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Strategies & Market Trends : Classic TA Workplace
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To: Joan Osland Graffius who wrote (80288)8/30/2003 9:14:01 PM
From: Haim R. Branisteanu  Read Replies (1) of 209892
 
Joan I would compare facts and derive from that the fundamental case.

US has around 4.5% budget deficit and 5% trade deficit. M2 grows around 9% a year, reported CPI 1.8 to 2%. Government debt around 67% of GDP and Government Agencies debt around the same. So we end up with about 130% of GDP in government debt.

if I compare to Europe with an 8.5 trillion in GDP has an average budget deficit around 3% (with Germany at 3.8% and France slightly lower)

there is mixed bag on government debt with Italy the highest (I think 100 to 120% of GDP). Inflation around 2% (I think no hedonics are used)

All in all the group is at around 60% to GDP, M2 rises at about 8.2% rate (was once only 4.5%) and the group has a small trade surplus of 10 to 13 billion

Real savings rate is at close to 8% v. US at minus 2% I think.

GDP growth is slightly below 0% the US reported 3.1% of which 1.7% is defense so the US has an annual GDP of about 1.4% or lower. (not sure if Europe calculates the computing power in their GDP like the US........ if not, Europe GDP should similar to the actual US GDP)

With regard to Europe at an exchange rate below parity their trade surplus was higher and budget deficits lower. The budget deficit started rising recently as export started to shrink with an average of 1.15 EUR per USD.

Taking those factors into account I would think that the equilibrium point for the EUR/USD range should be between 1.10 to 1.13 today.

If the budgetary prediction of the governments are true US budget deficit will increase a bit but Europe will shrink below 3%. Therefore within the nest 12 months the USD should depreciate another 5% to 7% to around 91 to 93 UDX

Keep in mind that the big chunk of the US trade deficit is with ME and Asia not Europe (China Japan Korea India Pakistan Indonesia etc.)

The Asian countries are mostly pegged to the USD and a sharp USD devaluation will not improve by much the trade deficit picture.

The main issues are energy imports and Asian countries as to budget deficit a big part of it, is the price to be the world bully and policeman.

Have no hard information on other countries that I can relate to.

It is only unfortunate that the US uses FX as a punishment tool and EZ CB's is not active in the currencies market to bring some stability or trading bands. ...... both sides should tax heavely speculators including major banks who engage heavely in FX anipulation

This year high FX volatility hurt EZ economies, as expressed in various publications. US companies for sure did not complain with the UDX at 92 to 94 many increased their profits only due to FX gains
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