"there is a palpable sense of frustration"

April 11, 2005

Hello,

One of the trends (increasing oil prices, low inflation, low interest rates and a declining dollar) I spoke several weeks ago has made what seems to be a fundamental shift in the direction of its movement. Ever since the Condi and then the Presidential visit to Europe and many of the Europeans squawked about how the declining dollar had impinged on their ability to do trade with the rest of the world. The dollar has miraculously switched direction and slowly trended up ward. But what about the trade deficit, the budget deficit and the Iraq war you say. The truth is and always was that the decline in the dollar had nothing to do with the rest of the world passing judgment on the fate of America and the American economy. The declining dollar was a function of the liquidity the Federal Reserve (the FED) had flooded the US economy to deter deflationary pressures put on by the bursting technology bubble market meltdown and the shock of 9/11. What does this mean for investors, well at first we may see some declines in oil prices .Some exporters like steel or autos may be negatively impacted because their products may be more expensive on world markets. Agricultural products and Consumer brands may also be also be negatively affected. Many of the gains made in the last couple of years by investing in overseas markets came because the dollar declined therefore increasing the earning in dollar terms. These gains may now be few and far between .Traditionally small caps stocks have out preformed their bigger brothers during periods of a strengthening dollar. My guess is also the domestic energy companies (coal) may do well because their product becomes more valuable yet the stronger dollar gives them more purchasing power for plant and equipment. Some financials may do better also, as long as the interest rate trend doses not accelerate .As with every trend there are short term and long term effects. Lower oil prices in my view are a very short term effect and in my view a buying opportunity. The fighting season seems to be upon us. So oil looks to move higher shortly. Some exporters may have temporary windfall profits until the higher dollar takes it effect. However in the long run exports may be hurt by the higher cost of US goods to their end consumer.



James

Don’t forget IRA contributions for 2004 are due when you submit your taxes.

Note: for some reason on Tuesday April 12, any message left on my cell was not received by me till 6:00 at night, lost in cyberspace I guess? Don’t feel ignored as a well trained Financial Professional I will return your calls shortly.

1(888)599-1188