But this method does not work, because the forex market values instantly any hint of interest rate raises, those leveraged trades have to feel a future where dollar lives with higher interest rates, than effectively zero.
By refusing to raise rates, the Fed has made forex like the equity market in the sense it has to value on a future expectation, in this case of rate rise, like the equity market is supposed to value on future stream of income (but as I suggest does not presently). Interest rates on a currency though are like income streams, because they give you an income stream in deposits in that currency.
But I have expressed such optimism about the US economy. Why ? Because those companies carry on regardless. Whose companies are strong in areas which matter, especially to the future. The US. Computer software is probably one of the most important industries for the future. Its potential is still barely realized, anybody who has worked in computer science research can see this.
However, the resurrection of US company strength (because this was not the case in the 70s) coincided with the decision to float equities on various forms of debt in various ways, from the early 80s. It results in huge revaluation shocks, as supposed assets are seen as non existent or as debt. This shows up in the market as the making of a new less steep trend line.
When the stock market rises high, shares rise and this makes it easier to borrow money. Those companies which are quality (as evidenced in their balance sheets) and used this money wisely get lean and hard in the crash. Then they power through the lift again, with this readjustment, like a retooling of their functionality.
What will happen if now the focus is away from debt but on investment, like the kind in the stimulus package ?
© 2010 Guy Barry - All Rights Reserved.
