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Strategies & Market Trends : Currencies and the Global Capital Markets

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To: Amelia Carhartt who wrote (246)	6/23/1998 11:47:00 AM
From: Henry Volquardsen	Read Replies (1) of 3536

The doctor is in :) If the dollar weakens these international bond funds will get a boost from that. It is also fair to point that the same effect will be seen on international equity funds but may not be as obvious due to the greater volatility of the underlying assets. And yes I do believe the US economy is relatively ambivelent to large trade deficits. Part of this is due to the fact that trade still remains a relatively minor component of our total economy, unlike most other countries. So it's impact will be muted somewhat. It is also worth pointing out that the US runs a large surplus on the balance of services. This doesn't entirely offset the trade deficit but it mitigates this. Also just because the economy is relatively unaffected by the trade deficit does not mean it won't have an impact on the currency value and investment flows. The downward spiral of the Asian economies will have an impact on the US the question is how much. Also not all the effects will be bad. Inflation will remain constrained for one thing. We will see some slowing in demand for high tech US exports but that will only result in an earnings constraint not a terminal event as this industry has strong demand from other areas as well. Is there no end to the American appetite to consume? Seems to be relatively inexhaustible. Can the gobs of money being thrown at the market keep it afloat indefinitely? Not indefinetly. Some day the money spigot will reverse and the market will have very tough sledding. The tough question is when and it certainly does not appear to be happening anytime soon. There are aspects of the current situation that are indeed grim. If you are an auto worker in Flint Michigan things may indeed appear very grim. There are other areas where the prospects are more rosy. It all depends on what portion of the picture you are looking at. Henry

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