Home
FAQ
Gallery
Search
Register
Log inWhy this Slowdown May Last Longer Than Bernanke Thinks Part I
forexgreenland - Forex forum,Forex training, Forex signals, Forex mgt accts :: Your first category :: Forex News ( Fundamentals)
Page 1 of 1•
Why this Slowdown May Last Longer Than Bernanke Thinks Part I
by Stalion on Mon Mar 03, 2008 10:22 am
Good Day Currency Traders!
On Wednesday, Ben Bernanke gave a dire report to Congress. From all of the real-time data that gets pumped into the Fed, it seems he's concluded that the slowdown could last until 2010. I think he's probably right on that one.
Why? For starters, the credit markets haven't improved, no matter how "cheap" Bernanke makes the U.S. dollar. Also, banks are now extremely tight-fisted. They don't even want to lend to each other - much less someone like you or me. It seems banks have figured out they were too "loose" with their money before, and now they're going to the other extreme.
Until banks loosen up a bit, Bernanke can't really do anything. He can slash interest rates down to zero if he wants, and it still won't help if banks refuse to give individuals and businesses access to this "cheap money." So he controls the rates but the banks control the cash right now.
Slow Growth = Less Jobs = Even Slower Growth
Bernanke is still predicting a slower GDP. The Preliminary GDP Annualized quarter/per quarter came out yesterday. Sure enough, analysts thought GDP growth would be around 0.7% and instead the number was 0.6%. Expect GDP growth to fall even lower from here.
Then of course, if growth slows, and the credit problems continue, businesses will also feel the pain. That means business managers will hire fewer employees. Many businesses will also layoff more people which will push the unemployment rate higher. Bernanke estimates that unemployment could rise as high as 5.2% to 5.3%. I say it will probably be at least that - and probably even higher.
The Fed normally underestimates these numbers. Personally, I think they "under shoot," so they don't scare traders away from the markets. Imagine if he'd said unemployment could rise to 6% or 7%? The stock market that he's trying to "insure" as he puts it...would sell off quickly. So he's walking a tightrope here.
What Really Started This Mess in the First Place
He stated that Housing Starts and New Home Sales are down a half point from their peaks. Bernanke blamed much of this on the tightening credit situation that he says "amplified" it. I believe he's right about that. Although it didn't start because of credit.
This whole mess started because banks, investors and home buyers got caught up in the euphoria of a bubbled housing market.
Banks were loose with credit because housing prices were heading for the moon for years. When something goes up at a significant rate, a banker can become a bit "lazier" with his credit homework. And he still looks like a hero - that is until the markets turn on him like it has recently.
Banks own properties all over America now and they hate it. Bankers don't want to own houses. They want to own the loans on the houses.
So this all means the mortgage-related securities will continue to suffer this year.
Bernanke went on to say that the housing market would weigh on the economy in the "coming quarters." This will reduce employment in the housing sector even further which will make its dent into the Non-Farm Payroll numbers in the coming months ahead.
$102 Oil Means Consumer Spending Will Take a Hit
Bernanke said consumer spending started to slow towards the end of 2007 and remains slower to this day. He blamed much of it on "imported energy eroding real income and wages." Translation: You can't buy as much stuff when you're paying more money to run your car.
He went on to say that declining house and stock market prices added to less consumer spending. I agree. In fact, I've been saying this for a while now. It only makes sense. If your costs go up (oil, gas, food, etc.) and your wages don't go up (in fact, many lost their jobs completely) and your house, 401k, IRA, etc. all drop in value....then you're not going to spend nearly as quickly as when everything from your stocks to your home's value was going up.
The Stimulus Package May Not Help as Much as Bernanke Thinks
Bernanke also seems to be hanging his hat on this new U.S. government-sponsored stimulus package. He claims this new initiative should help during the second half of the year. The only problem with that is: If you're already pushing it financially, you're probably going to take those checks and put them in the bank. Saving this extra cash won't help grow the economy - they want you to spend it.
Or, as a conscientious spender, you'll probably pay off old debts (credit cards, etc.). That also doesn't help grow the economy. Once again, the Fed Chief wants you to spend your new allowance from Uncle Sam...
