Dollar Play in Subprime Debacle
From China's Business Newspaper, The Standard:
Tuesday the dollar hit a 10 year low in real terms. Societe Generale chief Asia economist Glenn Maguire:
"We believe the Federal Reserve will be raising interest rates in 2008 - by three times, to 6%.
This will turn out to be US dollar positive, but until then, another 10% real depreciation in the US dollar seems probable."
The Nattering One muses... hmmm, very interesting, but stupid?
What would be the potential impetus for raising rates? Energy stagflation, economic growth inflation, dollar defense or a combination thereof?
And wouldn't raising rates essentially choke off housing & the economy further? While on the credit side, much like Nero; fiddling and letting Rome burn?
On the other hand... Nomura Securities analyst Sean Darby:
"As the credit deterioration has been accelerating in the United States, the carry trade's been coming off."
But with the unwinding of the carry trades, investors will not be putting that money back into US assets, he says. "Not under these circumstances. You need assets to buy on the other side.
Unfortunately for the US dollar's long-term trend, investors are still reassessing the implicit value of corporate bonds and collective investment instruments such as collateralized debt obligations.
Deteriorating corporate credit spreads, shallow GDP projections, growing money supply and weakening interest-rate differentials with other G7 currencies indicate the US dollar will break through its long-term technical support.
Investors are too complacent over the implications of a growing credit crunch in the United States. The subprime credit problem will undermine the attractiveness of US assets.
To date, there appears to have been no sign of the conventional intervention, or even central bank rhetoric, that would provide a floor to the greenback."
Tuesday the dollar hit a 10 year low in real terms. Societe Generale chief Asia economist Glenn Maguire:
"We believe the Federal Reserve will be raising interest rates in 2008 - by three times, to 6%.
This will turn out to be US dollar positive, but until then, another 10% real depreciation in the US dollar seems probable."
The Nattering One muses... hmmm, very interesting, but stupid?
What would be the potential impetus for raising rates? Energy stagflation, economic growth inflation, dollar defense or a combination thereof?
And wouldn't raising rates essentially choke off housing & the economy further? While on the credit side, much like Nero; fiddling and letting Rome burn?
On the other hand... Nomura Securities analyst Sean Darby:
"As the credit deterioration has been accelerating in the United States, the carry trade's been coming off."
But with the unwinding of the carry trades, investors will not be putting that money back into US assets, he says. "Not under these circumstances. You need assets to buy on the other side.
Unfortunately for the US dollar's long-term trend, investors are still reassessing the implicit value of corporate bonds and collective investment instruments such as collateralized debt obligations.
Deteriorating corporate credit spreads, shallow GDP projections, growing money supply and weakening interest-rate differentials with other G7 currencies indicate the US dollar will break through its long-term technical support.
Investors are too complacent over the implications of a growing credit crunch in the United States. The subprime credit problem will undermine the attractiveness of US assets.
To date, there appears to have been no sign of the conventional intervention, or even central bank rhetoric, that would provide a floor to the greenback."
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