Ordinary Gweilo

After Shaky before Christmas, now Simon is complaining about the weakness of the Dollar (both US and Hong Kong because of the currency peg). Whilst it will probably be quite good for Hong Kong overall, the timing is all wrong (as a direct result of the peg) – we wanted a weak dollar 5-6 years ago, not now! On the other hand, the normal effect of a weaker currency (increasing inflation) is no bad thing when you have deflation.

Actually, what interests me is the terminology – a “weak” dollar sounds like a bad thing, but actually the effects are more complex – good for some, and bad for others.

Similarly, there used to be a tendency to describe inflation as bad, though now we have had several years of very low inflation in many countries and deflation in a few (notably Japan and Hong Kong) this is perhaps less common. Inflation is certainly bad for people on fixed incomes (particularly pensioners) but it is good if you own property that increases in price. Defaltion and very low inflation mean that companies have to introduce pay freezes or cuts rather than being able to give increases that are below the rate of inflation to achieve the same effect.

The general feeling is that high interest rates are a bad thing, but that’s not true if you have savings and are earning interest (pensioners again).

Higher share prices are also seen as a good thing, but clearly for every buyer there must be a seller, and presumably each is satisfied with the price at which the deal was struck. If I sell shares and then the price goes up, I have lost some potential profit, whereas low share prices create an opportunity to buy and make a profit if prices then increase. In simple terms, if I’m a buyer I want low prices, if I’m a seller I want high prices.

Perhaps the idea that high share prices are good comes from the company perspective, and certainly if the market is depressed then it is difficult to raise money, but that may make it more attractive to issue bonds or simply borrow from the bank. If a company issues shares and they then go up in value by 50%, shouldn’t they have issued them at a higher price in order to raise more money?

High property prices are also usually seen as good, but again that’s not really true if you are a buyer (though in fact if prices are rising people are usually more keen to buy because they imagine that the trend will continue, but really this is not logical).

I’m sure there are plenty of other examples of this!