Wednesday April 11, 2007 - 10:05:18 GMT
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Black Swan Capital - www.blackswantrading.com
Is it all good, or is it all in the price?
â˘ Most Americans expect a recession within a year and disapprove of President George W. Bush's handling of the economy even though the unemployment rate is at a five-year low, a new Bloomberg/Los Angeles Times poll found. (Bloomberg)
â˘ US Forecast from Morgan Stanley, Richard Berner and David Greenlaw:
Forecast at a Glance
2006E 2007E 2008E
Real GDP 3.3% 2.0% 2.9%
Inflation (CPI) 3.2 2.5 1.9
Unit Labor Costs 3.1 3.0 2.7
Their view: âJob gains have already slowed, and payrolls will continue to decelerate, but not fast enough to undermine consumer wherewithal. The housing recession is far from over, but strong global growth likely will sustain both output and employment. The productivity slowdown is cyclical, but the trend may also have slipped. We still think core inflation has peaked, but inflation risks are rising again. And margin compression implies that profits likely will stall in 2007. That combination will likely leave the Fed on hold and steepen the yield curve. Importantly, however, neither those conclusions nor the weaker baseline presented here imply serious trouble for the economy.â
âWe talk about economic institutions and their development over time as if they were institutions in the West. âPrice administrationâ regulations, central and local, abound, giving officials far-reaching powers to interfere in the price-setting process. Yet we accept official statistics that show 90% of all prices, by trading value, to be market-determined. We do not question the meaning of the Chinese word shichang, translated as âmarket,â but presume it to be the same as in the West.
âSimilarly, we take at face value Chinaâs Company Law, which makes no mention of the Party, even though the Party is likely to still call the shots in the companies organized under the Company Law. Only if one digs deeper will one find unambiguous evidence: The Shaanxi Provincial Party Committee and the Shaanxi government in a joint circular of 2006 explicitly require the Party cell in state-owned enterprises (including âcompaniesâ) to participate in all major enterprise decisions; the circular also requests that in all provincial state-owned enterprises the chairman of the board of directors and the Party secretary, in principle, are one and the same person. At the national level, the leadership of the 50 largest central state-owned enterprisesâenterprises that invest around the worldâis directly appointed by the Politburo. Economists do not ask what it means if the Party center increasingly runs enterprises in the U.S. and Europe.â
Carsten A. Holz , Have China Scholars All Been Bought?
FX Trading â Is it all good, or is it all in the price?
Is the expectation Mr. US Consumer craters, forcing the Fed slash rates to attempt to stave off the inevitable, which is a date with recession, or if you prefer, stagflation? Or are the structural dollar concerns running the show right now, a la central bank reallocation, crude oil being priced in euro and yen, etc., etc., etc.? Is it a combination of both? Is it simply a cyclical view that Europe and Asia will grow faster than the U.S. and âdecoupleâ? Or is it all going as planned by US and European policy makers?
We read a piece from Bloomberg news yesterday that concluded that Treasury Secretary Paulson and ECB President Tritchet are just fine with a falling dollar. The authors gave these basic reasons: US exports stimulated by a falling dollar, Europe contains inflation with a stronger currency, and they are not as exposed to export pressure compared to the US. Hmmmm! Sounds convenient! Many analysts were quoted, all seemed to agree with the basic premiseâyes, no worry about a falling dollar, its all good.
So, not only do we have cyclical and structural concerns, we have fairly decent consensus among the smart crowd that a falling dollar is a pretty good thing.
No doubt the path of least resistance is down for the lowly greenback. And there may be more, or a lot more to go. But when we see so many smart people so cordially agreeing on something, it naturally makes us a bit nervous.
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