VOLTAIRE'S PORCH-MODERATED Message Board

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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED

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To: Jim Willie CB who wrote (51625)	5/17/2002 5:09:10 PM
From: t2	Read Replies (2) of 65232

Foreigners now hold on a net basis $2 trillion of US assets, or 20% of GDP. They own 44% of the liquid treasury market, 23% of the US corporate bond market, and 12% of the US equity market… Foreigners have far less in US equities. 12% is not much. That is why I still believe that a flight to quality trade...out of bonds because of dollar risk and right into safe large cap multinationals will take place. The US holders of bonds will also react and not wanting to bail out of the dollar, have little choice but to go for the big cap DOW type of stocks. Even if they go into money market funds or savings accounts, they lose value from currency devaluation. On the other hand stocks are real assets. They are not subject entirely to currency risk. When a currency starts to tumble, money will flow into stocks as a safe haven. Those companies executives will quickly come to the conclusion that although profits are up, the valuation of the company stock has dropped...whether in price or just from currency drop. They will buy back more stock and the flow of funds will hit the big caps. That was the thesis of that article I posted a couple of weeks ago...although the author believe Gold was going to perform the best. I think we are seeing the early stages of this taking place. Gold has been moving higher and so have the big cap techs/old economy names. Only a complete global meltdown would lead to a big drop in large cap (DOW) types of stocks, imho. The big cap techs will see inflows because they are the best companies in the world. No real competitors overseas to Intel, AMAT, MSFT, CSCO...for example. They are relatively safe as long as the dollar keeps going lower. (imho) btw--keeping an eye of the bond yields.

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