Future Prices in Nicaragua vs. US$

"For products produced in Nicaragua without added external entities (for example, food grown without the addition of artificial additives), international exchange rates and such are just external numbers of little importance with the possible exception of transportation costs."

I can't comment on all Central American countries, but in Honduras there is "something" going on, and I admit cannot explain most of it. Honduran products, in general, though I do not know of exceptions, are getting more expensive much faster than any other products. The percentage increase in "homegrown" foods and manufactured items (and even services) is increasing much faster than imported items of the same type. The price difference between "in country" and "import" has never been less, for almost any type of item where a fair comparison can be made. It is especially true of food, beverage, medicine, etc. The comparison holds in eateries as well, where while less than a decade ago a U.S.-based fast-food meal was often 3x the price of local meals in small restaurants, it got closer to 2x then 1.5x, and now in many places outside the mercado and select Chifas, the prices have nearly approximated and there isn't much difference. It may be that, ultimately, the people owning most things and much of the country are recovering on their weak dollar losses by jumping prices in Honduran Lempiras. On the one hand, international exchanges are just external numbers, but if those numbers represent other real world losses to people, they might still have bearing on costs within that economy. The measurable and ongoing price increases are facts, the rest of the above is just conjecture.

Fyl, one of the problems of answering this post is that you look at the exchange rate in isolation from other factors. The decline in the U.S. dollar is only one of many factors that will affect U.S.-Nica investment /trade and buying power in Nica. I think you may be conflating the exchange rate with balance of trade which would be quite misleading. IMO, it would better to look at the exchange rate in the overall context of the current downturn in the developed world's economy.

Some thoughts ....

Don't overlook the impact of a decline in the U.S. dollar on the value of remittances from Nica emigrants which is hugely important to the Nica economy.

The value of remits always declines when the dollar drops. Remits will decline even more as the recession deepens because Nica immigrants are blue-collar and the working-class always gets it in the neck during a recession.

So, how important are remits? In 2006 remits to Nica totalled $655.5 million. In the same year, Nica exports totalled a bit more that $1 billion. So, if the value of remits declines by about 15% (which is a realistic scenario during a U.S. recession) exports would have to increase by 10% to compensate. That's quite a tall order to accomplish at the best of times, esp. during a recession.

You also ask: "Will a falling U.S. dollar cause more labor-intensive things (such as growing cotton and manufacturing clothing for domestic sale) to be done in Nicaragua?"

The short answer is no. The domestic Nica market is too small to sustain a significant manufacturing base, and as a result the economy will not be able to take advantage of opportunities to replace imports with local products. This may change as CAFTA kicks in.

"Will investment (real estate, for example) drop in real value (call that buying power) or will the change just encourage more investment from those whose net worth is not indexed to the US dollar (Europeans, for example)?"

You are wrong in assuming that Europeans' net worth will reamin level if the U.S. dollar decreases. For example, The total value of the Frankfurt Exchange has declined by more than 22% in less than a year in part as a reaction to the decline of the U.S. economy. (I also question whether a significant # of Europeans would bother to travel to Nica to buy r.e. give the distance, lack of services and infrastructure, and problems with security of title. If they decide to buy they buy in places like the Dominican Republic and Northeastern Brazil, not Nica.)

Will the value of real estate decline? Yes over the short term. Fewer Americans will be buying r.e. and the drying up of remittances means fewer Nicas will be buying.

I don't think the dollar will rebound much in the near future because there is so much bad debt to clear from the books. Nonetheless, the U.S. economy could revive nicely despite the low dollar if the cost of inputs such as oil declines. The favourable exchange rate and lower cost of inputs could stimulate the U.S. manufacturing base to strengthen.

Short answer: Bob Brinker thinks that a U.S. recession will be shallow and short, with a turnaround beginning in mid-2008.

So who is he?

For anyone who has a U.S. investment portfolio (including a moderate amount of "overseas" investments) and who can afford the price, I recommend "Bob Brinker's Marketimer" newsletter. The cost is about $185 per year. He also has a weekly (Saturday and Sunday) three-hour call-in radio program that you may be able to pick up over the internet. You can also subscribe to podcasts of the program via his web site. The information is worth it.

You'll probably get more information on international and monetary topics via the radio program, especially if you know how markets and governments work. (I am not an expert.)

I have been listening to his advice since 1987 and am a newsletter subscriber. I don't agree at all with his politics and some of his tax and regulatory views but he is a truly excellent source of economic and market information, and usually is spot on. He sells no products other than professional advice, most of which is available from the radio (i.e., he doesn't push get rich quick schemes or tout specific stocks).

His web site has a bunch of information on it, including a reading list of over 100 recommended books.

As an example, the "Investment Analysis" section of his site covers these items:

* Modern Portfolio Theory

* Overview of Monetary Policy

* Gross Domestic Product

* Asset Allocation and the Investment Time Horizon

* Beta

Vanguard also has a lot of information, tilted toward investment planning, but pretty unbiased.

Bob Brinker's web site: http://www.bobbrinker.com/

Vanguard personal investment section: https://personal.vanguard.com/us/planningeducation