I'd be willing to bet that the USD is set for further falls against the Japanese yen in the coming months. All that Fed pump-priming has placed solid support under the stock market, no doubt raising confidence in the business-end of the US market. The problem of course is the continuing rise in unemployment and the decline in retail sales. We might ask whether the market is anticipating a recovery, or some sustainability in the equities market. I think there is little prospect of that. The USD and equities are likely to weaken, however it will not be a total collapse since there is no significant inflation in the market yet, and a little bit of inflation works wonders for balance sheets.For the reasons above, I am expecting the USD to fall back to 87 yen over the next 6 months, thereafter I would expect to see some strengthening in the USD as property prices are perceived to have bottomed, and interest rates are raised to boost savings. Expect energy taxes in the US at this point to improve the US budget deficit. The weak USD will of course help offset the 'below the line' deterioration in US export competitiveness. At this point I don't see a fall to the Y80 mark, as occurred a number of years ago (see earlier posts), though I leave an open mind on this point. A short-lived fall to Y80 is possible. I actually don't regard this correction (recession) as an end to the bull market. I think the derivatives market will take the global economy to new highs until the derivatives market ultimately collapses in 10-15 odd years. The recovery will affirm the positive thinkers that their management was always good. The regulation that you might perceive today is really just perception-based. Regulation in future will be no better than in the past. Companies will get away with dubious disclosure.
There are a great many people expecting tragedy from the US market. Basically I don't see that. The US is one of the freest and most dynamic countries in the world. So as long as that is true, and it could be a great deal freer, then it will continue to trump the EU and Japan. It will do what needs to be done. Savings will need to be boosted as occurred under Clinton, to correct the imbalance left by Reagan. Most of the US imbalance was corrected just by the collapse in spending.
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Andrew Sheldon www.sheldonthinks.com
