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Hi Ira,
As a matter of fact I trade almost exclusively
currencies and I agree with you that the dollar may have topped. I was bearish
almost since the inception of the Euro (see my article in Barron's magazine date
01-03-2000) but I changed my mind since the Dollar Index broke the uptrend at
117. And the Dollar Index does not tell the whole story because of the
Canadian Dollar and Mexican Pesos weight.
I agree also with you that if there is a major
reversal on the Dollar the consequencies will probably be drastic. The problem
is that any abandonment of the dollar policy could result in a sharp reaction in
markets, which would have severe consequences for the US and the global
economy. A firm exchange rate is vital to retain the confidence of holders
of the vast quantities of dollar deposits around the world. This is nominally
free financing for the US, which is the world's biggest debtor nation, but there
is a price to be paid. The dollar must be regarded as a strong currency.
Otherwise something like $2,000bn of hoarded dollars might go on the move.
Foreign investors would repatriate their assets, the bond market would collapse
with interest rates going through the roof and the stock market would tumble
with chain reaction all over the world.
Once the move is started it will be very difficult
to stop and the situation could soon get out of control.
However, if the situation is bad in the US it may
soon become worst in Europe, but one of the main reason for the Euro
weakness is disapearing: there is only about $18 billions in the pipe line of
European companies buying US companies vs about $130 Billions (if I rememeber
well) last year and it's drying. A flow of direct investment funds out of the
Euro-zone into the US was one of the main problems for the common currency. A
collapse in the volume of corporate deals over the past months has been expected
to help out the Euro.
The rise of the JY looks even more absurd but
Japanese companies may have to liquidate a lot of foreign assets to strenghten
their balance sheets since they will have to mark to the market.
We have being warning of a possible top for the
Euro in our newsletter since July 14th and you can see the archives where we
discuss at length the currencies on our Web site <A
href="http://www.alterama.com/fsearch.htm";>http://www.alterama.com/fsearch.htm
Good evening.
Jean Jacques Chenier
Alternative Asset Management Inc.
<A
href="mailto:JChenier@xxxxxxxxxxxx";>JChenier@xxxxxxxxxxxx
<A
href="http://www.alterama.com";>http://www.alterama.com
----- Original Message -----
From: "Ira Tunik" <<A
href="mailto:irat@xxxxxxxxx";><FONT face=Arial
size=2>irat@xxxxxxxxx>
To: "realtraders" <<A
href="mailto:realtraders@xxxxxxxxxxxxxxx";><FONT face=Arial
size=2>realtraders@xxxxxxxxxxxxxxx<FONT face=Arial
size=2>>
Sent: Wednesday, August 15, 2001 11:32
AM
Subject: [RT] inflation
> Has anyone been following the
currencies? I just took a look for the> first time in months and
have to ask the question, has the dollar> finally topped? If so,
major inflationary pressure will be put on the> billions of dollars of
imports the US takes in every month. If this is> the case we could
be looking at higher, rather then lower interest> rates. Last in,
first out book keeping and higher prices for most> things that are in the
stores. Look at the labels in your cloths, the> electronics you
purchase, etc. and realize even at Nike's wages in> Malaysia our prices
will rise. I believe it is time to keep a close eye> on the
currency markets. If it is the top of the dollar, can a replay> of
1972-74 be far behind. Oil has been at those levels for a
while> now. Just some thoughts for the day. Ira.>
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