Unfortunately, there are simply too many "Bernanke-isms" in this particular speech to analyze in today's comment. So I'll be back on Monday with Part II, where I'll tell you why even Warren Buffett doesn't understand what's really going on out there. And I'll show you how you can avoid this whole mess, with very specific currency plays.
Talk to you then.
--------------------------------------------------------------------------------
Making 'Cents' of the Headlines
Oil, Gold and the Euro All Head to the Stratosphere - in the Same Day
What Happened:
Wow! Have you ever heard of so many "all time highs" being hit at once? Well, they all have one thing in common...the dollar is on the opposite site of each trade.
As the dollar plummets, it plummets broadly against anything that's priced in dollars which would be oil, gold, silver, agricultural goods, etc. Plus the most traded alternative to the buck is the euro. So they trade opposite each other as well.
What I Say:
But many say, "Ah...I'm an American and I never go outside the United States. So my money isn't affected by the falling dollar." My answer to that: Have you bought any oil products lately, like gasoline for instance?
Gas prices have broken out to historic highs during the "non-oil and gas season." So think how expensive gas will be this summer when there's actually a seasonal demand behind the prices.
Bought any jewelry lately? Gold just hit all-time highs and silver is close to hitting an all-time high of its own. Not to mention, gold is used in computers and many other products that you use on a daily basis.
Plus, all of the things that America imports become more expensive because the dollar declines, and makes any foreign-made product (based in a stronger foreign currency) worth more.
So whether you stay local to the U.S. or you're a world traveler, you're affected by the falling buck.
Oil rose above US$102 (highest ever), gold hit US$963 (highest ever), silver hit US$19 (a 27-year high), New Zealand's dollar hit a high not seen since the 1980s, Singapore's dollar just hit an 11-year high. Australia's dollar is at highs not seen since the mid 1980s.
So you can see this dollar sell-off is broad based. The only things that the buck has managed to gain against so far have been the British pound and the South African rand. The dollar has had sizable gains against both.
With the commodity rally gaining strength, commodities are going to drag down stock markets around the world. So get ready for the next leg down in stocks around the world, in particular the U.S. stock indexes including: Dow Jones Industrial Average, S&P 500 and the Nasdaq.
So that means pairs like the euro vs. the Swiss frank (EUR/CHF) and the euro vs. the Japanese yen (EUR/JPY) will drop once again. Want to profit from this massive dollar sell-off? Plan to short these pairs.
On Wednesday, Ben Bernanke gave a dire report to Congress. From all of the real-time data that gets pumped into the Fed, it seems he's concluded that the slowdown could last until 2010. I think he's probably right on that one.
Why? For starters, the credit markets haven't improved, no matter how "cheap" Bernanke makes the U.S. dollar. Also, banks are now extremely tight-fisted. They don't even want to lend to each other - much less someone like you or me. It seems banks have figured out they were too "loose" with their money before, and now they're going to the other extreme.
Until banks loosen up a bit, Bernanke can't really do anything. He can slash interest rates down to zero if he wants, and it still won't help if banks refuse to give individuals and businesses access to this "cheap money." So he controls the rates but the banks control the cash right now.
Slow Growth = Less Jobs = Even Slower Growth
Bernanke is still predicting a slower GDP. The Preliminary GDP Annualized quarter/per quarter came out yesterday. Sure enough, analysts thought GDP growth would be around 0.7% and instead the number was 0.6%. Expect GDP growth to fall even lower from here.
Then of course, if growth slows, and the credit problems continue, businesses will also feel the pain. That means business managers will hire fewer employees. Many businesses will also layoff more people which will push the unemployment rate higher. Bernanke estimates that unemployment could rise as high as 5.2% to 5.3%. I say it will probably be at least that - and probably even higher.
The Fed normally underestimates these numbers. Personally, I think they "under shoot," so they don't scare traders away from the markets. Imagine if he'd said unemployment could rise to 6% or 7%? The stock market that he's trying to "insure" as he puts it...would sell off quickly. So he's walking a tightrope here.
What Really Started This Mess in the First Place
He stated that Housing Starts and New Home Sales are down a half point from their peaks. Bernanke blamed much of this on the tightening credit situation that he says "amplified" it. I believe he's right about that. Although it didn't start because of credit.
