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

To: Andrew G. who wrote (2681)	12/26/2000 9:08:41 AM
From: Henry Volquardsen	Respond to of 3536

Hi Andrew, thanks for the post, some interesting points. Regarding the European investment flows partly fueling the internet boom, quite possible. But it wouldn't be the first time foreigners investing in the wrong asset and losing a big chunk of their stake. Look at almost any Japanese investment over the last twenty years. An interesting side effect of this is that it would mitigate the impact of the trade deficits we have been discussing :) To the extent thy have lost on this investment that is money they won't be able to repatriate and weaken the dollar. Re forecasts of a slowdown in the US. I don't disagree that there will be a hangover effect and that US economic growth may underperform, perhaps even as long as Zeev was mentioning. However I have a feeling, impossible to quantify, that the changing nature of the US economy will shorten the slowdown. The US is very efficient at disposing of bad assets and moving on. The problem in much of the rest of the world is a much slower process in recognizing bad assets and getting rid of them. That doesn't mean the US won't have problems but that they are quicker at moving beyond it. Taiwan is an interesting case. I certainly agree this could be atroubling flashpoint. I would like to make one comment on Jay's posts. He implies that when Taiwan wants to repatriate the buyers of their Treasury positions will be US buyers. I strongly doubt it. The reason is that Taiwan is in a Balance of Payment box. In the past we have discussed on this thread my position that the trade balance is offset by foreign investment demand. One can not exist without the other as they finance each other. If they don't offset, exchange rates must move to a level to restore equilibrium. We have always discussed this from the perspective of the US trade deficits but it is just as rigid from the opposite direction. If Taiwan wishes to repatriate capital from abroad they must run a trade deficit. Very unlikely. If they wish to run a trade surplus with the US they must either be willing to hold those dollars or some other currency that they exchange the dollars for. But they can't run a trade surplus with the US and sell dollars back to the US. Henry