Hi KJC, Father of a good friend of mine was a pretty famous and well-connected WS money manager, now retired, but still puts out a monthly e-mail on markets and such. He regularly says I do not know what I say, and so I read what he says and then try to digest same ... here is his June message
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Periodically, stock market analysts focus on the value of the world's important currencies. The American dollar has recently come up for review.
Our dollar has been rising since 1995 but recently has been falling. Its rise has been one of the reasons for the American stock market's rise, and its present fall has been one of the reasons suggested for its current decline. Since the first of the year, the American dollar has lost more than ten percent of its value against the yen, and has fallen to a new 17 month low against the euro. Currency traders seem to agree that it is still overvalued, and a recent Goldman Sachs report echoes that suggestion.
There were good reasons to question the dollar's preeminence even before the terrorist attack of September 11, 2001 That event seemed to set the stage for its fall.
911 was forerunner of a series of disturbing events which raised the question of America's vulnerability. Our federal surplus disappeared, replaced by a growing deficit; exports fell our as trade gap widened; stock markets retreated and gold advanced in price. Related developments also served to generate public concern. Government competence was questioned. Deceptive accounting practices were revealed and corporate honesty was thrown in doubt. The morality of the Catholic Church was impugned. Bureaucratic bungling, corporate theft, and charges of clerical pedophilia all served to lessen our national esteem and bring into question the dollar's high ranking. In the face of this stream of bad news, doubt about the dollar's continued dominance was no surprise, and neither was the stock market's sympathetic reaction.
In reality, the fall of the dollar is not so destructive as some seem to think. More than one third of American business revenues are derived from abroad, where the dollar's retreat works to our advantage. In addition, a cheaper dollar makes our domestic products less costly to foreigners. So our exports should rise. Nor does the risk of liquidation of foreign investments in America appear probable. How many Japanese are ready to sell their American investments after ten years of economic chaos in their own country? Of course, a sharp drop in the dollar could trigger Federal Reserve intervention and higher interest rates. However, the imposition of higher rates to forestall sale of American investments from abroad is not likely while Alan Greenspan is Chairman.
The onslaught of bad news in America has hidden the continuing improvement in our economy. Investors have ignored our productivity improvements as well as technology's growing impact on American industry. The US has continued to generate increased revenues with fewer workers. For the first time in history, our economy has grown more efficient even as business profits have retreated. Moreover, our interest rates remain low, while inflation appears subdued. In mid-July, another reading of the Nation's productivity gains should reaffirm America's continuing economic strength. Meanwhile there is a great deal of additional evidence to be reported that is suggestive of an economic rebound.
However, the public has been diverted from rational observance of these favorable events by selective reporting of corporate corruption and executive scandals. Enron, Dynegy, Global Crossing and Tyco are typical reminders. Biased journalism has gone beyond acceptable bounds, singling out the sinister aspects of passing events. Sin, sex and sensationalism are the order of the day.
This style of reporting extends beyond the mere hype of financial matters.
The American press now considers our military victory in Afghanistan less than credible because we failed to capture Osama Bin Laden. Instead of recognizing his disappearance and the defeat of the Taliban government as victories, the press hints that extremist Muslim leaders are hiding with Bin Ladin in neighboring Kashmir, preparing to reappear.
We are constantly reminded of the Twin Towers burning and of new threats of biological, chemical or nuclear attack, as though those threats are increasing daily. The press has been unrelenting in exaggerating the risks of terrorist attacks, based on knowledge which few if any government agents may have. It's no wonder the public remains distrustful, apprehensive, even fearful for our future.
We are like newly recruited foot soldiers on the first day of combat falling to the ground in terror at the first explosion. But after constant and repeated bombardment, they take less and less notice of the whooshing sound overhead. After weeks of shelling, they become immune to fear.
That's what is going to happen in this country. We shall get used to being threatened and like foot soldiers, shall learn to deal with the reality of fear on a daily basis. We shall become resigned to it.
About then, the dollar may find its way back to an appropriate level, regaining the dominant position it has held in a competitive world. The stock market will follow the dollar's lead and reflect what I believe will be a normal and prosperous future for the American people.
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My response, now sent, is as follows:
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Hello Richard, How do I respond to something so positive and hopeful?
I slept on the message, and retained some dream-scape realization upon waking up, “… but, uncle Richard, what happens if my money does not want to be a foot soldier in perpetual resignation and endless fear?”
I would think, the answer logically would be ‘well, Jay, if enough folks think as you do, then I guess there will be no bids on one fine day, and after that, you would be buying, by and by.’
How is that for positive thinking:0?
I do not disagree with your basic message but have trouble with the doom we must experience up close, with metallic pineapples raining down all around, while fending off thundering splash of crimson tsunami ... etc, and this personal experience may last a while, until Japan run out of cheap capital and the US run out of inexpensive ink.
Chugs, Jay
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