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Strategies & Market Trends : Currencies and the Global Capital Markets -- Ignore unavailable to you. Want to Upgrade?

To: Robert Douglas who wrote (564)	9/3/1998 4:23:00 PM
From: Henry Volquardsen	Respond to of 3536

Robert, You're missing my point and it may be a bit obscure. Some of it is related to the semantics of how the BoP accounting works. The point I am trying to make, albiet it clumsily, is that by definition the BoP has to be balanced. We would not be able to buy anything off shore unless there was already someone willing to invest in the country. I know this is a technical point but the accounts have to be balanced. So definitionally a trade balance can only exist if someone is willing to hold the dollars. I know the manufacturer does not necessarily become the investor, that was just an abstract for what I was trying to get at. The market must have a willingness to invest or the trade deficit cannot occur. That is why so many absolute basket case economies have trade surpluses. Their currencies are so worthless they cannot buy anything off shore as no one will accept their currency. So they physically cannot not have imports in excess of export receipts. By the way this BoP math implies nothing regarding what price investors are willing to hold those investments. But the BoP math does mean that the only way foreigners can net dump their investments is if they stop selling product to the US and force us into a trade surplus. I didn't mean to be dismissive of the fellow at State Street. Just more a point of the transitory and short term trend aspect of such analysis. That goes for much of the analysis in the media. As far as currency markets feeding on themselves, I agree whole heartedly. I have a saying I use about the markets 'if you can keep your head while all thos about you are losing their's you obviously are not paying attention':) Yes sentiment for the dollar has turned recently, and for a number of factors. Several of which are technical. It could also turn again on a dime. My point is that I am not so worried about the value of the dollar. First off if the dollar does weaken, yipee for us. US industry will soar as we export like crazy into Europe and it will choke off Japan's recently obtained currency relief. US industry is much more competitive than European and Japanese business at the moment. A weaker dollar will further this advantage. So any weakness on the dollar's part is likley to be self correcting. I've ben involved in the currency markets professionally for a long time. I remember the currency's real dark days in the 70s. I find it hard to be to down on the dollar now. And the European currencies and the yen have significant problems of their own.