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Fed Cut May Come Before Oct 29
The Swiss Franc outperform the yen as forex traders seek refuge to the least risky currency on soaring LIBOR rates, weak US data, GE earnings downgrade and rising odds of a Fed cut.
The eventual passing of the US Treasury/Congress rescue package will surely trigger an initial rally in US stocks and reaccelerate carry trades at the expense of the yen. But the million dollar question is FOR HOW LONG? later this week , we'll get the ADP private jobs data (Wed), followed by the big US JOBS REPORT on Friday, which is expected to show a drop of at least 100K. There's also the ISM on Wed. Can we imagine the market reaction to this reports? Ive said many times and Ill say it again: THE RESCUE PACKAGE IS NOT AN ANTITODE TO THE SLUMPING ECONOMY. It ONLY relieves banks of their debt burden over the LONG TERM. So, any resuling yen decline from the rescue announcement is likely to be a good buying opprtunity.
I expect this bailout (whenever its passed) to have an inflationary,optimistic reaction in the equity markets, however, i don't know, expect for JPY, how high yielding currencies will react to this news. I would be a dollar bear, however, will the "carry traders" that unwound the last two months will try to reestablish themselves with more yen carry trades?
3 months ago, people used the same argument you make; rates are too low and any more rate cuts spur further inflation. people's (and the Fed's) priorities were way off. Ive warned all along that as the credit market stress turns to turmoil and a standstill in banking confidence, the already weak economy will take a deeper hit, in which case, DOWNSIDE RISKS WILL OVERWHELM UPWARD PRICE PRESSURES and there goes away inflation. And this is exactly what's happening. inflation is DOWN and economic contraction is HERE. The Fed must make a shock slashing of interest rates, rather than over $1trillion in liquidty injections since summer 2007.
And by the way, did you kno that in 2003, Fed cut rates to 1.00%. Things were nowhere as bad as now and now rates are 2.00%.
Hope this clarifies it.
Other notes: Is AUD/JPY forming an ascending triangle pattern on an uptrend move?
Futures magazine can be found in most bookstores in the US, but not sure about Dublin. The shorter version of this can be found on this site in articles 2 weeks ago TITLE: "implications of gold rise relative to oil". There's more extensive analysis about this subject (gold vs oil) and the relationship between equities and commodities in my book in Chapters 6, 8 and 9. See Table of Contents in book section of this site.
Where can I access your Futures magaizne? Is this paid service?
Regards
It depends what commodities we're talking about. as i argued often in this site and in this month's Futures magazine, gold will OUTPERFORM oil, as a result of prolonged central bank easing from US and other nations. Oil may remain weak but not fall off a cliff. Copper will be supported by improved demand and prolonged supply problems in Peru and Chile. As for food and agriculture, world demand will continue as the global slowdown varies around the globe. Eurozone, UK and Asia may slow, but the latter is surviving on intraregion trade. Commodities' overall rally has yet another 5-6 years according to historical cycles.
thanks