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Usually, when we buy directly from a foreign producer, such as Japan, we
pay them in yen anyway. Heck, I get paid in dollars from my foreign
customers, and when I pay my Swiss back-up data provider, I get charged
in CHF. So, the weak dollar from trade would then be more immediately
apparent.
The emerging markets work in dollars anyway. In fact, that is one reason
why the dollar is strong -- the continued dollarization of emerging
economies. Remember, a huge part of the deficit is with places like
China and Korea. They rather hold dollars as their exchange rates are
not declining. Another thing to remember as far as the trade deficit
goes, is that it is very deceiving. Much of the electronics and computer
stuff that goes as a deficit on the trade account is factories producing
for US firms. That winds up as being US profits. That is one reason why
the Asian contagion has not hurt our economy. Intel sells raw materials
in essence to itself in Thailand (or wherever) and buys it back. The
factory makes a bit, but most of the profits go to Intel.
Ira wrote:
>
> With the largest trade deficit in history, based on an article I read, the
> sellers to the US have to convert to local currency at one point to stay in
> business, therefore sell US$. What do the sellers do with all those US
> dollars, borrow local currency against their dollar accounts ? If the dollar
> slides, then what happens to those US$ collateral accounts? Ira
>
> swp wrote:
>
> > Gary -
> >
> > The relationship between US investments and the dollar is very far from
> > a direct one. First of all, you need to always remember that the
> > dollar's gains and losses are not just due to the bond or stock market,
> > and for that matter, money will not necessarily flow into bonds or
> > stocks because the dollar is strong. The dollar is used as a medium of
> > exchange in trade, so part of the dollar's demand -- a large part of it
> > -- is as a medium of trade.
> >
> > Right now, rightly or wrongly, alot of folks are worried that the Fed
> > could raise rates. Why would you own bonds if you believed that rates
> > were going to rise? You would probably buy time deposits. Notice that
> > the curve, I think, is steeper of late.
> >
> > There is much more to the story than that, and I do not pretend to have
> > all the answers, but that might be part of it.
> >
> > Steve
> > --
> > Steven W. Poser, President
> > Poser Global Market Strategies Inc.
> > http://www.poserglobal.com
> >
> > Gary Funck wrote:
> > >
> > > the US$ made a big move up at the expense of the dmark and jyen Friday,
> > > but the bond was down a little (rates higher). This up-trend in the
> > > US$ has been in place for a while, and the bond is testing the bottom
> > > of its trading range.
> > >
> > > I thought that as the big players moved into dollars, they'd also tend
> > > to buy othe US$ denominated assets like the bonds, or stocks, but
> > > both US bonds and stocks have been looking weak of late. Does that
> > > mean the money is just 'parked' into US$ waiting to be deployed?
> > >
> > > Any ideas on the significance, if any of a stronger dollar, but weaker
> > > bond? Any opinions on the impact on US stocks?
> > >
> > > --
> > > | Gary Funck, Intrepid Technology, gary@xxxxxxxxxxxx, (650) 964-8135
> >
> > --
--
Steven W. Poser, President
Poser Global Market Strategies Inc.
http://www.poserglobal.com
Tel: 201-995-0845
Fax: 201-995-0846
Email: swp@xxxxxxxxxxxxxxx
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