Thursday, January 18, 2007

If this is recovery why did the BoJ stand pat?

EUR/USD 1.2934 Hi 1.2980 Low 1.2895
USD/JPY 121.36 Hi 121.61 Low 120.46
AUD/USD 0.7879 Hi 0.7895 Low 0.7853
EUR/JPY 156.95 Hi 157.39 Low 155.94

Suddenly everybody is standing pat. Well except for the Bank of England which is hiking. The BoJ is standing pat, the European Central Bank is standing pat and Commodities are tumbling. What's the problem? I thought economic recovery was a slam dunk. I mean how strong can the Japanese economy be if it can't take a 0.5% cash rate? Somewhere, someone is not telling it like it is.

And if the Global Economy is in trouble, which is what the BoJ, the ECB and the Global Commodities Market is telling us, then now is not the time to load up on USDs. Because of all the major economies the U.S. economy is the most at risk right now. It is an economy built on debt and military expansionism. If you want a manufacturing job in the U.S. right now the only real industry in expansion is the military machine. Everything else has or is being outsourced. The U.S. doesn't have a balanced, well-managed economy. Which is why they have a Trade Deficit, a Current Account Deficit and a Government Deficit. Oh and a Household Sector which is up to its eyeballs in debt. And you just have to take a look at the leadership over there to know that effective economic management is just not what they do. So don't hold your breath waiting for the cavalry to arrive. There is no cavalry.

And they don't do crisis management either. Which is why no-one is dealing with the Iraqi debacle. They haven't a clue. What the U.S. leadership does do is work out how they can use their positions to gain more power and money, but that really won't do the U.S. economy much good in its entirety. It's called stealing. Or if you prefer War Profiteering. But it comes pretty much to the same thing in the end. And that's bad news for Mr and Mrs Joe Average; only out in Couch Potato Land they haven't really worked that out yet. I don't know where Cheney's bunker is but when Mr and Mrs Joe Average work out what's happening he may need to use it.

Today we saw the release of some fairly positive (well better than expected anyway) data related to the Housing Sector in the States. This hasn't done much to console the Stock Market, which is the only market still holding. Fixed Interest Markets have taken a hit, the Commodity Bubble has deflated but Stocks are holding. For now. What everyone is talking about on financial markets, while the Pundits Hype the Economic Recovery Story, is the rate of Housing Foreclosures in the States and what will happen when ARM Floating Rate Mortgages start to reset in 2007. And with CPI and PPI coming out higher than market expectations the chance of relief in the form of RATE CUT has evaporated. So things don't look so good for Mr and Mrs Joe Average.

The USD/JPY got a mild boost overnight by the failure of the BoJ to hike rates. The USD hasn't performed quite so well against the Euro. And the outlook for the USD is still clouded. Since year end the USD has climbed on short covering and interest rate differentials. There is also a weird theory making the rounds that slower global economic growth will be beneficial to the USD. Why I don't know. That theory doesn't seem to be based on anything more than conjecture. With the BoJ non-event now out of the way it is probably time to buy the rumour and sell the fact. And a USD/JPY correction would certainly add weight to overall USD weakness.

OIL 53.36
GOLD 635.20

The OIL price is following the Commodity Bubble down. A break below USD 50 could be ugly. Or at least we could see some stops triggered. Despite the recent turn for the worst in U.S. weather the OIL market has no legs. When you consider the potential for further trouble in the Middle East and the Bush Administration's psychotic (though not yet official) plan for an attack on Iran, the failure of the OIL market to make any gains AT ALL starts to look like a worrying indication that global industrial growth may be in more trouble than is presently being forecast by Global Equity Markets.

One of these two markets is wrong. Either Commodities start to see strength or Global Stock Markets start to reflect the economic weakness that Commodity Markets are currently predicting.

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