Comments on: Warren Buffett Fears Foreign Ownership … http://capital-flow-analysis.com/capital-flow-watch/warren-buffett-fears-foreign-ownership.html Predicting markets with flow of funds ... Sun, 05 Jul 2009 00:39:53 +0000 http://wordpress.org/?v=2.0.2 by: John Schroy http://capital-flow-analysis.com/capital-flow-watch/warren-buffett-fears-foreign-ownership.html#comment-36131 Sun, 28 Jun 2009 07:26:04 +0000 http://capital-flow-analysis.com/capital-flow-watch/warren-buffett-fears-foreign-ownership.html#comment-36131 <p>Hi Ethan,</p> <p>There is no question that foreign investors are put off by the growing US trade deficit. However, the deficit, in my opinion, is not caused so much by foreign investors eager to invest in the US, but rather by foreign exporters eager to keep their factories running.</p> <p>The Chinese investors may indeed have become increasingly disillusioned with the dollar over the period you mention. However, this has not kept Chinese exporters from selling ever more goods to the US in exchange for dollars.</p> <p>In Q1 2009, when the US dollar was definitely in bad odor with foreign investors, and new investment in US financial assets fell over 90%, the trade deficit continued to grow. In other words, it was better to accept dollars and keep factories running at the highest level possible, than to refuse to accept dollars and fire workers.</p> Hi Ethan,

There is no question that foreign investors are put off by the growing US trade deficit. However, the deficit, in my opinion, is not caused so much by foreign investors eager to invest in the US, but rather by foreign exporters eager to keep their factories running.

The Chinese investors may indeed have become increasingly disillusioned with the dollar over the period you mention. However, this has not kept Chinese exporters from selling ever more goods to the US in exchange for dollars.

In Q1 2009, when the US dollar was definitely in bad odor with foreign investors, and new investment in US financial assets fell over 90%, the trade deficit continued to grow. In other words, it was better to accept dollars and keep factories running at the highest level possible, than to refuse to accept dollars and fire workers.

]]> by: Ethan http://capital-flow-analysis.com/capital-flow-watch/warren-buffett-fears-foreign-ownership.html#comment-29349 Mon, 03 Nov 2008 15:13:43 +0000 http://capital-flow-analysis.com/capital-flow-watch/warren-buffett-fears-foreign-ownership.html#comment-29349 <p>It is the author, not Buffet that doesn't understand the situation. The underlying assumption is that foreigners have a "willingness" to accept USD and that this "willingness" will go on indefinitely. Is this really the case? As the world is flushed with dollars, its value drops - we've seen strong evidence of this in the past decade. As dollars' value drop, foreigners "willingness" to invest in dollar denominated instruments will also fall. I've worked in China for the past 7 years, and let me tell you that enthusiasm in dollar denominated investments has decreased dramatically. If enthusiasm for the dollar drops, then where how would Treasury issue more dollars to fund its debt? In the past 37 years, the Treasury was able to keep this unhealthy situation from collapsing because of foreign enthusiasm. Given political-economical climate change, this enthusiasm is not guaranteed and if the falling dollar tells us anything, it is indeed weakening. Sure, the Treasury can just keep "printing money" to pay debt, but without enthusiasm for the dollar from foreign parties, this will need to rampant unsustainable inflation - which is a deep concern because of globalization. Use some common sense, anybody with a half a brain would smell something fishy about being able to continually borrow money without ever having to pay it back...just because the US was able to maintain this situation because of "enthusiasm" in dollar investments in the past doesn't mean it can (and in my opinion, it definitely will not be able to) in the future! Warren Buffet knows what he is talking about...</p> It is the author, not Buffet that doesn’t understand the situation. The underlying assumption is that foreigners have a “willingness” to accept USD and that this “willingness” will go on indefinitely. Is this really the case? As the world is flushed with dollars, its value drops - we’ve seen strong evidence of this in the past decade. As dollars’ value drop, foreigners “willingness” to invest in dollar denominated instruments will also fall. I’ve worked in China for the past 7 years, and let me tell you that enthusiasm in dollar denominated investments has decreased dramatically. If enthusiasm for the dollar drops, then where how would Treasury issue more dollars to fund its debt? In the past 37 years, the Treasury was able to keep this unhealthy situation from collapsing because of foreign enthusiasm. Given political-economical climate change, this enthusiasm is not guaranteed and if the falling dollar tells us anything, it is indeed weakening. Sure, the Treasury can just keep “printing money” to pay debt, but without enthusiasm for the dollar from foreign parties, this will need to rampant unsustainable inflation - which is a deep concern because of globalization. Use some common sense, anybody with a half a brain would smell something fishy about being able to continually borrow money without ever having to pay it back…just because the US was able to maintain this situation because of “enthusiasm” in dollar investments in the past doesn’t mean it can (and in my opinion, it definitely will not be able to) in the future! Warren Buffet knows what he is talking about…

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