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To: Les H who wrote (153259)	2/25/2002 1:21:41 PM
From: Haim R. Branisteanu	Read Replies (2) \| Respond to of 436258

Bet your bottoming-out dollar on the euro - or the is the US scam starting to unravel The 'old economy' is making a surprise comeback as investors redirect capital from the US to Europe, writes Mark Tran Monday February 25, 2002 America was a magnet for investors during the prolonged 90s boom that made some analysts wax lyrical about a "new economy" that could grow indefinitely. Europe was considered an "old economy", hamstrung by too many regulations and inflexible policy making. Analysts and the US Federal Reserve Board chairman, Alan Greenspan, argued that the US economy had reaped a productivity miracle through massive investments in technology. As a result, global capital poured into the US and sent the dollar soaring. Just as a strong dollar reflected a potent US economy, so a weak and unloved euro now mirrors an anaemic eurozone. Those architects of the euro who thought the single currency might become an alternative reserve currency have been sorely disappointed. But no one talks any longer about the new economy since the US entered recession in March last year, and now there has been a reappraisal of America's productivity miracle. Not only that, but some economists wonder whether European productivity was so bad after all. Rudi Dornbusch, a leading American economist, has cited in the latest World Economic Trends (December 2001) an OECD study showing that German GDP per employee and GDP per hour worked both rose faster than the US during 1990-1998. Could it be that the European tortoise has been beating the American hare all along? And it appears that investors are reassessing their views of the US and Europe. According to figures compiled by State Street, the US financial services group, there has been a discernible shift in capital flows between the US and the Eurozone. Foreign direct investment (spending on physical assets) in the US has dropped to $55bn (£38bn), down sharply from a peak of $155bn in mid-1999. Meanwhile FDI outflows from the eurozone have been cut in half to 91bn euros in the past year. Equity flows (money spent on shares) to the US have also tapered off by 40% to $115bn, while equity flows to the eurozone have accelerated sharply to 251bn euros over the last year, from just 34bn euros. Investors seem to have caught on that US equities are still overvalued despite the bursting of the hi-tech bubble, whereas there are bargains on offer in Europe, where, unlike in America, profits have been holding up. So far, the shift in capital flows has not made much impact on the strength of the dollar relative to the euro, still languishing at about 80 US cents. That is because of the growing appetite for US company bonds, a safer form of investment than shares in times of uncertainty. But as analysts point out, with US company profits flat, the demand for bonds could weaken, posing a risk to the dollar. Conversely, that would strengthen the euro. Not that a weakening of the dollar is undesirable, State Street analysts argue, as a cheaper greenback would restore US company profits and support US financial markets. But a weaker dollar would be a more accurate reflection of the state of the American economy. guardian.co.uk