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Strategies & Market Trends : John Pitera's Market Laboratory

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To: Raymond Duray who wrote (4327)	8/3/2001 11:32:21 AM
From: Moominoid	Read Replies (2) of 33421

Sure that currencies can remain out of purchasing power parity equilibrium for decades - look at Switzerland... but the key is how the curent value comapres to the historic norm. The dollar got this high because of foreign investors putting their money into the US. That was a self-reinforcing process, all we need is for the psychology to change. If foreign investors think that it is heading the other way it will. Now all this attention suddenly to the dollar and a slight weakening against the Euro etc. so far. On the domestic and trade demand fundamentals things are less clear. The Bush administration is going to reduce the surpluses, but domestic demand for imports is decreasing itself ceteris paribus. Now foreign economies are slumping and reducing their demand for US exports even more than was due to the strong dollar. And Greenspan looks likely to cut interest rates again.... So this contineus to support a big external deficit and pressure to lower the dollar. Up till now the capital flow kept this mechanism from returning things to equilibrium. David

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