hedgeman

Bailout Bill Passes; What Happens Now?

100% agree. Probably equity markets will rise after some serious pounding early next week again fooling many that the politicians "rescued" the world. Reality is DEFLATION after a period of stagflation. Check comments from Mr. Trichet... ECB is so behind (off) the curve that it is basically unimaginable. Europe will get a much worse hit then US, Japan will probably come out as a winner (of course only on relative basis). Those guys learned to survive in such environment and their economic structures are far better equiped to weather this storm.

As to the US baby boomers coming to retirement, they will probably see their 401k's severely depleted...

Nationalisation of homes in foreclosure and another check to average Joe (with a defined spending rules: pay mortgage and debt and of course spend some otherwise Chinese and other Asian nations will refuse to buy the newly issued US gov. debt) would in our opinion be a much better solution.

For a guage of what the real economy globally is doing Baltic index (BDI) is still appropriate measure and it is showing severe slowdown (not just lower oil prices).

The bailout bill is enough for GS and MS to stay afloat and if we drop the charade this is what the intention of Mr. Paulson was in the first place. Be sure GS and MS (if they survive) will reload equity positions from retired people who will sell their 401k holdings near bottom and this will mark the bottom of the cycle. This is the plan however the eternal question whether it is really different this time still hangs over us.

It is different and as risk models showed in Aug07 once every 200 million years events can happen. So what we should really think about is how to avoid the global capitalism avoid transition into chinese style capitalism in order to survive. This is not a once in a 100 years event, it is an event unseen so far.

People feel this is a cold, others say pneumonia, few of them say 87 crash was heart stroke and this is cancer. When average Joe realises this is cancer and looses the trust in fiat money, the system will have to change. Let's just hope PEOPLE put the pressure on politicians and really PRESSURE them (PUBLIC PROTESTS) so they will for once listen and not just think about their personal position.

Chinese style of capitalism if not that bad for the Chinese actually at this point in their development cycle. However it would be disastrous in the western world and should be avoided at all cost.

The Euro's Long Run Is Finally Over

It is not over yet.


EURJPY 162.00, watch for daily close bellow. We should see a fast drop to 150 if that happens. In current conditions it is my belief that USDJPY will take more heat and this should stop (reverse) the rising USD. Long EURJPY positions (used as proxy long commodities) are relatively large and part of EURUSD selling was unwinding the EUR part of these position. The rise of USD happened much faster then anticapted and USDJPY is expensive longer term above 110.00. Providing defense of 162.00 is succesfull I do not exclude a rally to 115.00 but there the fun is defenitely over.

As for the EURUSD... it will take 2-3 quarters and final spike to 1.69 in 2009 (65.xx in USD index) before it will finally be over. Important levels (short term 1.4630), longer term 1.36-1.42 area will serve as accumulation area. Since momentum is extremely strong picking a bottom before we see a higher weekly close is not advisable.

The U.S. Dollar: A New Accord

JPY will be the star in 12-18 month time frame. Especially against the EUR. If the new Plaza accord is in place the "official" boys will sell EURJPY in order to strengthen USD. JPY is in the heart of the credit bubble and officials know it. Japanese economy should be able to withstand USDJPY bellow 90 and EURJPY should revisit 140 (an important level in the ECU era)... FWIW

The U.S. Dollar: A New Accord

The dollar should experience a midterm correction upwards of some 5%. Real economy should stop the advance and provide a good shorting opportunity (adding to positions) for the big hedge funds. My guess is EURUSD 1.69 and USDX around 65 in first half of 2009.

There were times when interest rate differentials weren't the most important factor in the FX world. History will repeat itself. I feel the fixation with interest rate differentials between major currencies is a direct consequence of the lax credit practices. And we all know this story is already unfolding.

The case for 5% up for the USD measured against a basket of other US trading partners (6 month time frame) is due to the lagg in slowdown in economic activitity between US and other economic blocks.