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#1 arbman

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Posted 03 January 2007 - 02:33 PM

All of the other central banks are injecting to save the USD, think about it, the inflation went up in the countries like Brazil and Turkey for the last 3 months, while it declined in US. The stock indices around the world confirmed this week because of the liquidity injections in these countries, while the US market is still struggling despite a strong opening. However, a rally in most of these countries mean little for the US markets because they are mostly net exporters to US and the US is basically trying to curb its borrowing...

In general, the IT trend of the USD is neutral to bearish at the moment imho, even if the other central banks are committed to support the USD --by devalueing their own currency and creating inflation in their countries. Fundamentally, the borrowing has to come down before the USD can find a strong support --wait a minute that's more economic slowdown! The rates will have to stay higher and this will further curb the mortgage borrowing --still bad for the housing. The commercial credit growth is already slowing. Perhaps there is some hope for the USD and perhaps the long term cycle will finally start to exert its upward force. I was expecting the USD to bottom in Nov-Dec and rally with a reversal in the equities, although seasonality skewed the timing, I still believe that's the case. I do not expect the USD to make a V-bottom from here, unless the equities crash...

The bottom line is you can not have a sustained rally in the equities with this kind of outlook since any tick higher in the borrowing or lower rates will force the USD lower. I think it is topping for the IT after the phenomenal large cap run up so far --despite the weaker breath, but I strongly doubt that there will be a big recession yet. It is just that there will be less liquidity coming into the US equity markets over the next 3 months at least and after all of the seasonal pumping, so I expect more dumping in this spring. I expect both the USD and the indices to find strong supports and possibly lower rates by the second half or summer. I do not expect the market to wait too long at the lows when the rate picture improves, there is probably more upside for this year...

The order of the economic analysis should be as the following: currency -> rates -> commodities -> equities, especially for a credit driven economy. The currency is at the lows at the moment, the rates are at the highs, the commodity prices are topping. This is the picture of the drying liquidity as I shown in the credit growth chart --there is also multi-month divergence there. The equities should usually correct and rally when the currency rallies up and the borrowing becomes more favorable, however, the top might not be still in as the last bit of the momentum pushes forward...

- kisa

#2 arbman

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Posted 03 January 2007 - 02:54 PM

From the Fed Minutes released today;

The U.S. international trade deficit declined in September from a record level in August. The narrowing primarily reflected a sharp falloff in the value of imported oil, although non-oil imports, including industrial supplies, capital goods, and automotive products, also declined. Export growth in September was led by aircraft and industrial supplies, while exports of automotive products, consumer goods, and semiconductors fell. The trade deficit shrank a bit further in October.


So, what central bank driven rally in the overseas can help to turn the reality?!? :lol:

- kisa

#3 zman

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Posted 03 January 2007 - 02:54 PM

All of the other central banks are injecting to save the USD, think about it, the inflation went up in the countries like Brazil and Turkey for the last 3 months, while it declined in US. The stock indices around the world confirmed this week because of the liquidity injections in these countries, while the US market is still struggling despite a strong opening. However, a rally in most of these countries mean little for the US markets because they are mostly net exporters to US and the US is basically trying to curb its borrowing...

In general, the IT trend of the USD is neutral to bearish at the moment imho, even if the other central banks are committed to support the USD --by devalueing their own currency and creating inflation in their countries. Fundamentally, the borrowing has to come down before the USD can find a strong support --wait a minute that's more economic slowdown! The rates will have to stay higher and this will further curb the mortgage borrowing --still bad for the housing. The commercial credit growth is already slowing. Perhaps there is some hope for the USD and perhaps the long term cycle will finally start to exert its upward force. I was expecting the USD to bottom in Nov-Dec and rally with a reversal in the equities, although seasonality skewed the timing, I still believe that's the case. I do not expect the USD to make a V-bottom from here, unless the equities crash...

The bottom line is you can not have a sustained rally in the equities with this kind of outlook since any tick higher in the borrowing or lower rates will force the USD lower. I think it is topping for the IT after the phenomenal large cap run up so far --despite the weaker breath, but I strongly doubt that there will be a big recession yet. It is just that there will be less liquidity coming into the US equity markets over the next 3 months at least and after all of the seasonal pumping, so I expect more dumping in this spring. I expect both the USD and the indices to find strong supports and possibly lower rates by the second half or summer. I do not expect the market to wait too long at the lows when the rate picture improves, there is probably more upside for this year...

The order of the economic analysis should be as the following: currency -> rates -> commodities -> equities, especially for a credit driven economy. The currency is at the lows at the moment, the rates are at the highs, the commodity prices are topping. This is the picture of the drying liquidity as I shown in the credit growth chart --there is also multi-month divergence there. The equities should usually correct and rally when the currency rallies up and the borrowing becomes more favorable, however, the top might not be still in as the last bit of the momentum pushes forward...

- kisa


outstanding analysis kisa...that is what I have been tinking for sometime now...cheers :)
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