Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: macavity who wrote (52709)	8/27/2004 1:47:42 PM
From: elmatador	Read Replies (1) \| Respond to of 74559

Dollar’s bounce appears unconvincing By Steve Johnson in London Published: August 27 2004 11:51 \| Last updated: August 27 2004 17:01 The US dollar enjoyed a rare bounce this week, but no one was convinced this was the start of a new trend. Indeed, there was some debate as to why the greenback had risen at all. Some attributed a role to an easing in oil prices that, if extended, would remove a major hurdle to US growth. But two members of the Federal Reserve, Ben Bernanke and Robert McTeer, asserted this week that costly crude would not derail the US recovery. There is no real consensus as to how the dollar should react to oil strength, with many arguing that oil’s inflationary impact will encourage the Fed to increase the rate of monetary tightening, helping to support the dollar. This week’s US economic data were also less than conclusive. July durable goods orders beat expectations, but strip out transportation and they undershot. “Lacklustre” and “disappointing” were the words tumbling from the lips of Paul Ashworth, economist at Capital Economics. “The smoking gun evidence” that the soft patch in the US economy will prove transitory, was the diametrically opposed view posited by the Bank of New York’s Michael Woolfolk, who pointed to strong orders once defence was stripped out. Friday’s data flow was similarly unhelpful, with second quarter GDP downgraded, as expected, to 2.8 per cent, and the PCE deflator, the Fed’s favoured inflation measure, in line with forecasts. The most convincing argument for dollar’s strength was that speculators who had shorted the dollar at the end of last week expecting a slide to $1.24 against the euro, had scrambled to square their positions when it became clear this was not going to happen. As a result, the dollar rose 2.2 per cent on the week to $1.2040 against the euro, 2.2 per cent to SFr1.2797 against the Swiss franc and 1.3 per cent to $1.7938 againststerling, hitting a three month high in the process. Sterling had been heading for a soft week as commentators continued to downgrade the likely peak in UK interest rates, with a 20 per cent fall in mortgage approvals in July the latest sign of a housing market slowdown. But the pound bounced yesterday as GDP data indicated the consumer was still in rude health, pushing sterling 1 per cent higher to £0.6711 against the euro on the week. The yen enjoyed a strong week, firming 2 per cent to Y131.77 against the euro, as the slide in oil prices more than offset yesterday’s weak inflation, retail sales and unemployment data.

To: macavity who wrote (52709)	9/10/2004 11:32:02 AM
From: elmatador	Respond to of 74559

