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Capital Markets

Bond Outlook December 14th

The USA is not even trying to rebalance the "one-consumer" world economy, but expect a change with profound implications in China's policy from "growth at all costs" to "added value".

Bond Outlook [by bridport & cie, December 14th 2005]

Despite reading and agreeing with much of the GaveKal book as reported last week, we remain what they call "perma-bears" on the US economy and the USD. The reversal of the slide in the USD of recent months, and the strong performance of the US stock markets makes us bears feel like hibernating, a temptation we must, however, resist in the light of long-term trends. Remember, the whole debate is whether low profits but high cash inflows into China (and not just China) will continue to facilitate the high profits but high dollar outflows of the USA.


Here is a sobering figure: remember when the US current account deficit was significantly less than the trade deficit because of higher returns of US investments overseas than returns to foreign investments in the USA? Now the two deficits are about the same at $ 750 billion, but of which net interest costs have reached $200 billion per year and are rising sharply. The net position of foreign ownership of US assets has now reached $2.5

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