Tuesday, September 12, 2006

Is a Recession in the future?

The U.S. Economy is clearly slowing. Housing prices are on the declineand interest rate hikes always have a lagging effect. The FED should remain wary of overshooting and hence should be allowing time for the past hikes to take effect. The FED remaining in a holding pattern in regards to rates is a given. The risk of a recession grows as the economy grows at a slower pace we would be more vulnerable to unforseen shocks. I do not think we will have a recession, rather a cyclical slowdown in growth.

I continue to look for carry trades. UsdJpy has been great, and should continue higher as Jpy is used to fund other positions and breaks to new highs as it just has 117.95).

Short UsdBrl. This trade gets better the slower the U.S. Economy grows. Stick with it, it can get scary from time to time but will be well worth it by year end.

Mexico: Headlines out yesterday that the Mexican Economy was not growing as fast as the government would like. Can anyone say RATE CUT...... Look out on Septt 22 which is the next time the Mexican rate committee meets. If not then Oct 27 seems like a realistic time to see rates move lower.

Let me know what you are thinking.



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