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Strategies & Market Trends : Heinz Blasnik- Views You Can Use -- Ignore unavailable to you. Want to Upgrade?

To: EL KABONG!!! who wrote (775)	5/6/2003 6:02:11 PM
From: MulhollandDrive	Read Replies (1) \| Respond to of 4912

>>The main difference between the US economy and the European economies is that the USA is capable of survival on domestic demand alone. However, should layoffs and closures continue somewhat unabated, eventually (as in Europe) supply will exceed demand and loss of employment will result in further erosion of demand.<< i believe we are closing in on demand abated deflation as the joblessness increases. in some ways the consumer economy after 9/11 reminds me a bit of the corporate tech economy pre Y2K...and the wall that was hit after the event when businesses went on the anticipatory tech spending spree. now we are seeing the consumer all "housed up, auto'd up, and computer up'd and electronic's up'd" after the low interest and housing refi cash infusion boom.... what will be the next big driver of spending?

To: EL KABONG!!! who wrote (775)	5/6/2003 10:54:44 PM
From: Wyätt Gwyön	Read Replies (3) \| Respond to of 4912

hi Kerry, The main difference between the US economy and the European economies is that the USA is capable of survival on domestic demand alone a less kind way of saying this is that US demand outstrips US GDP by about 5%, so we depend on foreigners to make up the difference with their excess supply. they depend on us for demand and we on them for supply. it all worked so well when the dollar was strong. how will it go with a weaker dollar? seems we are about to find out. one interesting and rather alarming aspect of the current situation is that US current account deficit and gutting of the manufacturing sector have been ACCELERATING in the face of a declining dollar. as noted earlier, we amputated 95,000 more mfg jobs last month (annualized to 1.14 million), continuing our 33-month losing streak. this compares to "just" 600,000 jobs lost all of last year, so almost double the pace of disintegration. according to conventional theory, a weaker dollar is supposed to make our exports more competitive and foreigners' imports less so, thus moving the trade deficit back the other way (towards a surplus). but instead our deficit continues and mfg gets weaker. what's going on? one possibility is market segmentation. while our goods may be more competitive vs. Euroland, they are still nowhere near competitive against Chinese labor on price. as an increasing amount of goods become feasible for offshoring to China and the like, a sea of jobs moves over the Pacific, and the incremental gains against Euroland are just a drop in the bucket. btw, compared to Europe, i think the one who will really suffer from a reduced dollar is Japan. when the yen briefly hit 80 to the dollar back in 1995, Japanese manufacturers were so uncompetitive that they were losing money on both fixed and variable costs. there's no way around a major deflationary depression in Japan if the dollar heads back below 90 yen. this will eventually force a dollar liquidation by the Japanese, at which point all hell will break loose on the downside for the dollar and we will be known as "Argentina of the North". well, that's one rosy scenario, anyway :) economists have been sanguine about the US with the idea that it's OK to have a mfg glut due to our wonderful service economy. but as it becomes apparent that more service jobs can be shipped overseas to India and China, we could see a wholesale repricing of the middle and upper-middle class service sector in the US. Mr. 120K Engineer becomes Mr. 40K Engineer--and glad he's got a job. people think it's just the bubble aftermath but there're other forces at work as well. Mr. 40K Engineer can't afford Mr. 50K's backrubs, so he becomes Mr. 20K backrubber. and Mr. 25K latte-maker becomes Mr. 12K latte-maker. this stuff eventually will obviously reduce real estate affordability (which will be killed anyway as the decline in the dollar will eventually lead to a bond rout). so Mr. 100K Realtor becomes Mr. 30K Realtor. and so on. while this may be bad for the US and the rest of the developed world, it is darn good for China and India. they have lots of educated people who can do the same jobs as we can, for a tenth of the price. why not let them? they will feel richer, and we will feel poorer. we'll all be closer together in a way. people in the developed world don't have a divine right to 10 times the riches as the developing world.