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

To: EL KABONG!!! who wrote (19452)	6/3/2002 10:53:21 PM
From: TobagoJack	Read Replies (1) \| Respond to of 74559

Hi KJC, <<How badly will the dollar's demise in the currency markets impact South American countries, especially Argentina and Venezuela?>> I do not know, perhaps Elmat can help when he is not busy. I am just thinking out aloud: Venezuela exports oil, denominated in USD, and can be hurt if USD drops, unless oil price rises as result. OTOH, I imagine that both Venezuela and Argentina could use the respite provided by USD tanking to print up a batch of local currencies and use same to wash the wounds recently suffered by the locals. Mexican and Brazilian export to the US may suffer, but then both countries can print up a batch of paper money and lower interest rate with less fear, just tagging along with the US FED leader. Hard to say. But generally, adjustments and inflection points are dangerous. Chugs, Jay

To: EL KABONG!!! who wrote (19452)	6/3/2002 11:05:34 PM
From: TobagoJack	Respond to of 74559

Who knows, maybe the USD will not fall at all ... so confusing and so uncertain ... what a ride! news.ft.com Dollar's obituary may be premature By Peronet Despeignes Published: June 3 2002 23:11 \| Last Updated: June 3 2002 23:11 Speculation about the US currency's demise is spreading everywhere - so now may be as good a time as any to play dollar's advocate. For much of the 1990s, through all kinds of domestic and international turmoil, investors and currency speculators generally stood behind the US economy like a loving mother, revelling in its strengths, forgiving its weaknesses, nourishing her. Lately they appear to be disowning her. Even as the US recovers smartly from last year's downturn with much of its "productivity miracle" seemingly intact, foreign and US investors show signs of losing faith. The dollar has sunk to a 16-month low against the euro and US equity markets are underperforming markets across the world. Some economists believe markets are signalling long-term concerns about whether the great American money making machine will maintain its lead as other economies recover and reform, US government spending surges, US protectionism mounts and the prospect of terrorism and post-Enron re-regulation looms amid pervasive doubt about US corporate govern- ance and accounting. But before accepting the obituary to the Age of the Dollar, consider the following. While the dollar has weakened against the euro and other leading currencies, it is still strong generally on a trade-weighted basis. And it has weakened as much or more against the euro in the past - from October 2000-March 2001 and June-October 2001 - before reversing course. Rory Robertson, an investment strategist for Australia-based Macquarie Bank, says markets (particularly currency markets) have an immediate financial stake in being right about the future, but are gripped by bouts of pessimism, optimism and herd mentality, tending to "overshoot" or react beyond what changes in economic conditions warrant. Investors were overly bullish once and may be excessively pessimistic now. Sherry Cooper, chief global strategist for Bank of Montreal, dismisses talk of a new US protectionism, arguing that the Bush administration's recent expansion of farm subsidies and imposition of steel tariffs are clearly tactical moves to win future support for, among other things, free trade. The slowdown of foreign investment may be little more than saturation and diversification. US government spending, though surging, remains near historical averages as a share of US GDP. The chastening of corporate America, post-Enron, could fix clear weaknesses in the US system, making it stronger over the long run. In Europe, deep cultural resistance and tax-equalisation efforts raise questions about the extent to which it is genuinely prepared to reform and compete for investment. George McManus, a top strategist with UBS Warburg, waxes philosophical. He argues that, just as the dollar's rise reflected an ascendant paradigm of economic efficiency, globalisation and peace, its descent may reflect the broader backlash against the above. It may represent a broader erosion across the global economy rather than a particular indictment of the US. Neal Soss, an economist with Credit Suisse First Boston, says: "If the benefits of globalisation, deregulation and rigorous anti-inflation policies in the last 20 years accrued mainly to the already-rich countries of the first world, then a blunting or reversal of those trends should weaken all their currencies. Hence, gold prices should be rising against all major currencies, which is exactly what is happening." All of this is not to say that the dollar will rebound. That seems less likely now with the problems, doubts and fears arrayed against it. It is only to say that the US has surprised before and there remain significant countervailing forces at play to keep any adjustment from being as dramatic, long-lasting or economically unsettling as some expect. It is also to warn that when it comes to the economy and financial markets, beware the conventional wisdom. It is often wrong and, by the time it becomes common and widely reported, unprofitable. Where things are headed is anyone's guess, but sometimes it pays to be contrarian.