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Falling Equities Still Key for Dollar
Intermarket analysis set-up still suggests that fresh equity selling remains the only source of support for the US currency.
The ideas you present are really interesting. I would like to add another dimension to them by adding my perspective from business point of view.
I have great doubts about any green shoots and i have some doubt about having the worst behind us.
I lived in the US until DEC 08 where i owned retail business. Due to the recession/depression in the US, I left in Dec 08 to Venezuela. When i first arrived in Venezuela, it felt like anything but a recession going around the world. Business was excellent!!
However, it is only in the last couple of months that business owners started complaining about business getting slower. Business owners are now saying that June was the worst they've seen in long time, if ever. Major importers form china, located in Panama free zone and export to all latin america, are expecting things to get worse. Major exporting offices in China are painting a very bleak picture going forward.
I realize that many countries are indulging in QE, but each of those countries, except china, have a broken system that QE is barely keeping it together. As for the chinese stimulus, it would be a joke to assume that it could make up for the loss of US and European consumers that world has been, and still, dependent on. An exception for the US and European consumers, real estate bubbles throughout many countries have supported local consumers, but we all know what happened and still happening to those bubbles.
Furthermore, we are seeing the savings rate in the US going up really fast. I can see this happening all around the world even in countries with high savings rates such as emerging economies. People in emerging countries are not going to start spending more than they used to, while seeing all the problems happening in the developed countries. Talking to people from emerging economies I sense how worried they are. They assume that if countries such as US are facing such dire problems, then things are going to get worse for them. Even if that wasn't true, you can imagine how such a psychological factor could affect their spending habits.
Thus, even if we assume that the financial system has surpassed its worst phase, there is a lot of adjustment that needs to happen around the world, and as a result, the least I could say about the road ahead is that if things are not going to get worse, they are not going to get better any time soon.
Slaiman
Ashraf
bought your both books, congratulation on great work.
Regarding your multistrategy comments below, would you care to elaborate more in form of extra article/series of articles/addition to your workbook?
Petr
but circumstances are somewhat different pre-QE.
an issue that could bring a bout a retest are:
shock interest rates increases led by sell off in US government bonds by speculators and investors. this could happen if investors fear a collpase in dollar or sharply revise their inflation expectations.
we cannot judge inflation expectations by oil prices, as even if they sky rocket for speculative or fundamental reasons, consumers may allocate smaller budget for discretionary spending thus we may just get energy inflation and not broad increases. this is especially true if there is wage deflation and falling house prices.
i wont go in to details as to how this could completely mess up markets but it is rather obvious.
Ashraf
A retest of 3600-3700 unlikely (bar a disastrous failing or default), 'IF' we do, it will meet with a fierce rebound(triple low retest). If you draw another trend line from the oct '87 'crash' we should be at about 4850-5000, i reiterate i am bearish, but when you get a stimulus package this big this world wide, it's funny just how cautiously optimistic the markets have been.