Dollar slumps on soft inflation numbers Friday, September 10, 2004 3:23:36 PM afxpress.com LONDON (AFX) - The dollar slumped as softer-than-expected US producer price data diminished expectations of aggressive monetary tightening by the US Federal Reserve and renewed concerns over the US trade position Official figures showed that producer prices unexpectedly declined in August, signalling that US interest rates may not rise as quickly as predicted "The data suggests that the Fed may not have to raise rates aggressively," said Steve Pearson at HBOS Prices of US wholesale goods and services fell 0.1 percent in August while the core producer price index -- adjusted to exclude food and energy goods -- also fell 0.1 percent. Economists had been expecting slight gains in both The data bears out Fed chief Alan Greenpan's comments Wednesday that inflationary expectations have eased. The dollar was further troubled by data showing the monthly US trade deficit still above 50 bln usd Though the shortfall narrowed by more than anticipated to 50.1 bln usd in July from June's record 55.8 bln, analyst said the markets remain anxious about the US's external position Despite the improvement, they did cause problems for the dollar nonetheless by attracting attention to the "dangerous" magnitude of the US trade deficit, said Andrij Halushka, analyst at the Centre for Economic and Business Research Sentiment towards the dollar has been fragile since Wednesday when the Fed chief told the House Budget Committee that the US economy had regained its footing after experiencing a soft patch earlier in the summer However, he noted that inflation expectations had diminished despite the rise in oil prices through mid-August Though Greenspan's speech did not alter expectations that the Fed will hike another quarter point at its rate-setting meeting on Sept 21, it did raise the prospect that upcoming rate hikes may not be as hefty as some in the markets have anticipated, especially if oil prices remain high Meanwhile, European Central Bank officials have been hinting that European rates may be on the rise from their current 2.00 pct sooner than anticipated Elsewhere, the yen had been knocked by news that the Japanese economy grew much slower than expected in the three months to June, confounding hopes the figures would be revised up sharply and sending the stock market deep into negative territory Friday The government said the economy grew 1.3 pct in the quarter, well down on the preliminary gain of 1.7 pct and disappointing expectations that the figures would be revised up to 2.9 pct Compared with the three months to March, growth was 0.3 pct compared with the initially reported figure of 0.4 pct, the Cabinet Office said, attributing the downward revision mainly to inventory drawdowns In addition, prices are reported 2.8 pct lower year-on-year compared with -2.7 pt in the year to the end of the first quarter The GDP data also hit Tokyo stocks, with the Nikkei index of leading shares closing nearly 90 points lower London 1500 GMT London 1130 GMT US dollar yen 109.29 down from 110.22 sfr 1.2540 down from 1.2607 Euro usd 1.2288 up from 1.2212 stg 0.6825 down from 0.6830 yen 134.33 down from 134.63 sfr 1.5408 up from 1.5394 Sterling usd 1.7994 up from 1.7876 yen 196.70 down from 197.08 sfr 2.2572 up from 2.2550 Australian dollar usd 0.6982 up from 0.6903 stg 0.3877 up from 0.3861 yen 76.34 up from 76.12 pp/ab For more information and to contact AFX: www.afxnews.com and www.afxpress.com

To: macavity who wrote (52709)	9/14/2004 8:49:57 AM
From: elmatador	Respond to of 74559

U.S. Current Account Gap Grows to Record Tue Sep 14, 2004 08:35 AM ET WASHINGTON (Reuters) - The U.S. current account gap widened again in the second quarter, growing to a record $166.18 billion, the Commerce Department said on Tuesday. The gap -- the broadest measure of trade and investment flows between the United States and the rest of the world -- came in well above analysts' expectations for a $159.35 billion shortfall and could fan concerns about the U.S. dollar and the nation's ability to continue to fund the deficit. The gap in the first three months of the year was also revised upward, to $147.16 billion from the previously reported $144.88 billion. The largest portion of the deficit continued to come from trade in goods and services, where a $163.58 billion shortfall in trade in goods was only slightly offset by a $13.29 billion surplus in services trade. The surplus in investment income slid, further widening the gap. The surplus on international investment income fell to only $2.64 billion in the second quarter from $12.16 billion in the first three months of the year. Unilateral transfers, which largely track U.S. foreign aid payments and add to the current account shortfall, dipped slightly, to $18.53 billion from $20.73 billion in the previous quarter. While economists have long worried about the size of the current account imbalance, and have often said it will lead to a drop in the dollar's value in foreign exchange markets, the United States has continued to attract international investment. Net inflows of capital totaled $71.8 billion in June, according to Treasury Department data. Capital flow figures for July are expected Thursday.

To: macavity who wrote (52709)	9/20/2004 7:29:27 AM
From: elmatador	Respond to of 74559

