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Strategies & Market Trends : Currencies and the Global Capital Markets -- Ignore unavailable to you. Want to Upgrade?

To: Hawkmoon who wrote (2674)	12/24/2000 7:38:30 PM
From: Zeev Hed	Read Replies (2) \| Respond to of 3536

Two issues, first after world war II we did not run trade deficits (I believe we had surpluses until the early 60', but not sure about it), the Marshall plan stipulated that the money be used largely to buy US goods (many of the US subsidies to less developed countries still have that stipulation). As for the deficit and if and when it could cause a drastic decline in the Dollar and thus repatriation of funds to their foreign owners, as I have mentioned to Henry, there will be a point where the trade deficits are so large that confidence in the US dollar may wane, even if only temporarily, and due to the huge international markets in currencies and the ease of moving from one currency to the other, flight from the dollar may occur due to excessive trade deficit. I do not see that as an immediate problem and not a source of the bear market next year. Next year's bear market will be IMHO, mostly a partial return to the "norm" of valuation, followed by another "Mini bull move" starting, who knows, I have August and worse case October as the bottom of this bad bear. By then the Euro will have tempted parity with the dollar, while the Yen may decline to the 120 /130 yen to the dollar range. Sometime in the next two three years, however, I fear the Euro may actually disintegrate, and if that happens, and Europe develops few "dominant currencies" like the Deutchmark and possibly the Sterling, and in congruence, the Japanese economy reaches its own bottom and the yen starts back from the 130 level or so down at the same time, then the conditions might be ripe for another bear market in the US and this time, it may be precipitated by "loss of confidence" and by then very excessive monthly trade deficit in the $40 B range or higher, when the dollar could go to eventually under 100 yen to the dollar, and the equivalent of 1.20 Euro to the dollar (the Euro may still be around as a measure, but no longer as a dominant currency with its own monetary authorities). I realize that this is very unorthodox thinking, but it fits with my long term thinking of the US markets stagnating for a long time (possibly another 5 to 7 years) in a wide trading range, my long held opinion that the EURO Was a catastrophic folly, and my long term held opinion that Japan will eventually clean its house or face deep deep troubles. Zeev

To: Hawkmoon who wrote (2674)	12/24/2000 9:39:26 PM
From: X Y Zebra	Read Replies (1) \| Respond to of 3536

So why would foreign investors see weakness in the US economy as reason for transferring their money back home to economies that could suffer worse than the US? Well... If it gets really that bad in the economies of other countries, they may have to repatriate assets to reinforce some of their own operating assets at home. not first choice, but more of a 'have to' situation. Just an idea.

To: Hawkmoon who wrote (2674)	12/26/2000 8:08:53 AM
From: Henry Volquardsen	Read Replies (1) \| Respond to of 3536

Ron, I think you are on to an interesting point. This is an issue that Martin Armstrong pointed to in an interesting analysis about two years ago. It might help to look at it in somewhat more general terms. The post WWII analogy just ties it up in specifics that don't always translate directly. The US, for better or worse, is the center of the world's economic system. It has the best sovereign risk, the freest major economy with a consistent legal system and, not to be underestimated, the strongest military. There are other factors that contribute of course. In Armstrong's analysis he compared it to the position Rome occupied during the age of the Roman Empire. How does this relate to foreign preference to hold US assets? When times are good in 'the provinces' investors will feel very comfortable investing there and capital will flow outwards under the protective umbrella of the center. However when risk looms large there is a tremendous urge to 'run home to mommy', capital flows back to the center. This would also effect locally generated capital and not just repatriation. In the current environment most of the 'provinces' have significant troubles. The Japanese banking and insurance sectors remain a mess with no long term resolution in sight. This has affected the rest of Asia which complicates their own problems. Latin America also has problems. Europe is clearly in better shape than Asia but there are also big questions regarding the consolidation of the EU and structural issues that have reduced growth. All of this, I believe, contributes to a higher preference to hold dollar assets. While this is not an unlimited preference it is sufficient to allow the US to continue to run high trade deficits for some time to come. Henry