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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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To: ThirdEye who wrote (19455)	12/23/2004 2:25:25 PM
From: mishedlo	Read Replies (2) of 116555

Discussion with RodgerRafter on the FOOL on the US$ and goods Mish: (in reply to France bitching about the US$ today) You know it would help if you guys didn't keep yapping about how low EU interest rates are and just shut your mouths for a change. Rodger: Seems like yapping is all the EU politicians are willing to do. If the Euro is overvalued, then they should do themselves and everyone else a favor and sell it. Somehow I think all the talking down of the Euro is really just making a buying opportunity for big investors who understand how overvalued the US dollar is and what will happen when China cuts it loose. Forget all the nonsense you've been hearing recently about the dollar being undervalued. Internationally available goods are priced to sell at whatever rate they'll sell in a local economy. (I've watched Apple rip off and overcharge foreign consumers for years.) Using the price of consumer goods to value currencies is a mistake. Prices haven't changed fast enough at the retail level to reflect the relative changes in currencies, thus making Hussman's and similar methods make the Euro look overvalued (math and example provided below). The dollar is overvalued because of Asian intervention and becoming more overvalued with every month of continuing trade deficits. Period. With the US as the world's sucker-born-every-minute consumer, there's a desire to talk down the Euro to boost sales to Americans (and continue the transfer of wealth out of the US) until the overstimulated US market finally breaks down. However, long term the EU should realize that Asia is the main competition for the world's resources and job opportunities. They should be selling Euros to purchase Yen if they wanted to restore balance to the currency markets. Unfortunately, that sort of competitive devaluation might cause an unravelling of the whole status quo ahead of schedule and governments just aren't ready to deal with that yet. In the politicians mind a steadily deteriorating status quo is better than dramatic, constructive change and economic upheaval. Equivalent Value Bogocity Example: October 1 Euro = 1.23 USD 20 GB iPod = $299 US 20 GB iPod = $349 Euro Based on iPods, the Euro should be worth 85.67 cents and appeared to be about 43% overvalued in early October. December 1 Euro = 1.34 USD iPod = $299 US iPod = $349 Euro Based on iPods, the Euro appears to still be worth 85.67 cents and is now 56% overvalued. Side note: Most international companies like Apple hedge currencies so that they don't benefit from favorable or unfavorable changes for several months, and have little need to change prices rapidly. As businesses and consumers adjust to the new currency levels, prices will eventually adjust appropriately. The result will be significant inflation pressure in the US and deflationary pressure in Europe. We'll likely also see a flood of Asian goods moving toward Europe where the consumer's purchasing power is increasing, and away from the US where most consumers are getting SQUEEZED. US and French Apple stores: store.apple.com store.apple.com Mish: We'll likely also see a flood of Asian goods moving toward Europe where the consumer's purchasing power is increasing, and away from the US where most consumers are getting SQUEEZED. We will huh? That assumes unemployed aging European customers will go on a spending spree. Data does not suggest that is likely, just as it does not suggest that Japan is about ready to go on a spending spree either. Otherwise that was a nice piece. Mish

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