January 27, 2004

Davos Postcard

David Ignatius:

"Top U.S. business leaders here said they can feel the muscle tone of the global economy firming, based on their order books. John Chambers, chief executive of Cisco Systems, said the weaker dollar only made Cisco's products more competitive abroad. Carly Fiorina, the CEO of Hewlett-Packard, said that while her company had operations around the world, the weaker dollar wouldn't do it any harm.

The only Americans who seem unhappy with the reviving economy (other than the Democratic presidential candidates) are short-sellers who have bet that with its spendthrift trade and budget deficits, the United States' stock and bond markets would inevitably decline.

"It's a squeeze play," said a man who for years ran the currency trading operations at a giant investment bank. He argued that the Bush administration was pumping so much money into U.S. corporations through its war spending and other fiscal measures that their profits will keep soaring -- and Wall Street will keep rising despite the weak macroeconomic fundamentals."

That's probably about right. Check out this article on U.S. budget deficit forecasts too.

But, as is often the case, the Euro-outlook is considerably gloomier:

"Contemplating all this bullish talk about the U.S. economy, a top European financial official was scratching his head. If European economies were facing trade and budget deficits like those in the United States, coupled with a sharply declining currency, European investors would be jumping out the windows. But for America, all news is good news.

Euro-pessimism was a common theme here. One British economist predicted that a strong euro, coupled with the continuing structural rigidities of the European economy, would produce "a decade of stagnation in Europe," worse than what happened in Japan after its bubble economy burst."

Meanwhile, ECB Chief Trichet enunciates a policy of, er, let's call it constructive ambiguity (read: Paris and Berlin can burst the budget deficit ceilings whenever they so desire) regarding the all but dead stability pact.

Note too that the Chinese are hugely bullish on the remnibi going forward:

"The one thing few here seemed to doubt was that China's economic power will someday rival that of the United States. I asked one Chinese investor whether he thought the dollar would remain the world's reserve currency 50 years from now. "Of course not," he said. "The reserve currency will be Chinese."

Posted by Gregory at January 27, 2004 11:54 AM
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