Dollar Bulls Bears and Bullshit

UBS AG, Deutsche Bank AG and Merrill Lynch & Co., three of the biggest traders in the $1.9 trillion a day currency market, predict the dollar will resume its decline by year-end. Morgan Stanley and Credit Suisse First Boston say they're wrong.

Bulls: Credit Suisse @ $1.17 vs euro and 106 yen per dollar; Morgan Stanley @ $1.26 vs euro, 98 yen per dollar.

Stephen Jen, head of global currency research in London at Morgan Stanley: "Bears should worry less about the current account deficit and more on the slowdown in the Japanese and European economies. Traders are taking the softness of the European economy more and more seriously. The U.S. data is still positive and the U.S has a lot of momentum behind it.''

Lara Rhame, former Fed economist and currency strategist in New York at Credit Suisse First Boston: ``The dollar looks to have found a bottom against the euro and the yen. Interest rates are getting so good, they're getting hard to ignore.''

Bears: Deutsche Bank @ $1.43 vs euro, and 93 yen per dollar; UBS AG @ $1.40 vs euro, and 105 yen per dollar; Merrill Lynch @ $1.36 vs euro.

Alex Patelis, head of G-10 currency strategy in London at Merrill Lynch: ``Higher interest rates can support the currency temporarily, but in the presence of a growing current account deficit we continue to think the dollar will decline.''

Mansoor Mohi-Uddin, head of currency strategy at UBS in London: ``Deficits are still an issue and mean long-term players aren't willing to buy dollars, such as central banks, private clients and asset managers. What we're not seeing is real money going back into the U.S. If we see new flows and new positions in favor of the dollar, this will make us think again about our view.''

Lynch's Patelis has a point, however, Europe's deficit as a percentage of GDP is not far behind the U.S. when the scale of our economy is factored in. I find UBS's Mohi-Uddin's comments most interesting, considering the following data: The monthly U.S. Treasury TIC report issued on March 15 showed foreign investors purchased a net $91.5 billion in Treasury notes, corporate bonds, stocks and other financial assets, in January, up from $60.7 billion in December, a monthly increase of $30 Billion.

January 2005 report: Net foreign purchases of long-term securities were $828.6 billion in the twelve months through January 2005 as compared to $733.1 billion during the twelve months through January 2004, an annual increase of $95 Billion.

January 2004 report: Net foreign purchases of long-term securities were $753.7 billion in the 12-months through January 2004 as compared to $597.2 billion during the twelve months through January 2003, an annual increase of $157 Billion.

Figures for February are published on April 15. FYI: When we hauled Saddam out of his hole, he wasn't hoarding gold or euros, he had 7500 crisp pictures of Ben Franklin. And oh yeah, Mansoor my man, theres an old saying: money talks and bullshit walks.


TIC Treasury International Capital Data Jan 05
TIC Treasury International Capital Data Jan 04

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