This whole mess started because banks, investors and home buyers got caught up in the euphoria of a bubbled housing market.
Banks were loose with credit because housing prices were heading for the moon for years. When something goes up at a significant rate, a banker can become a bit "lazier" with his credit homework. And he still looks like a hero - that is until the markets turn on him like it has recently.
Banks own properties all over America now and they hate it. Bankers don't want to own houses. They want to own the loans on the houses.
So this all means the mortgage-related securities will continue to suffer this year.
Bernanke went on to say that the housing market would weigh on the economy in the "coming quarters." This will reduce employment in the housing sector even further which will make its dent into the Non-Farm Payroll numbers in the coming months ahead.
$102 Oil Means Consumer Spending Will Take a Hit
Bernanke said consumer spending started to slow towards the end of 2007 and remains slower to this day. He blamed much of it on "imported energy eroding real income and wages." Translation: You can't buy as much stuff when you're paying more money to run your car.
He went on to say that declining house and stock market prices added to less consumer spending. I agree. In fact, I've been saying this for a while now. It only makes sense. If your costs go up (oil, gas, food, etc.) and your wages don't go up (in fact, many lost their jobs completely) and your house, 401k, IRA, etc. all drop in value....then you're not going to spend nearly as quickly as when everything from your stocks to your home's value was going up.
The Stimulus Package May Not Help as Much as Bernanke Thinks
Bernanke also seems to be hanging his hat on this new U.S. government-sponsored stimulus package. He claims this new initiative should help during the second half of the year. The only problem with that is: If you're already pushing it financially, you're probably going to take those checks and put them in the bank. Saving this extra cash won't help grow the economy - they want you to spend it.
Or, as a conscientious spender, you'll probably pay off old debts (credit cards, etc.). That also doesn't help grow the economy. Once again, the Fed Chief wants you to spend your new allowance from Uncle Sam...
Unfortunately, there are simply too many "Bernanke-isms" in this particular speech to analyze in today's comment. So I'll be back on Monday with Part II, where I'll tell you why even Warren Buffett doesn't understand what's really going on out there. And I'll show you how you can avoid this whole mess, with very specific currency plays.
Talk to you then.
--------------------------------------------------------------------------------
Making 'Cents' of the Headlines
Oil, Gold and the Euro All Head to the Stratosphere - in the Same Day
What Happened:
Wow! Have you ever heard of so many "all time highs" being hit at once? Well, they all have one thing in common...the dollar is on the opposite site of each trade.
As the dollar plummets, it plummets broadly against anything that's priced in dollars which would be oil, gold, silver, agricultural goods, etc. Plus the most traded alternative to the buck is the euro. So they trade opposite each other as well.
What I Say:
But many say, "Ah...I'm an American and I never go outside the United States. So my money isn't affected by the falling dollar." My answer to that: Have you bought any oil products lately, like gasoline for instance?
Gas prices have broken out to historic highs during the "non-oil and gas season." So think how expensive gas will be this summer when there's actually a seasonal demand behind the prices.
Bought any jewelry lately? Gold just hit all-time highs and silver is close to hitting an all-time high of its own. Not to mention, gold is used in computers and many other products that you use on a daily basis.
Plus, all of the things that America imports become more expensive because the dollar declines, and makes any foreign-made product (based in a stronger foreign currency) worth more.
So whether you stay local to the U.S. or you're a world traveler, you're affected by the falling buck.
Oil rose above US$102 (highest ever), gold hit US$963 (highest ever), silver hit US$19 (a 27-year high), New Zealand's dollar hit a high not seen since the 1980s, Singapore's dollar just hit an 11-year high. Australia's dollar is at highs not seen since the mid 1980s.
So you can see this dollar sell-off is broad based. The only things that the buck has managed to gain against so far have been the British pound and the South African rand. The dollar has had sizable gains against both.
With the commodity rally gaining strength, commodities are going to drag down stock markets around the world. So get ready for the next leg down in stocks around the world, in particular the U.S. stock indexes including: Dow Jones Industrial Average, S&P 500 and the Nasdaq.
So that means pairs like the euro vs. the Swiss frank (EUR/CHF) and the euro vs. the Japanese yen (EUR/JPY) will drop once again. Want to profit from this massive dollar sell-off? Plan to short these pairs.
