At this stage in the financial market crisis one can look at the state of affairs. If one looks at one set of figures, it’s evident that the United States is heading for a recession. On the other hand, another set of indicators show that the US is promoting manufacturing and growth.
Former President Bill Clinton had wiped out the American account deficit in about four years and I see no reason why it can’t be done again. However, at this point, I can only provide a scenario based on the present market conditions, and anything else would be speculation. In my humble view, the end of 2009-2010 US economy will be booming again, and I also think that the American dollar might not be the same.
A bit about the US crisis. First off, interest rates are low and the FED is following an expansionary money policy, which will eventually ease credit woes. Simultaneously, inflation will go up maybe even doubling, which will eventually force the FED to start hiking interest rates.
Now, a thought crossed my head. I wonder where the billionaires of the world are investing their money. Warren Buffet has invested in Goldman Sachs and GE. Anil Ambani has invested in the US entertainment business. Other billionaires investing in the US include Steven Spielberg, American Fund Manager John Paulson, Hong Kong billionaire Li Ka-Shingh, Russia’s Alexander Mamut and Mikhail Prokhorov, Thailand’s beverage tycoon Charoen Sirivadhanabhakdi and Mexican magnate Carlos Slim Helu. I guess they know what they are doing with their money. And to me this is an indicator that the US economy, despite its problems, is set for a recovery.
The weakening dollar
The dollar has been weak since 2002. Therefore, a slight recovery, as we are witnessing now, is not surprising. I believe the US wants a weak dollar and eventually the USD will weaken again. A weak USD has helped make US products more competitive.
However, the stock markets in the US will continue downwards. Temporarily, they might go up, but when more and more financial institutions write off over inflated assets the paper value will come down and with them the markets. I think this is good for the US in the long run.
On the negative side
Here’s what the US has to deal with:
- Excessive USD in the market: Excessive currency has forced the breach of the US dollar index for the first time below 70. Hence, USD is losing value continuously in terms of purchasing power.
- Regulation: Regulation is in need so that what has happened now does not repeat.
- Big Daddy attitude: The US is sending a signal to the general public and financial institutions that it is always there to get them out of trouble.
- Bad debt takeovers: Taking over of banks bad debts and resale, so the banks that made mistakes in the first place don’t gain unreasonably and the tax payer does not lose unreasonably.
- Confidence: The need to rebuild confidence in the free market and the financial markets.
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.
