Trying to be more disciplined wrt the 'market'... the following are some of my predictions on the coming year. Hopefully if I write em down I can get others people comments as well as review em in a years time to see how awfull I am at predicting the markets.
- The guy from morgan stanley thinks that the dollar will roar back and be strong once europe shows signs of inevitable cracks in the political process( stability pact, constitution, additions of the new countries, subsidy issue ). I totally disagree. People(voters) will not punish him for a slight uptick in the inflation rate, they will punish him on the jobs creation. Its in Bush's favor to have a weaker dollar as long as inflation doesn't pick up too much. Also, we cannot run a trade deficit forever... and its now dramatic. Warren Buffet wrote an excellent article in fortune, which shows the trade deficit issue in detail. The economist from UBS did a great piece (note to self, remember to save the links :-) on how the exchange rate doesn't have as much as an effect on trade as it used to (what was the reason again?). So preditions... Euro will hit at least 1.40, before outcry from europe becomes and issue and they (and the US?) step in to stop the slide(Trade: UBS has euro denominated money market funds... get 2% plus whatever happens on the currency translation, or just buy the forward). I agree with the assessment from the economist from State Street , that the fundamental trend(dollar weakening) will not change till there is a change in policy(or the US dollar DRASTICALLY retreats). Therefore European bonds will stay strong...as well as there may be opportunity with European financial stocks with high dividends (Danske, Loyds TSB are two I want to look at). But, the Euro has taken a much bigger hit over the last year than the Yen due to the fact that they are proping up thier own currency by buying US Treasuries. Now Japan and China own > 50% of OUR Treasury bonds! And our debt has increased drastically(now it is abt 5% of GDP). I would stay out of US debt due to the fact that if the currency keeps dropping, inflation will eventually pick up, which will negatively effect everything, except of course TIPS.
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