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Strategies & Market Trends : Zeev's Turnips - No Politics
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To: Steve Lee who started this subject5/5/2002 9:47:12 AM
From: nsumir81  Read Replies (1) of 99280
 
SOME stuff from BARRONS on DOLLAR, I-RATES, INFLATION etc

Some things I picked up..

As the dollar goes down it pressures the Fed to raise rates since inflation will tend to go up (I read this as that we are a big importer and with consumption still high on consumer side, imports will go up in prices adding inflation because of less purchasing power of the dollar).

Also the current account deficit is around 5 % of GDP and is funded a lot by foreign capital (something like 30-40 % I believe last I read; dramatically up from 1992).

As the confidence weakens in the strength of the U.S recovery, the dollar weakens (capital goes elsewhere). To maintain the foreign funding of the current account deficit, the Fed will be forced to raise rates to keep the dollar attractive.

Demand for short term credit has been going down..2 reasons. One is inventory replenishment has slowed down (so much for all those March ISM nos and first quarter GDP that was buoyed by inventories; ex-inventories the Q1 growth was LESS than Q4 '01 ! per some graphs I saw on the Street.com I think..can't find them now) and the second is companies are replacing Short term debt with longer term borrowings. (like the Gross criticism of GE; also may be signaling imo the course of short term rates i.e. UP; long-term rates remain high for other reasons)

A significant decline in demand for U.S. corporate bonds by foreigners has been seen. (lowest since 2/99 and 1st 2 months of this year was HALF of that of the corresponding period last year when the economy started to falter and just begin to enter the 2Q negative growth phase). Bottomline: Weak capital inflows.

So there !
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