Archive for April, 2007


should we worry about the US$ exchange rate?

Thursday 26 April, 2007

Bill Barnhart

Inflation pushing U.S. dollar into foreign territory

Published April 18, 2007

The dollar reached a dubious milestone Tuesday, as a British pound bought more than $2 for the first time in nearly 15 years.

That means you’ll probably hear more British accents in downtown Chicago this summer. Combined with dollar weakness against the euro, it’s too bad for Chicago’s tourism industry that the Olympics won’t be staged here this year.

U.S. investors who hold international mutual funds can count themselves among the winners. Stronger foreign currencies buy more dollar-based investment returns. The iShares United Kingdom exchange-traded fund, for example, is up 7.4 percent this year, compared with a 4.2 percent gain for the iShares S&P 500 index.


mm comment: personally I think buying mutual funds based on currency plays is risky business. My preference would be to find a fund that fits what you’re seeking & if you can benefit from currency appreciation, all the better as a bonus.


Amid uniformly benign financial conditions around the world, traders seeking an edge accentuate every difference between investment factors. On Tuesday, the spotlight fell on inflation; in particular, on the inflation comparison between the United States and Great Britain.

Here, the Labor Department reported that so-called core inflation, not counting food and energy prices, eased last month from strong showings in January and February. On an annual basis, the U.S. consumer price index, including food and energy, is climbing at about a 2.8 percent rate, well below the 3.4 percent rate of a year ago.

Across the pond, the latest British inflation report shows a 3.1 percent rate, the steepest inflation there in 10 years. Inflation comparisons such as these help convince analysts that the Bank of England is more likely to raise interest rates than the U.S. Federal Reserve. Higher rates attract traders into a currency.


mm comment: Again, basing currency buys based on inflation, even core inflation, seems flawed. High inflation leads to higher interest rates, leads to higher borrowing costs, leads to less investment, which results in lower economic returns. Currencies are ultimately based on the performance of a whole economy, not just 1 of its components.


But it is easy to overstate comparisons of routine economic data, which can fluctuate day by day. International Monetary Fund statistics indicate that inflation is under control in all major countries.

Here are a few examples. Inflation in Australia declined to an estimated 2.8 percent this year from 4.5 percent in 2000. Inflation in Ireland eased to an estimated 2.4 percent this year from 5.2 percent in 2000. IMF forecasts for 2008 show inflation edging higher in several countries, including the United States, but there is no sign of serious inflation anywhere among the world’s major trading partners.

The persistent weakness of the dollar must reflect something else. John Brady, senior vice president at Man Financial, said the principal difference is economic growth.

“We are in a global deflationary environment, and because the U.S. imports so much, especially in terms of labor costs, the trend is being maintained,” he said.

Wage inflation is absent in most of the world, he said. On the other hand, “the tone and structure of European growth is impressive,” he said.

Brady said petrodollars from the Middle East are being recycled to Europe and Britain, not to the U.S.

“Some of that may be a political statement; some of it may not be,” he said. But “that explains the strength of their currencies and helps explain the differentials in interest rates.”

The money supply is booming in Europe, Brady said.

“You’re seeing a lot more investment going into Europe,” he said. “The European money supply figures have shown tremendous velocity.”


WTO charges against IP protection in China

Tuesday 10 April, 2007

U.S. to file 2 China trade cases
Copyright piracy, sales barriers alleged

Associated Press
Published April 10, 2007

WASHINGTON — The Bush administration announced Monday that it is filing two new trade cases against China over copyright piracy and restrictions on the sale of American movies, music and books in that country.

The action, announced by U.S. Trade Representative Susan Schwab, represented the latest move by the administration to respond to growing political pressure at home to do something about soaring U.S. trade deficits.

Schwab said the U.S. was filing with the World Trade Organization a case that will challenge Beijing’s lax enforcement of violations of copyrights and trademarks on a wide range of products. American companies contend they are losing billions of dollars in sales because of rampant copyright piracy.

The second case will challenge China’s barriers to the sale of U.S.-produced movies, music and books.

