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Friday, November 16, 2007

Foreigners Flee US Markets

The latest Treasury International Capital (TIC) data shows that foreigners continue to pull their money out of the US market in September:

Monthly net TIC flows were minus $14.7 billion. Of this, net foreign private flows were negative $27.8 billion, and net foreign official flows were positive $13.1 billion.

This is an improvement over August, when foreigners pulled $69.3 billion out of the US market. Still, it's not good news for broad equities. It should put more downward pressure on the US dollar, which in turn puts upward pressure on gold.

Why are foreigners pulling their money out? Well, other economies are growing much faster than the US, so why not invest your money there? For example, the World Bank has raised its forecasts for China twice this year, predicting Asia's second-largest economy will grow 11.3%. For now, the World Bank is forecasting that the US economy will grow 1.9% this year. Add that to the fact that the US dollar is trending down against most major currencies, and you can see why people might want to put their money to work elsewhere.

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