The Long View: Bet your bottom dollar By Philip Coggan, Investment Editor Published: September 17 2004 17:30 \| Last updated: September 17 2004 17:30 news.ft.com The US current account deficit chalked up another record in the second quarter. Americans bought $166.2bn more of goods and services than they sold overseas, equivalent to 5.7 per cent of US economic output. ADVERTISEMENT In other words, Americans are dependent on the kindness of strangers. A current account deficit must be matched by a capital account surplus. The US must raise $166.2bn-worth of capital per quarter to balance the books. Many people think this spells doom in the long run. Last year, I devoted a column to Richard Duncan's book The Dollar Crisis which argued that the eventual result will be a US recession and an international financial crisis. Warren Buffett, the highly successful US investor, has built up a big foreign currency position in anticipation of a sharp fall by the dollar. But the US has been running big deficits for much of the past 20 years. Crisis has yet to set in. The dollar has lost some ground in recent years, but there has been nothing that could be described as a collapse or a crisis. There can be little doubt that, had any other country run a prolonged deficit akin to that of the US, it would have faced disaster long ago. But the US has important advantages. It is the world's largest economy and has the most developed financial markets. This creates natural demand for US assets. Furthermore, the dollar is acceptable as currency in almost any country, particularly in black markets. Its credibility has not been dented by the deficit. Furthermore, the debts of the US are in its own currency. Think back to the Asian crisis of 1997 and 1998. Back then, many Asian companies had borrowed in dollars, comforted by fixed exchange rates. As their trade deficits deteriorated, Asian authorities then faced a real dilemma. Their currencies were pegged at too high a rate, and a devaluation was needed to boost exports. But a devaluation would boost the value of dollar debts, and prompt a financial crisis. The US government, corporate and banking sectors do not face the same problem. If the dollar does fall, the bulk of their debts will remain unchanged. A further benefit for the US is that the dollar is the world's most used reserve currency. Central banks hold large quantities of dollars in their foreign exchange reserves. Indeed, in recent years, Asian central banks have been big buyers as they have attempted to keep their currencies from rising against the dollar. This is part of an informal deal, under which the US buys Asian exports and Asia agrees to fund its deficit. All of these advantages are well known. But there is another little-remarked factor. Americans appear to be much better investors than anyone else. There was a $9.6bn decline in investment income during the second quarter, much greater than expected, but that still left the US with a $2.6bn surplus, quite remarkable after all the years of current account deficits. Professor Tim Congdon of Lombard Street Research has in the past been very gloomy about the implications of the US current account deficit, but has changed his mind. "I have spent 15-20 years talking about the unsustainability of the US current account deficit," he says. "When you make projections, it is natural to assume the same rate of return on US assets as on its liabilities. Thus, as the liabilities grow, you get a deterioration in the investment income account which makes the situation worse." "But if you look at what has actually happened, the US still has an investment income surplus," adds Prof Congdon. "That raises wider questions." What Prof Congdon thinks has happened is that US companies have moved operations overseas and have indulged in "transfer pricing" to ensure that their subsidiaries in low-tax countries earn high profits. This cuts the value of US exports (as the US parent undercharges its overseas subsidiaries for components), but increases the country's investment income as high overseas profits are remitted. As evidence for this trend, Prof Congdon cites the huge growth of trade within US multinationals. In contrast, overseas investors have earned a fairly low return on their US assets. One reason is that many of those assets are held in official hands, thanks to those central bank intervention policies. US Treasury bonds or cash deposits have provided returns of only a few per cent a year. The above factors indicate why the US has been able to "get away with it" for so long. They suggest that any warnings of an imminent dollar collapse should be treated with caution. But they may still mean that the negative impact of the dollar has been postponed, not cancelled. One issue, highlighted by my colleague Martin Wolf, is that the inflow of capital from abroad has been used to fuel consumption rather than investment. In the long run, this places constraints on the ability of the US to increase its standard of living. As if to emphasis this problem, the US government has plunged into deficit in recent years. Capital flows into the US are largely being used to fund government spending rather than business opportunities. Furthermore, any country dependent on foreign capital inflows is vulnerable to a change in sentiment. Asian central banks could decide to diversify their reserves into euros or gold, though there is little sign of it happening as yet. Even central bank support could be overwhelmed if the private sector suddenly became nervous about the dollar's outlook. The evidence of the latest capital flows numbers from the US is that Asian central banks have cut back on their Treasury bond purchases. But this is probably because the dollar has been fairly steady this year; they have had no need to intervene. As yet, there is no sign that overseas investors are losing confidence. This does not mean it will not happen eventually. The current account deficit is a ticking time bomb with a very long fuse. It may not blow up for several years, but it could still cause a lot of damage when it does. philip.coggan@ft.com