Tuesday, May 22, 2007

US Dollar and US Assets


The first chart you see above this post appeared in Floyd Norris' column "Off the Charts" in the Saturday, May 19 edition of the New York Times. Norris observed that Americans are now purchasing foreign long term assets at a record rate. This remains true even if one adjusts the numbers you see above for the growth in US GDP since 1993, the last time a peak in purchases of foreign assets occurred.
What are we to make of this? I am relentlessly bullish on the prospects for US economic growth vis a vis the rest of the world over the next 5-20 years. Obviously my long term views are not currently shared by many of my countrymen. But I feel quite comfortable holding the minority view on this matter. I think the numbers you see above are telling us that we are seeing an extreme in pessimism about the US dollar and about US dollar denominated assesets in general.
The second chart you see above this post is a monthly chart of the US Dollar index. The last time we saw such levesl of pessimism about the prospects for dollar denominated assets was in the early 1990's. Then the dollar index was trading at levels similar to those we see today.
I conclude from this that dollar denominated assets will outperform foreign currency assets for the next 5 years at least. Sell your estate on the Riviera and buy in Palm Springs. Moreover, US stocks will be at the top of the world performance charts, adjusted for currency fluctuations, for the next 5-10 years.


1 comment:

Babak said...

Carl,
yup, tha's what fund flows tea leaves are saying. I just wrote about this too (I guess great minds think alike! lol)