Monday, December 29, 2008

what’s Going To Happen To All That Bad Debt?

Who holds the ugly, unwanted mortgage investments now? You and me, if a government bailout goes through. We already own AIG, Fanny Mae and Freddy Mac.
So bottom line, we should be disappointed. And any outcome will be disappointing. There is no happy ending to this mess.
As much as the media is playing chicken little, I don’t believe the sky is falling. We are in for some pain as an economy though.
While the data may not technically point to a recession currently, every piece of data that has to do with U.S. consumers does point to a major contraction in the economy. Manufacturing, exports, etc. are doing just fine. However, the U.S. consumer makes up two-thirds of the economy. And it’s the American citizen that can’t seem to make enough money to catch up with inflation.
And, when a large chunk of the assets that make up an economy are a house of cards, it makes trudging through the rebuilding process a longer process

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Sunday, December 28, 2008

How To Read And interpret A Weekly Economic Calendar: Import And Export Prices –

The prices of goods that are brought in the United States but produced abroad and the prices of goods sold abroad but produced domestically. These prices indicate inflationary trends in internationally traded products. Changes in import and export prices are a valuable gauge of inflation here and abroad. Furthermore, the data can directly impact the financial markets such as bonds and the dollar.

Inflation leads to higher interest rates and that’s bad news for stocks as well. By monitoring inflation gauges such as import prices, investors can keep an eye on this menace to their portfolio.

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Wednesday, December 24, 2008

Federal Reserve's Liquidity Injections: A Revew

The time has come for big, bold monetary maneuvers. After completely exhausting the interest rate option,
the Federal Reserve is now turning on the taps full force by injecting massive amounts of liquidity directly into the economy.
The impact of this injection is already being reflected in the money supply, as the aggregates have ballooned by a breathtaking 20% or so at an annual rate.
In times of recession, and especially during a financial crisis, the monetary authority must increase the money supply in order to compensate for the slower velocity of money.
The Federal Reserve’s massive bailout of the financial system is starting to bear fruit. The task ahead remains daunting, but the first positive signs are being observed and liquidity is finally beginning to seep out.
All in all, we firmly believe that an economic recovery will come about in the United States and that opposite fears of rising inflation and corrosive deflation are overblown. This position is also supported by the price of gold.
Observers concerned about inflation make the case that the Fed will fail in its attempt come the time to drain some of the liquidity out of the economy once it is up and running again.
We are more optimistic in this regard. Inflationary pressures would take some time to surface, thus allowing the Federal Reserve to rein in its liquidity fast enough to prevent prices from racing out of control.
In fact, however difficult it may be to remember nowadays, the central banks know very well when and how to raise interest rates.

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Tuesday, December 23, 2008

Majors Continuing Move in Tight Channels

Overall, the currency market seems to have started the holiday season a little early in the overnight trading hours. The majors traded in very small channels around the neutral pivot points since the Asian session opened. Liquidity may pick up a little as we enter the U.S. session.
The Euro (Eur/Usd) touched the neutral pivot point (1.3990) during the Asian session, and has since traded in the general vicinity. The pair is trading near the 1.4000 level, which previously acted as an important area in the pair's price actions. Currently, the euro is trading around the 50.0% retracement level of a trend that lasted from July to late November.

The Euro-area current account was released at -6.4B, better than analysts' expectations of -7.3B. The previously released number, for the month of September, was revised from -10.6B to -8.8B. The report shows that the Euro-area had an inflow of direct and portfolio investments in October, while exports and imports were little changed.
The Pound (Gbp/Usd) moved only 60 pips overnight, a small range for the pair during this timeframe. The pound has been sold heavily in the last few weeks, as the Bank of England seems set to follow the Fed into a quantitative easing policy. Earlier this month, the pound reached an all-time low against the euro and the swissy.

In the third quarter, the U.K. economy contracted by 0.6%, slightly more than the revised read. In the second quarter, the U.K. economy posted a 0.0% read. Compared with the third quarter of 2007, the U.K. economy grew 0.3%. The number of mortgages approved by the BBA fell to a record low of 17.8K, lower than analysts' expectations. The previously released number, for the month of October, was revised lower, to 20.8K. U.K. current account deficit reached £7.7 billion in the third quarter of 2008, up from a deficit of £6.4 billion in the second quarter, revised down from £11.0 billion
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