I was recently vacationing in London when the U.S. dollar suddenly turned peppier. My leaving America, I can assure you, had absolutely nothing to do with it. Chalk it up to a combination of things - namely the U.S. Treasury's announcements that it would fatten the size of its gold sales, reports of the administration's intent to take a series of actions to bolster the buck, and a renewed expression of confidence in the ailing currency from Prince Fahd of Saudi Arabia. Since London houses the world's largest foreign exchange market - about $50 billion of every imaginable currency are traded there each day - I decided to mix in a bit of business by interviewing Geoffrey Munn, one of England's leading currency traders. Perhaps, I thought, I'd find some renewed foreign enthusiasm or maybe even talk of a comeback for the dollar, which has over the last twenty months tumbled roughly thirty percent against the world's major currencies.
Fool that I was, I should have spent more time instead at Westminster Abbey. I found myself, in London, racing through my traveler's checks - doing out $4.20 for a breafast of juice, coffee, and rolis; $6.10 for a roast beef and tomato sandwich; and $1 for an ice-cream cone from a street vendor. So the last thing I wanted to hear - which is precisely what Munn told me - was that my sinking dollar would soon be worth even less. His words weren't nearly as grim as the images I spotted in the chamber of horrows at Madame Tussaud's wax museum. But they were frightening enough - especially when he characterized the dollar as probably the most overpriced and vulnerable currency in the world today despite its sharp decline.
Often, the erratic American stock marget travels the same route as the American greenback. Accordingly, Munn's gloomy assesment of the dollar - which took another drubbing as we went to press in the wake of a big jump in July in the U.S. trade deficit - should be of particular interest to investors. At the very least, his credentials earn him a respectful hearing. A currency trader for the last eighteen years, the gray-haired, strapping six footer directs a nine-man currency-trading team at Morgan Grenfell & Company Ltd., London's fifth-largest merchant bank (one third of which is owned by Morgan Guaranty Trust, its largest shareholder). And Munn's group is right in the thick of the action - trading about $250 million in currencies every working day, or over an astronomical $1 billion each week, for major UK corporations and the bank itself.
During tea for two in a large, somber-looking conference room, the forty-four-year-old Munn told me: "I have the greatest problem imagining the U.S. administration doing anything to revitalize the dollar for any length of time. They've tried and nothing work . . . and now the bag of tricks is empty." That bag of tricks includes the Treasury's announcement of gold sales and Federal Reserve chief G. William Miller's jawboning of the Fed's support of the dollar, which, says Munn, offer little more than a psychological uplift for the greenback. Munn thinks the same way about the recent easing of bank reserve requirements on overseas borrowings. And he has a similar view of the possibility that the United States may draw on its reserve in the International Monetary Fund to prop up the dollar in the foreign exchange market.
Such actions or ones like them are fairly thin, tenuous at best, says Munn, who argues that the real key to creating a period of sustained buoyancy for the dollar is a genuine, tough energy bill that provides meaningful conservation. But that's not going to happen, he says, because it's politically unpopular - even though the United States spends an alarming $45 billion a year on oil imports. It's the world's opinion that the U.S. should consume less - but it isn't expected to. And the dollar's continued weakness Munn, is telling you that the world doesn't believe Carter can get a bill with teeth through Congress.
The subject of the United States energy consumption is apparently a sore point with Munn - so much so that he suddenly declared: "I'm going to be rude. Americans are just very extravagant, and it will take them years, maybe a couple of generations, before they conserve on anything. They learn from birth that everything is plentiful . . . and it's not very expensive. So how can you ask them to conserve on energy? In America, you have freezing temperatures, a raging blizzard outside, and eighty degrees inside. So you lower the thermostat to sixty-five. To hell with that nonsense. Every European would understand how ludicrous that is, but Americans just smile when you tell them that. And then they cry about rising energy prices . . ."
The course of energy prices in Munn's mind, may well provide the next most important test of the dollar's stability, and it could come as early as September 19. That's the day the Organization of Petroleum Exporting Countries (OPEC) meets to talk about energy prices. Although he thinks Saudi Arabia, the world's biggest oil producer, has enough clout to hold off its more militant members from pushing through a price hike, Munn believes the days are numbered for the maintenance of oil prices at current levels. The chief reason, of course, the dollar's sharp depreciation. As such, Munn believes a five-percent price hike from OPEC - which meets again in December - is a possibility before year-end 1978. And that, he adds, would obviously produce renewed pressure on the dollar.
Aside from the United States' inability to enact an energy bill. Munn sees continued pressue on the dollar from our enormous $25-billion trade deficit. Pointing to a $10-billion inflow from abroad - mostly from the Kuwaitis and the Saudis (primarily in short-term Treasury notes) - Munn observes that this leaves about $15 billion worldwide that nobody wants. Or sheer fundamentals alone, he says, that means the dollar rising U.S. inlation versus a decline in Japan and most European countries and the alarming preference of many Americans for certian foreign-made goods such as cameras and televisions.
In currency trading, as Munn explains it, "we look at everything short term, and short term could be one or two minutes." Thus, it's the mood of the moment that counts.
And with that thought, Munn - who sees the buck dropping at least another five percent or so over the next three to six months - addressed himself to another significant dollar depressant. He related it as a story that's making the rounds in European financial circles. A group of Swiss bankers, so the story goes, met with Carter at the White House. At that meeting, Carter is supposed to have said: "If I wasn't President, I'd buy Wall Street hard." To which one banker replied: "Mr. President, if you weren't President, so would I."
"And that I think," says Munn, "sums up the level of confidence in Carter of most people outside the United States."
If one were to judge from the latest U.S. polls, it may well be that most Americans feel the same way.