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--- In gannsghost@xxxxxxxxxxxxxxx, "topos8" <topos8@xxxx> wrote:
Leonard:
As regards to the US dollar:
Exchange rates are in the long run determined by the relative
desirability of long term investments in the economies of the two
countries involved. But in the short run (2 - 3 years), it is the
real rate of return on money market type investments that must be
compared.
So, since 2001 the US fed has dropped short term rates to 1.00%, and
during this time the European central bank and the Japanese central
bank have been much less aggressive in lowering short rates (Japan
because theirs were already very low). So the dollar started
dropping and continues to drop because traders expect this relative
differential in short term rates to persist. The US Federal Reserve
feeds this expectation by insisting that it is not going to raise
short term rates for the foreseeable future.
So I expect the US dollar to bottom exactly when the Fed makes it
clear that it is preparing to raise short term rates. My own guess
is that the low will be in the 78-80 range in the US dollar index.
The euro-currency will probably make it up to 132.
At that point I think the pressure will be on the Fed to defend the
dollar, and I also think that the stock market will be higher and the
US economy will be showing strength. These factors will all come
together to change Fed policy in the direction of fostering higher
short term interest rate.
A new dollar bull market will start and the euro-currency will begin
a bear market. As the Fed moves towards tightening the long term
bonds in the US will drop with the long bond getting into the 5.90 -
6.00% range and the futures dropping to 96-98.
However, I expect the yield curve to flatten substantially once the
long bond hits 6.00% so that during the subsequent bull market in
bonds the long bond will rally much more than the shorter end of the
market. This rally will reflect the market's final adjustment to
very low US inflation rates.
Carl
--- End forwarded message ---
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