Monday, December 04, 2006

U.S. Economy Slowing....

Recent numbers are clearly signaling a slowdown in the U.S. economy. This is being reflected in the Dollar which is under tremendous pressure against just about every other currency. Bernanke and many other Fed officials have been out talking tough about fighting inflation but I believe that this is all just that TALK. Rates are clearly on hold for now. Although the Fed may be trying to sound like the next move is up, I believe they are trying to so vigilence on inflation (very important). I cannot see rates going up in the currenct environment. Unchanged...Yes. I think we are looking at unchanged rates for the next 4ish months. This is one of the reasons that I believe that the dollar has been under so much pressure of late. With our rates being unchanged and European rates set to rise the interest rate differential continues to swing away from the dollar's favour. As anyone who reads this column reguarly knows I am a big fan of positive carry trades. A few things do puzzle me though.

Why haven't stocks come off (Doesn't a slowing economy translate into lower profits for Corporations?)?
Why is the dollar so weak against Asia (Shouldn't thier economies suffer as they are big exporters and we are big importers?)?

Any Comments or Answers would be greatly apprciated.



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