Sunday, December 2, 2007

Kinda Early For 2008 Prognostications; But Here Goes...........

The Fed is Singin' the Blues for 2008

Well if the Fed is right, then stocks are going to struggle in 2008.
And if stocks struggle, then the U.S. dollar is also going to be volatile due to the Fed. As usual, the Fed will remain "data dependent" next year. That's code for "the Fed doesn't know what's going to happen, so they'll have to wait and see and respond as they see things unfold."
Hence if stocks fall, then the Fed will cut rates and hurt the dollar.
While the Fed claims to anticipate the economy's actions, it's been my experience that the Fed sits back and "responds to" the market. After all, isn't that what they did when they recently changed their tune about rate cuts? Certainly.
So the Fed will probably cut rates further. I think the Fed actually says it best when they list all their observations about the economy. There's not much to be hawkish about these days.
What's Left to Brag About?
Let's see: Business spending has slowed down. The standards have been raised on consumer loans. (Interpretation: They are harder to get now.) The Fed says there is a "glut of unsold homes weighing on prices."
The Fed also said that retail inventories were too high. Keep in mind that Sears just reported a huge loss in the third quarter and agreed with the Fed's assessment. The Fed is also pessimistic about holiday sales.
One "good" point: The Fed said that the weaker dollar helped factories and tourism. Well bravo for resort hotels, airlines and factories. Meanwhile, the Fed made everyone else in the country pay for boosting their sales. The dollars in your wallet had to become a little more worthless in order for their sales to go up.
Seven out of the 12 districts of the country reported a "slower pace of growth." The remaining districts described their growth as "moderate or mixed." Notice: No one said, "My portion of the country is doing great."
They stated that the housing sector would not turn around until "well into 2008 at the earliest." So don't look for your home values to improve anytime soon.
Bernanke getting ready to slash rates! AGAIN!U.S. Dollar set to plunge! Japanese yen to soar!
If You're a Lawyer, This is Your Year!
The Fed mentioned one area that could be construed as a bright spot in the economy. They said the demand for legal services was doing well. So why are lawyers doing so well? As I dug a little further, I found out: bankruptcy filings. Lawyers are profiting while Americans lose their homes and assets.
Sadly, that means the only bright spot the Fed has to talk about are the lawyers that are benefiting from everyone's housing misery. Even that "bright spot" wasn't that bright at all.
The Fed also stated that food and energy prices were still rising overall. Translation: Your falling dollars have to pay even more to keep you fed and your house warmed and cooled.
The weaker dollar is also increasing the price of imported goods. Wait, didn't the Fed say that the falling dollar doesn't affect Americans? It seems to me it does when your food, energy and imports all rise. To me that's a real cost that I'm feeling.
The Unemployment Lines Are About to Get Longer
Oh and then don't forget the Fed's new "transparency" policy. It just means they're releasing their economic forecasts more often. The Fed's men stated just weeks ago that the unemployment rate was expected to rise in 2008. So on top of all of this, many will be losing their jobs next year. Yet the high costs of living won't go down.
So maybe it's just me. But I'm a little curious why Wall Street is rejoicing and snatching up stocks like there's no tomorrow. When an economy slows, that's because corporate earnings and consumer spending slowed.
So with all of this in play, it's hard for me to see a bright spot for the U.S. economy just yet. When it appears, I assure you I'll be one of the first to start shouting it from the roof tops. After all, I live in the U.S. and ideally, I'd like my country to prosper. Until then, I have to call it like I see it.
Look for the Yen and Swiss franc to Benefit from the U.S. Turmoil
So look for currencies like the Japanese yen and the Swiss franc to benefit as each of these stock rallies are sold. The yen and franc have had huge runs lately.
Stocks could get their temporary break that they've been wanting. However, after that, look for yen buying and franc buying to resume.

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