at 80 yen to the US dollar that it planned to be profitable at 75, too. Toyota just yesterday posted its highest profit EVER even as it takes market share away from Ford and GM who are floundering. the external value of the currency is but one factor in a sustainable competitive advantage. governments and companies both need to remember that!
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Re: Where's All The Petrodollars?

Unread postby Bas » Wed 07 Feb 2007, 08:32:29

$this->bbcode_second_pass_quote('MrBill', '')$this->bbcode_second_pass_quote('Bas', 'S')o basically what we're left with in Europe is cheap stuff from asia as much as we want without a depreciating currency (for now) and an unemployment problem that won't go away. (as the states can't have deficits, and the ECB can only fight inflation)

The only thing I can think of that will likely happen in this situation is that at some point the different nations agree to "liberalize" the maastricht treaty.



well, this is effectively what the finance ministers DID agree by NOT imposing fines on those countries that violated the 3% deficit rule. at least in the short-term. Germany will finally bring its deficit under 3% this year after about 3-years of breaching the limit. other countries will not be as lucky.

if you go to The Economist article, 'Beggar thy neighbor', January 27th, 2007, you will see a chart on real effective exchange rates based on relative unit labor costs from 1993-2006.

Germany's economy has regained its lost competitiveness

essentially what this graph will tell you is the history of the ERM crisis in 1993 when the Club Med countries like Spain and Italy devalued their currencies against the Core currencies anchored against the deutschmark. which gave birth to the EMU and the euro.

in 1993-95 the deutschmark appreciated in value to 115% of base 100 in 1993. while the lire and peseta dropped to 80% and 90% respectively. what this entailed was that they were able to join the EMU and therefore the euro at an advantageous rate viz a vie the deutschmark that was locked into the euro at a higher nominal exchange rate.

this gave the Club Med countries two one-off advantages. one they locked in a competitive exchange rate. and two they benefited from lower interest rates due to convergence.

however, as the chart clearly indicates as well as trade and budget statistics the Club Med countries did not reform their real economies fast enough, so not only have they lost those one-off benefits, but are actually now in much worse shape. without the monetary policy tools - control over interest rates and their national currencies - to address these problems.

the real effective exchange rates based on relative unit labor costs for Germany have fallen from 115% of base 100 in 1993 to 90% now due to a decade of slow growth, high unemployment and painful adjustment, not unlike Japan. while Spain's real effective exchange rate has climbed to 115%. And Italy's is approaching 130% making Italy extremely uncompetitive against the Chinese imports that it competes against in textiles for example. except this time they cannot devalue their way out of trouble.

what hurt Germany in the beginning was to burden them with neighbors who could devalue their currency ahead of EMU,


I couldn't have produced that myself, and I thank you for producing it; the only thing missing might be a remark on the reunion and the solidarity tax. And yeah, when chancellor Merkel said "don't expect any miracles from the German presidency of the EU" was right around the time when I thought, Germany is becoming the engine of Europe again. (which I presume you saw a fair bit earlier than that; you're obviously much better informed than I am)

$this->bbcode_second_pass_quote('', '
')but in the long-term this was a sustainable competitive advantage for those German industries that could compete, and do compete successfully by exporting machinery and capital goods to Asia, depsite the strong deutschmark, which is now the euro. Germany is the world's largest exporter for the second year in a row despite a strong euro against the yen and the yuan.

so be careful what you wish for? pressuring China to adopt a stronger yuan may only succeed in making China more competitive in the long-run due to a stronger yuan.

Toyota famously said in 1995, when the yen was at 80 yen to the US dollar that it planned to be profitable at 75, too. Toyota just yesterday posted its highest profit EVER even as it takes market share away from Ford and GM who are floundering. the external value of the currency is but one factor in a sustainable competitive advantage. governments and companies both need to remember that!


Now these things are very interesting (I would almost challenge you to prove some of those things using models, and you'd probably need a fair number of those to do so :-D ) But I basically agree; however, China will move up the foodchain no matter what and faster than most people think too. And maybe, because of this, the new EU members from eastern Europe are most likely to lose out because of this; they are relatively highly educated still, but lower on the ladder than western Europe.

The mindblowing thing about China is their laborpool though; (and with China, India /cliche) They can move up the economic ladder while still having enough manpower in reserve to produce all the textiles for a long time to come. The only real question which this raises in my mind (ok, several) is; can they continue on this path of growing income dispairity without risking civil unrest? And: how does the communist party justify this income dispairity? (I've been told it's one of the biggest dispairities in the world, after Brazil)

ps I'm not asking for a yuan appreciation, and it's stupid that the americans did, if they really wanted a yuan appreciation, they should've bought the damn currency. Anyhow, the market will decide in the long (well, medium really) run.
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