Tuesday, March 03, 2009

Dram Going Down the Drain.

The Armenian currency lost its value against the Dollar by 20+% today. During the past 1 month the Central Bank had been propping it up by auctioning its strategic reserves (that consisted of Dollars). Looks like they have either run out of money or have realized the futility of fighting the market.
The Central Bank has been making all the wrong decisions since at least 2003. They sold off the gold reserves just as the prices of gold started going up and Dollar losing its value. They encouraged the strengthening of the Dram against the Dollar thus killing the exports. Then they squandered these same Dollars trying to keep Dram strong.
The underlying motive, I suspect, was to keep inflation low and show rising government budget in Dollars while the transactions were in Dram (you can thus show a large budget in Dollars while in reality it remains the same in Dram - just another 'smart' trick they use to paint pretty pictures).
So, the Armenian people who had started to trust Dram will now be screwed. Hopefully, not a lot of wealth will be lost. And hopefully this will affect the volume of imports and help jump start local production for export - from the tourism industry to actual product exports.
In the mean while, the CNN claims that the market is rallying while the Dow Jones Industrial Average (a market indicator for the top 30 publicly traded companies) is down by 0.2%. I guess any drop that is less than a percent is now considered to be a rally.
I am sticking to cash for now. In Dollars and not Drams.

6 comments:

Anonymous said...

How about buying oil stocks Nazarian? Or into the energy index. You know, things like USO or IYE...

Anonymous said...

Because the US Dollar is the currency which will inevitably go down the drain.
That's why buying euros or swiss francs or even gold , with reserve money one has now, would not be a bad idea...rather than staying with US Dollars...

nazarian said...

At this point, I don't really know which companies to invest with. Some. selling inferior goods, like Walmart or General Mills may do OK but do not expect high returns. At this point it's probably about capital preservation. Otherwise there wouldn't be such demand for US government bonds at such low rates.

Ani said...

Cash and durable goods--like Twinkies...

armenianamerica said...

Vartan Oskanian and the Civilitas Foundation just recently released a statement about the conditions of Armenia's economy and what he believes the government must do now.

Article:
http://armenianamerica.wordpress.com/2009/03/03/the-civilitas-foundation-seeking-solution-within/

nazarian said...

[Cash and durable goods--like Twinkies...]

:) I think it's an urban myth about the Twinkies. They don't last forever but only 50-60 years.