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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: John Vosilla who wrote (90232)	1/7/2008 2:37:21 PM
From: Archie Meeties	Read Replies (1) \| Respond to of 110194

John, both good arguments for a weaker dollar as rising energy prices should in theory weaken the US economy more than the Eurozone which is somewhat insulated by higher taxes on the product and less dependence on oil for transportation. However, the major counter argument is that Europe produces much less energy than the US (imports a higher %). We also tend to forget that producing states in the US benefit from higher energy prices (although surprisingly, high oil/ng prices are now only a net minor stimulus to the Texas economy). A minor argument is the the US oil services industry is in high demand, exporting its technology and skills at unprecedented levels. The amount of dollars coming back into the oil services is far far outweighed by the amount flowing out to pay for oil imports however. The trade has been long oil/short dollar - namely, that the US runs a balance of payments deficit and this imbalance is worsened by high oil prices. If the Eurozone was running a trade imbalance that would also be a good trade, but because it can and has remained + on its balance of payments then that sort of feed forward trade has no merit. A reversal in oil may not put this trade in reverse, as there are plenty of other things weighing on the dollar, but it will likely pull away many traders who were shorting the usd. Impossible to know exactly how big a % they represented in the market, but I think pretty significant.