EU Economy Slowing

[Mike]

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This was taken from wire reports on the St. Paul Pioneer Press' website... and would pose a problem for the I-fund, weak dollar or no weak dollar.
EU economy slowing

Growth in the euro-zone economy slowed sharply in the third quarter, led by weaker-than-expected results in France and Germany, and is expected to remain sluggish in the next six months, according to data released Friday. The European Union's statistics agency showed that the economy of the 12 nations using the common currency grew by 0.3 percent from the second quarter, and by 1.9 percent from the same period in 2003. The figures were below most economists' expectations for gains of 0.4 percent and 2.0 percent. This marks a significant slowdown in activity from the second quarter, when gross domestic product expanded by 0.5 percent on the quarter and by 2.0 percent on the year.

 

[coolhand]

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I read the same thing somewhere else. The question is at what point might we see trouble in the "I" fund? I don't think the strengthwe saw this week is due entirely to the exchange rate of the dollar. Also, our exposure to France and Germany's economies is about 17% of the total "I" fund. Is that enough to offset strength in other areas? It appears we are going to continue our policy of benign neglect of the dollar, which continues putting pressure on overseas markets.

For me it is a day-to-day call. How overseas economies react to their individual situations will determine how to play this. I think any pull-back will be slow if things start to falter. I'm hoping it looks good for another month or so, but like I said its day-to-day.

There is a lot of liquidityoverseas. I suspect a lot of that money is going to find its way into our own equities. At some point I do think those of us playing the "I" fund will want to reduce our exposure. Especially as our interest rates rise (meaning we attract more overseas money)

I also heard someone on MSNBC yesterday say that the fed may not raise rates too much as it could eventuallyslow downour own economy. We want to continue to attract global investors, but at the same time not slow down the train. How do you see it?

 

[Mike]

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If I still had I-fund shares, I'dsell them at the first sign of weakness. They are very spendy shares right now.

Long term, our interest rates will climb one way or another. With our deficit and debt, it's inevitable (to finance that, the gov't has to attract buyers for its bonds/securities, which means higher interest rates at some point).

 

[Show-me]

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I too have read similar news reports. Here are a few link in the same subject area, theI fund.

I have also read reports that manyanalyst believe that the current administration is not concerned with the weak dollar because it would hopefully increase exports. This would be great for the C Fund. Large companies with marketing networks in overseas countries would benefit. TheStar.com in Canada is complaining about layoffs due to the strong Canadian dollar. I read another report where the "Canadian Hollywood" is offering discounts/rebates to keep US movie studios in Canada. UK markets have reach record highs. France and German finance ministers complaining about our deficits and tax cuts. Sound like we might be in the drivers seat and they don't like it. What's new there! All of these overseas news reports arereally complaining that the weak dollar is going to take jobs away from them.

S Fund companies can export goods also. Can't they? Soooo, if rising interest rates hurt SFund companies. Can a weak dollar help offset this by making there goods cheaper to foreign markets?

http://quote.bloomberg.com/apps/news?pid=10000006&sid=a_GD0HbCUPDs&refer=home

http://www.forbes.com/business/healthcare/feeds/ap/2004/11/13/ap1652837.html

http://yahoo.reuters.com/financeQuoteCompanyNewsArticle.jhtml?duid=mtfh54108_2004-11-12_09-24-05_t196770_newsml

``The eurozone economy has slowed much more than expected in the third quarter,'' said Bob Maes, a fixed-income analyst at KBC Bank NV in Brussels. ``The market is reinstating its bullish sentiment.''

The euro's rise over the past few months threatens economic growth in Europe by making products from the Continent more expensive in dollars - a particular risk for Germany's export-driven economy, recovering from three years of stagnation.


TOKYO, Nov 12 (Reuters) - Economic growth in Japan virtually ground to a halt in the July-September quarter as a slowdown in global demand choked its export-reliant recovery

TheStar.com Canada
[font="Times, Times New Roman, Serif, MS Serif"]As consumers, we all cheer Canada's rising dollar. But as workers, the soaring loonie gives us reason to bite our nails. That strong 80-cent-plus dollar won't whisk us to Florida if we've just lost our jobs.[/font]

 

[coolhand]

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I believe a driving factor in all this is our military operations in Iraq and Afganistan. I don't think our governmentgot the support (military and monetary) they were looking for and so we have taken on a much larger cost burden, which has largely contributed to our huge budget deficit. This problem is not going away any time soon. German finance ministers as well as other foreign finance ministers are saying that we must reduce our deficits to strengthen our dollar. That can be done if we increase taxes, but I don't think the president is about to do that.

In order for us to continue to shoulder such a large burden we have to attract overseas currency.

Mike - your right when you say we must raise interest ratesto attract more funding. And I think we will. I also believe we will continue to put pressure on overseas markets by neglecting the dollar too. But this is a balancing act. As we continue to increase interest rates, we will eventually slow downour owneconomy. We do have room here though.

There is a meeting at the end of this week between a number of global finance ministers (I think). The subject of a weak dollar will almost certainly come up. I have my eye on that meeting. I also will be watching to see what the fed does in December as far as interest rates go. I think the market expects to see an increase.

Show-me - thanks for the links. It really is hard to know how all this will play out.

I still like the "I" fund for now, but Ihave my parachute on just in case .

 

[Show-me]

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Again, I agree Coolhand. We have not seen a pullback yet in any Fund. I will play all three. The C Fund is the better "long term" inmy opinion. Disclaimer: I'm a amateur nobody listen to me. Make your own decisionsbase on information. NOT OPINION!

 

[tsptalk]

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coolhand wrote:

I love that.

 

[clester]

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Remember the I fund has a variety of countries, but the top holding is BP (in the FTSE), the HSBC holdings ( a multinational bank taded in FTSE, CAC, and in hong kong), the GLAXOSMITHKLINE a pharma co. (FTSE).

So the FTSE (UK) has the most influence. Although the chart for FTSE and EFA (I fund) don't correspond exactly.

The Chart for I still looks good. I'm playing the trends now and all stock funds look good. I'm still 33% c, 33% S, and 34% I. I'll stay that way till some tecmicals change (like moving avg's)

Got my fingers crossed.