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Economic Review |
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12/15/08 Does the market smell some increased uncertainty and a general problem with all this bailout money? All eyes have been on the plight of US Stocks and hopes that they will somehow break out on the upside to alleviate some of the devastating losses posted so far this year. The greatest hope in the near term is a robust bailout package for the US Auto industry. But something outside of Stocks appears to be pricing in increased uncertainty in the marketplace and a general warning resulting from the exuberant bailout money being thrown at all the problems in the economy. This market is the foreign exchange market. As the Doc has been asserting for some time now, the US$ has simply been overvalued via the EURO at the 1.2500 level. Well, last week the Greenback finally gave back a serious chunk of recent gains to the EURO currency, bringing it over the 1.3300 mark. So why the losses for the Greenback? First of all, take a look at US short term rates, which are almost negative (lets not even talk about real rates). The US current account deficit, not to mention overall debt due to ongoing bailouts, are simply at alarming levels. This is in light of a change in administration with an economy whose consumers are significantly leveraged in a rising unemployment environment. At some point markets adjust in a big way…keep an eye on the US$, we may just be gettin warmed up !!
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| Stephan Kudyba (MBA, PhD) THE MARKET DOCTOR |
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