“Piracy and counterfeiting levels in China remain unacceptably high,” Schwab said. “Inadequate protection of intellectual-property rights in China costs U.S. firms and workers billions of dollars each year.”

The two new cases represent the latest effort by the administration to increase pressure on China now that Democrats, many highly critical of China’s trade practices, have won control of the House and the Senate.

The U.S. trade deficit set a record for a fifth consecutive year in 2006, at $765.3 billion, with the imbalance with China climbing to $232.5 billion, the highest ever recorded with a single country.

In late March, the administration announced it was imposing penalty tariffs on Chinese glossy paper imports in a case that broke a 23-year precedent that had barred U.S. companies from seeking protection from unfair subsidies provided by the Chinese government.

In February, Schwab announced the administration was bringing a WTO case against China on the government subsidy issue.

The decision to go to the WTO with the two new trade cases will trigger a 60-day consultation period during which trade negotiators from both countries will try to resolve the two disputes. If that fails, WTO hearing panels would be convened. If the U.S. wins the cases, it would be allowed to impose economic sanctions on Chinese products.

In a statement, the Motion Picture Association of America said American industries lost an estimated $2.3 billion in revenue to copyright pirates in China in 2005, with only one out of every 10 DVDs sold in China a legal copy.

m2 comment: many chinese are very poor, & thus would never be able to pay western market prices for copyrighted, trademarked, & patented western goods. Thus the $2.3 billion figure is specious because given the choice of paying full price & not buying at all, many would have to decline since they simply can’t afford it.

“China is, by virtually any and every measure, the world’s largest marketplace for pirated goods,” said the association’s chairman, Dan Glickman.

Mitch Bainwol, chairman of the Recording Industry Association of America, said his industry welcomed the administration’s decision to file the WTO cases.

“The theft of music is pervasive in China and takes place virtually without meaningful consequence,” he said.


Deutsche Telecom opens up a little bit to competitors

Tuesday 3 April, 2007

Watchdog says D.Telekom to grant network access

FRANKFURT, April 3 (Reuters) – Deutsche Telekom (DTEGn.DE: Quote, Profile, Research) is set to suffer another blow as Germany’s telecoms regulator plans to obligate the former state monopoly to grant rivals access to its network cables.

The decision by Bundesnetzagentur, due to be published on Wednesday and seen by Reuters, will enable rivals to lay their own cables to reach customers using Deutsche Telekom infrastructure, as the incumbent operator rolls out its new super-fast broadband network. In areas where they can not lay cables, rivals will be granted access to Deutsche Telekom’s fibre-optic network.

Deutsche Telekom and Bundesnetzagentur declined to comment.

Currently, Deutsche Telekom charges rivals a monthly fee to use its copper wires from phone exchanges into homes and businesses.

Last week the regulator cut the monthly price the dominant phone carrier can charge competitors by 1.4 percent, while Deutsche Telekom had hoped for an increase, arguing it had to compensate for high staff costs.

M2 comment: it would be nice to know how much DT charges competitors. Cutting it 1.4% could be a little or a lot, depending on the scope. It still sounds like a regulated utility by arguing for justification of high staff costs.

Deutsche Telekom is struggling to fight a drain of customers switching to smaller, cheaper rivals. It issued a second profit warning within six months in January, due to competition and regulation.

The company, Europe’s largest telecoms group by sales, hopes to lure back customers with better service and new products on its new 3 billion-euro super-fast VDSL broadband network.It wants VDSL to be exempt from regulation, arguing it needs to negotiate access and prices with rivals on its own to recoup its investment.

Deutsche Telekom has threatened not to expand VDSL further should it fall under regulation.

But the telecoms watchdog has said unless the company can prove it is offering new products not accessible without the new network, VDSL will be subject to regulation.

Competitors have demanded access to the VDSL network from local exchanges, similar to renting the last mile. Alternatively they have said they could access Deutsche Telekom’s infrastructure into homes and install their own fibre-optic cables.

“If things work out that way, we will be satisfied,” said a spokesman for the Federal Association for Broadband Communication (Breko).