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Politics : Stockman Scott's Political Debate Porch -- Ignore unavailable to you. Want to Upgrade?

To: stockman_scott who wrote (930)	6/30/2002 10:28:41 AM
From: Jim Willie CB	Respond to of 89467

DOLLAR'S WOES THREATEN FISCAL FABRIC (a fews days old) [my more direct comments] SAN FRANCISCO (CBS.MW) -- Don't believe Paul O'Neill's scenario, not even for a second. The U.S. Treasury Secretary said earlier this week he was willing to ignore the dollar's 10 percent decline this year against the currencies of major trading partners. On Thursday, the euro reached a two-year high vs. the dollar, fetching 96 cents. [ONeill appears actually stupid in these remarks] O'Neill appears to have made the mistake that U.S. government bonds, the backbone of America's capital system, will continue to thrive, withstanding the dollar's swoon. Overseas investors are the largest buyers of Treasury bonds. "If one thinks that inflows are slowing down, one would think one would have to see a necessary rise in 10-year Treasury (yields) to keep the funds flowing," O'Neill said in an interview on CNN Moneyline. At the time, Treasury yields were falling, and their prices rising, even as the dollar gave up the 95-cent level on the euro. [all in time, Mr Incompetent Boob] That was before the Commerce Department revealed a U.S. trade gap rising to a record $35.9 billion in April, mainly on surging imports, paid for by credit-card waving American consumers. That, and a widening current account deficit, to a record $112.5 billion in the first quarter, rattled O'Neill's Treasury market. [the big weaknesses are twin in nature] Yields on Thursday morning rose sharply across all Treasury maturities. The 10-year yield (TNX) rose as high as 4.773 percent from as low as 4.721 before the ugly report. The price of gold, which has been benefiting from dollar weakness since April 1, rose $3 to $323.60 an ounce. [just an early taste to whet the appetite] "The fear of losing money is even greater than the greed factor right now," said Richard Gotterer, senior vice president of investment strategy at Gibraltar Bank Wealth Management. "Money is flowing out of the stock market, in some cases leaving the U.S. permanently and going to safer markets." Economists consider the current account the widest measure of America's balance sheet with the rest of the world. It includes trade goods and services as well as capital flows. Inflows of foreign capital to America fell 55 percent to $113.3 billion. In large part, overseas investors don't want to buy American securities - corporate bonds, government bonds and company equities -- at a time when the country is at risk of slipping back into recession. Overseas investors rang up a mere net $17.6 billion of U.S. stock-market purchases in the first quarter vs. $41.7 billion in first-quarter 2001. [foreigners have begun to abandon USA markets, first stocks, then later bonds imho] The red ink in the current account , as Morgan Stanley economist Stephen Roach has pointed out, is in danger of triggering a freefall in the dollar's value. At this rate, Roach figures the account deficit will easily surpass 4 percent of American gross domestic product and move toward what some consider an apocalyptic 5 percent later this year. [many historical experts regard 5% as the trigger for a significant 20-30% currency correction] Earlier in June, Roach raised the probability of a dollar crash to 15 percent from 5 percent. His scenario is just as ugly as Thursday's trade report. A "dollar crash would have a devastating impact on U.S. financial markets that could well be amplified in other capital markets around the world. Foreign investors would continue to reduce their exposure to dollar-denominated assets, and US investors would undoubtedly rebalance their portfolios in an effort to seek greater exposure to non-dollar-denominated assets," Roach wrote. All you need do is read Roach's words to understand why overseas investors are fleeing America's financial markets. "In the post-bubble era, complete with a massive and ever-widening US current-account deficit, the strong dollar has remained largely unscathed - at least until recently," Roach writes. "Suddenly the bloom is off the rose. Fears of a profitless recovery raise serious questions about returns on dollar-denominated assets. Fiscal discipline has fallen by the wayside. America's recent protectionist forays -- especially steel tariffs and increased agricultural subsidies -- hardly instill confidence in the dollar as the mainstay of global commerce. Nor does the Bush administration get high marks from the international community for its recent handling of geopolitical crises." The scary part is that three-quarters of central bank's currency reserves around the world are held in dollar-linked assets, mostly Treasury bonds and notes. That's a lot of dollar-selling ahead of us. -end- the tight link between the dollar dropping and gold rising is a universal reality any temporary disconnect in that link is just that, temporary / jim