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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: Ilaine who wrote (5357)	6/26/2001 10:29:39 AM
From: Ilaine	Read Replies (2) \| Respond to of 74559

>> Mideast central banks 'stand to gain from strong dollar' Tuesday, June 26, 2001 Middle East central banks stand to gain hugely should the dollar strengthen, Marc Hendriks, chief economist for SG Global, said recently. And the dollar is likely to strengthen in nine to 12 months, he felt, to perhaps $0.80 to the euro, or 135 yen. Most of the region's central banks have built their reserves with more dollars and less gold, unlike many of their Western counterparts, he said. This is considered unhealthy by many in the gold industry, but any strengthening of the dollar will have a positive effect on these banks, he said. The U.S. economy appears set for a turnaround, he argued. Key indicators such as U.S. housing starts and the correction in the manufacturing sector 9 manifested by the lowering inventory-sales ratio 9 are positive signs. Meanwhile, the eurozone continues to miss the heart of its monetary policy, and the new Japanese administration is grappling with the two problems of an exploding fiscal deficit and record high non-performing bank loans. Although Federal Reserve Chairman Alan Greenspan has slashed interest rates to four per cent, Hendriks felt U.S. rates are bound to witness a trend reversal by the fourth quarter this year, or latest by the first quarter of 2002. "This is the time to invest in equities, not bonds. Since the U.S. economic recovery will lead a global revival, I think equities are now the ideal platform for making fresh investments," he said. "Especially, one should focus on the U.S. equity market." Accompanying the recovery in economic growth will be an improved profit outlook since companies have pared costs. Prudent spending on technology is vital for corporate profitability since it is the key to higher productivity and, consequently, rising profit margins, he said. Hendriks believes the world is moving towards a single-currency regime with the dollar as the dominant currency. The new U.S. president's protectionist measures will also help strengthen the greenback. "The U.S. consumer is in a very strong position now. The clear trend is that wealth accumulation has been taking place among U.S. consumers since 1995 and, with wealth growing faster than consumption, the country is sitting on a favourable consumption-financial wealth ratio," he said. Also, the U.S. now sees a rapid reduction in labour costs. The economist was critical of the European Central Bank's stand on rates. "The ECB seems to be confused about its monetary policy. While the bank should be combining its forces to contain inflation, it has been following the footsteps of the U.S. in cutting rates." Europe faces inflationary pressure of over three per cent against 2 per cent growth (projected at 2.5 per cent), and this does not call for a rate cut, he said. A lot of capital is moving from the eurozone to the U.S. While Europe fails to raise its return on capital, the U.S. has done so.<< zawya.com