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| Coffee Lounge Talk amongst other community members. |
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Sep 14, 04
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Heres a COMPASS peice from US firm Merrill Lynch (ML no longer even operates in Canada, they sold their Canadian business unit to CIBC Wood Gundy)
http://www.ml.com/research/2004/pdf/inst/46800801.pdf .. They say they are quite bearish, but I beleive that they are being overly optomistic. Its hard to bring yourself to write a report that says your home economy is going to go down the tubes and still sell US stocks. The power of the Fed for the US economy is strong, yes, however they have played all the cards they can play. In a way the US Fed is trapped, creating a period of easy money (low interest rates) which in turn caused a remortgaging boom. However, they cannot go much lower without severely impacting the currency. (0% US interest rates? anyone remember Japan's woes of 1997?) To drop interest rates from their record 42 year lows would signify to world currency markets and foreign reserves to get out of US dollar investments in an emergency manner. Why is the Fed trapped? They are being held there by the Bush administration. The US is facing serious structural deficits which will continue until about 2010, even with severe correction, which it appears that neither Bush nor Kerry want to enact to repair things as this would require significant spending cuts as well as significant tax hikes. A rise in interest rates would increase that structural deficit signifcantly, (from the current 287 billion to something like 500 billion and beyond). It would also tank the stock markets, which would put a bit of nitrus oxide on the current trend of pulling money from US equity markets and placing it into a broad variety of other exchagnes demonated in other currencies, and this would place further weakness on the US dollar. Even the Merill Lynch report I linked to above doesnt mention the severe currency exposure that the Asian currency reserves are facing - trillions of dollars being held in US dollar denominated investments which have lost over 20% of their value within 18 months - coupled with their own forecast that the US dollar will fall another 14% before 2005. A selloff by foreign currency reserves would be an additional pressure on the US dollar which the US Fed has it's hands tied and cannot combat. (Typically they raise interest rates to keep the foriegn capital in US dollars). They are in somewhat of a catch 22, and if you add in the fact that both the US Fed and the US Government have their hands tied (they cant really change anything, cant raise rates, cant lower rates) and that a weak dollar means inflation.... The only solution out of the mess is to allow serious inflation to take hold in the US, weakening the average American's purchasing power. PS>. Stephen_C - Yes its nice to have an in depth conversation that isnt "Who is going to that party" or "I am smack talking this guy" here on FnK :) 
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Sep 14, 04
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IF the american's implode we are all fucked.
read this shit *****z http://www.economist.com/finance/dis...ory_id=3172404
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Sep 15, 04
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Make your own asset class picks (bonds, stocks) and if investing in equities, choose the securities based on your own risk profile with the assistance of a professional. If you're really into betting, Euro futures would be a good bet for the next 18 months, but futures are always very high risk because the price can move very quickly.
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Sep 15, 04
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Sep 15, 04
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and no mention of buying/selling calls/puts? where is your sense of adventure? :250
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Sep 15, 04
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Sep 20, 04
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Yea, EURUSD futures contracts. Very risky though. If you're a more mentally stable person, try EUROdollar denominated bonds or equities on a European exchange.
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