bearfund

Is Dollar-Based Salvation Coming?

There is absolutely no possibility that the Fed will raise rates. None. If you're buying dollars against forex because you expect US short-term rates to rise, you're in for a big disappointment. If you're buying them because you don't want to hold euros and yen (probably a smart move), let me remind you that gold is dirt cheap and cannot be printed to bail out Fannie and Freddie or drop from helicopters (dropping gold from helicopters would be a minor disaster in any case). The Fed does not care about prices of the goods and services that people and businesses need to live and operate. They care about the prices of the assets on their member banks' and now their own books. As long as those are falling, so will overnight rates.

I expect the Fed to cut rates again soon, possibly even before the end of the year, and my fed funds rate target bottom is 0.5%. My target for the 10-year Treasury note yield remains 10%. With each passing day, the disconnects and dislocations in the markets are growing more severe. Do not forget that the bear eventually hits everything. As the financial rot has worked its way toward the core, from hedge funds and SIVs to regional banks to investment banks to the Fed (whose balance sheet quality has declined perilously), the bear has ravaged homebuilders, mortgages, financials, telecom, energy, agency paper, and consumer discretionary. The rot is now knocking on the door of the heart of the system, the Treasury itself. Congress has given Paulson the legal ability to let it in, and when he does, the bear will enter as well.