“The Dollar Is Strengthening Because the U.S. Is Leading the Economies of Other Countries Over a Cliff”
August 17th, 2008Via: GreenFaucet:
The dollar is strengthening because the US is leading the economies of other countries over a cliff. Both in terms of easy monetary policies and the continued vendor financing arrangement where we buy their goods financed by their buying our treasuries and keeping our interest rates artificially low. Their currencies are now reflecting their deteriorating fundamentals. To be sure, the long commodities/ short US dollar trade was very crowded and is also playing a part as it unwinds.
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Meredith Whitney, the Oppenheimer banking sector analyst who dared to separate herself from the comfort of her community herd and boldly predicted the financial disaster a year ago, thinks that, according to a Fortune article where she is the feature cover story, investors should still avoid banking stocks because they will be forced to report even bigger credit losses in the future. The article reads, “Whitney is convinced the economy is about to slip into an ‘early 1980s style’ recession that will devastate the 10% of the population that became overextended during the housing boom.”
Now who do you trust? Someone who has been dead on in predicting this mess from the beginning, or someone from the pack of pathological pollayanas who mindlessly continues to call one false bottom after the other? You know who I’m talking about. Whitney warns, “What’s ahead is much more severe than what we’ve seen so far.” Furthermore, according to Whitney, the banks need to more drastically reduce headcount (from a reduction of 7% so far to 25%–see my commentary “Escape From New York”) and “get real” about how their valuing their mortgage-related debt. Banks are only under-estimating housing price declines. They see drops limited to 20-25% where Whitney sees declines around 40%.
If all of that weren’t enough, the coup de grace for the consumer is a new credit law (well-intentioned as it may be) that will go into effect this fall that will, as the Fortune article citing Whitney’s view writes, “force banks to reduce the amount of credit they extend to consumers.” This of course will force consumers to cut back even further on spending. Whitney says that this is “basically going to amount to a pay cut for the average American consumer.”
Research Credit: efs
