Dear CIGAs,

Now that we are being instructed on how to value currencies, it strikes me as important to review what the basics are and will in final analysis be the means of currency valuation.

When all the Spin is spun and push comes to shove, currency will be valued in a manner that is best explained by the comparison between the nature of the US dollar and a common share of stock.

The following points, well understood, will make you a currency expert by today’s standards. Who knows, maybe Bloomberg will ask you to become a talking head.

• The US dollar is the common share of USA Inc.
• The value of the US dollar versus other currencies will be determined exactly as one would analyze the share of an operating public company.
• Interest rates determined by Federal Reserve actions are looked upon as the dividend paid by the public company USA Inc.
• Earnings are defined as the Balance of Trade for the operating company, USA Inc.
• As reputation of management is a factor in selecting the common shares of an operating company, it is therefore true that this is one of the characteristics of valuation for the common shares of USA Inc.
• The release of US Federal Budget figures is akin to the release of corporate estimates of performance in the coming fiscal year. The US Federal Budget also speaks to the reputation of management’s ability to manage the business of USA Inc effectively.
• The Treasury International Capital Flow Report represents the inflow of buying or selling by international hedge funds.
• The Current Account Balance is considered the breakdown of the long term volume of USA Inc., traded into buying volume and selling volume resulting in an on balance buying or selling power technical analysis tool

This new spin concept of comparing relative business activity in different trading areas in different sized markets means the on balance business activity would have to be corrected to a measure of similar sized markets in order to give a valid and meaningful comparison.

Regardless of the silly nature of the suggestion that comparative economic activity is the major, if not singular, determinant of currency value, we will deal with what people believe until they see how wrong it is.