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Mix-Ansicht- House of Credit Cards - peter72, 20.04.2002, 18:36
House of Credit Cards
House of Credit Cards
The American consumer is doing his bit to bring the world out of
recession. Imports (not including oil) surged 4.7% in February. The
slightest sign of a recovery and the consumer breathes a sigh of
relief. Sales of products from abroad were up across the board.
After a recession, imports are supposed to be dropping as a percent
of GDP. Not so this time. Paul Kasriel of Northern Trust used the
term"house of credit cards" to describe the ability of the consumer
to keep this up. As we will see below, I think the signs are that we
will see this slow somewhat
I have written extensively about the assertion by Morgan Stanley
that the trade deficit will widen to 6% of GDP in 2003, which is
clearly unsustainable. In the past, a huge portion of our trade
deficit was covered by foreign companies, mainly European, buying
American assets and companies. A second large portion was foreign
buying of our bonds and stocks. These two sources, especially
mergers and acquisitions, are slowing up.
My contention of the past few months is that the dollar is very
vulnerable. It now looks like that vulnerability is appearing before
our eyes, much sooner than many, including me, expected. Currencies
all over the world, from the Czech Koruna to the Australian Dollar
are beginning to make new highs against the dollar.
It is interesting to watch the responses of various governments.
Asian countries are not happy about this, especially as the Japanese
government continues to work to create a lower yen. This means the
other Asian countries must figure out a way to keep their currency
competitive. Taiwan in particular comes to mind.
Europe, on the other hand, is willing to let the euro rise. Most of
them are content, with the exception of Switzerland, whose central
bank wants the value of the Swiss franc to drop.
I think it is reasonable to assume the dollar will drop 10% against
the euro over the next year, and get back close to parity. But this
currency drop will not be across the board, as Japan in particular
has expressed a determination to lower the value of their currencies
against the dollar. The other Asian tigers have clearly
demonstrated in the past that they will not let their currency
values get too far from a depreciating yen.
(Master Trader Greg Weldon thinks the euro-yen trade is a great
opportunity for commodity traders. I agree. I have a hard time
believing the dollar is going to get much stronger against the Euro
and its related currencies. Another idea you might consider is
shifting some assets to the Euro or its relatives. You can open CDs
in the Euro or other currencies at Everbank right here in the USA.
This link will take you to their information page:
http://www.everbank.com/main.asp?idpage=pro_wc&referID=1511 )
The importance? Normally, a depreciating dollar would make imports
more expensive and thus heat up inflation. But global production
capacity is so high that companies world-wide, and not just those in
the US, have little pricing power. That will help keep a lid on
inflation. Greenspan will keep a close eye on the value of the
dollar, but will not panic.
The Bush administration is likely, in my view, to come to the
conclusion that a slightly weaker dollar policy sooner rather than
later is in our best interest. It makes our exports more
competitive, it will help lower imports somewhat and thus maybe head
off a trade deficit crisis that could loom in 2003-2004. This would
significantly hurt the dollar, slow the economy and giving us
stagflation in 2004, which is not a very god environment in which to
hold a national election.
King Dollar, while not being knocked off the throne, will have to
share power with the euro
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