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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: MulhollandDrive who wrote (6043)	5/8/2002 1:49:58 AM
From: John Pitera	Read Replies (2) \| Respond to of 33421

Mrs. P, there are a number of factors creating a weak USD. Every month we have a current account deficit. China and other countries keep selling us good and we pay for them in US Dollars. These countries especially China have all the USD's they need or want and they are selling their surplus dollars. The US has become overvalued in Purchasing Price Parity theory due to the desire of foreign investors to be in our stockmarket (especially tech companies) in the second half of the 1990's. Now that they US stock market is obviously in a bear market they are concerned about further losses and so they are selling. The Fed has a chart of the Flow of Foreign funds into the US and it shows a big surge in 1999 and early 2000. That money is now looking for a better place to be. Another reason is that with Euro rates and other countries such as Aus and Canada having higher rates. You can be short the US Dollar against them and earn points everyday. The interest rate differential means that you can be long those currencies and if the exchange rates do absolutely nothing for 3 months, you'll have had a profitable trade since you are earning more money holding the AUD or the Euro. The USD multiyear bull market has been similar to the NASD and SPX in that it went further than most people thought it would and has been like a supertanker in terms of making it's turn. It's an excellent question. John