The twenty-year picture

According to Jim Sinclair, "the euro is a basket of junk and always has been." The Swiss franc is not part of this "basket of junk", so it should fare better than the EUR.

Fundamentals are not improving for the US dollar: U.S. current account gap widens to record $195.1 billion

June 17 (Bloomberg): The current account deficit grew more than expected to a record $195.1 billion from January through March, increasing U.S. dependence on borrowing from abroad to feed Americans' appetite for imports.

Demand for consumer goods helped widen the first-quarter gap from $188.4 billion in the fourth quarter of last year, the Commerce Department in Washington reported recently. The median forecast in a Bloomberg News survey of economists called for a $190 billion gap in the broadest measure of U.S. trade.

The deficit may grow further as the U.S. economy expands faster than those of Western Europe and Japan, and consumers buy more imported clothing, electronic goods and oil. Foreign investors and central banks are financing the gap by about $2 billion a day, through purchases of Treasury bonds, stocks and other securities.

"It's probably going to continue to widen,'' said Jay Bryson, global economist at Wachovia Corp. in Charlotte. ``The concern is that foreigners could decide they're not going to finance it anymore, but we haven't seen that yet. In the long run, it has to be corrected, but that could take a long time.''

The long-term picture

We would certainly not advise going long on the US dollar at this stage. Even if we were faced with a trend-reversal, a correction from this level has to be expected.

Where this correction will end cannot yet be established, but a test of the lows established at year-end will deliver the right answers.

The medium-term picture

Greed and fear are the main reasons why markets go to excesses and there are no fundamental arguments to explain these movements.

This medium-term chart suggests the market has been overbought and that we are at the beginning of a correction of some significance.

While we do not pretend to know whether this is a short-term correction or a general, long-term trend-reversal, we would certainly refrain from buying and a trader may be well advised to go short.

Is the USD still fundamentally overvalued?

We do not think that any of the basic economic imbalances are close to being resolved, such as the huge trade and budget deficits currently carried by the USA.

The present expansion is the longest running expansion on record. It has surpassed all other economic expansions before it. The driving force behind it is the rapid growth of the money supply and the explosion of credit that has accompanied it. Like a drug addict, the U.S. economy has become immune to the supply of money and credit that drives it. It now requires an even greater dose of money expansion and credit to keep it afloat.

JUNE 17: The deficit in the broadest measure of international trade rose to an all-time high of $195.1 billion from January through March of this year as the country sank deeper into debt to Japan, China and other nations.

The dollar may have its ups and downs within the long-term trend but we do not expect any quick reverse in the US dollar's long-term down-trend.

Our recommendations were valid at the time of writing, viz. at

and may no longer hold at the time of reading.

Peter Zihlmann


www.pzim.com
www.timeless-gold.com
investment@pzim.com
forex@pzim.com

June 27, 2005

Disclosure: The author has not been paid to write this article, nor has he received any other inducement to do so. The author is a shareholder in the company and will benefit from any increase in the company's share price. Disclaimer: The author's objective in writing this article is to invoke an interest on the part of potential investors in this stock to the point where they are encouraged to conduct their own further diligent research. Neither the information, nor the opinions expressed should be construed as a solicitation to buy or sell this stock. Investors are recommended to obtain the advice of a qualified investment advisor before entering into any transactions in the stock.