Continuing what I wrote previously, we can notice that the housing situation in the US has not improved. Fannie Mae, Freddie Mac and many others are in troubled waters.
Watching Fed Chairman Ben Bernanke's testimony to the Congress, one can see that the Fed is serious about correcting the situation, and that is a good confidence-building measure in the market. However, my experience tells me that the market always looks at what you do and not what you say. It would be interesting to see what will be the outcome of the proposed measures. I personally assume that the Fed will get what it wants.
In any case, since March 2006 the Fed does not publish the M3 money aggregate, which in effect gives the Fed unlimited power to print as many dollars as it likes. My assumption is that the Fed will react strongly to the situation.
The markets took the testimony positively, with both the euro and Swiss franc moving over 100 points in 30 minutes after the comments. I still think a USD correction is imminent and seeing yesterday's move I feel that soon the USD should start reversing. This is not to say that the reversal is permanent.
- I would see 0.9980 - 1.0005 as the bottom for USD now on CHF and 1.6036 as the high for euro. I would recommend going long with the USD against CHF, JPY and euro.
- We can also see a temporary correction in the PLN to about 2.30 PLN against the USD.
- Sometime around the end of the year the USD will start losing value again. The US is happy with a weak dollar.
- Gold continues to be a good investment. Gold at $1,150 per ounce would be realistic. Silver is also likely to go up and percentage-wise, more then gold.
- Interest rates in US are likely to rise. Despite a slight correction in oil, I feel the interest rates in US will go up and we will see a scenario of high interest rates coupled with high inflation.
- By accepting responsibility for the liabilities of Freddie Mac, Fannie Mae and others, the US government has catapulted its public debt from $10 trillion to $15 trillion. That’s an overnight increase.
- The Bombay Stock Exchange dropped to below 13,000 last week. I expect the correction to continue, with 9,000 being the target. If the SENSEX sheds points rapidly we might see it go past the 9,000 mark. This not a panic situation and nothing is wrong with the Indian economy, which is strong and healthy. It’s a correction which should have happened a long time back. I recommend looking for value stocks and buying.
Disclaimer: Any opinions, news, research, analyses, prices, or other information provided by the author are provided as general market commentary, and do not constitute investment advice. Neither WBJ nor the author is liable for any loss or damages, including without limitation, any loss of profit which may arise directly or indirectly from use of or reliance on such information. Investors are advised to consult their broker before making a decision on buying or selling a particular security, product or currency pair. These articles are opinions and should be treated as such.
