Prague Twin

Monday, November 27, 2006

Back to Basics

As I am feeling quite uninspired to write, I am going to report on some money matters.

While most Americans were eating turkey last Thursday, their currency was evaporating. The dollar is down 2 to 3% accross the board, and it will now cost you over $1.31 to buy one Euro. This is a level that has only been seen once before for about 6 months at the end of 2004 and beginning of 2005. The EUR/USD pair had been trading in a $1.25 to $1.2950 range for nearly six months. Fortunes had been lost on option expiries that predicted a break of the psychological $1.30 mark a couple of months ago, and just when the markets had given up on a break of $1.30, the dollar took a major downturn.

Light trading over the Thanksgiving holiday was partially to blame, but more importantly the drastic drop in housing starts and permits are at fault.

The European Central Bank is having a bit of a hard time deciding what to do. On the one hand, a stronger Euro will ease inflation pressures as the cost of imports (especially energy) will drop for consumers. On the other hand, a strong currency puts pressure on the EU's export-led expantion. I agree with the analysts who now predict the ECB will raise rates to 3.5% by the end of the year and will then go on hold.

The Fed will now be pressured to raise rates as a weak dollar will increase inflation pressures. Oil will be very important to watch in the coming weeks. It has been pivoting at about $60 a barrel, but a weak dollar may pressure the upside. If the Fed is forced to raise rates, the already beleaguered housing sector (and the financial sector by proxy) will suffer further.

The Dow is down about 130 points in the first two hours of trading and as I mentioned in the link above, I think we will be happy to see the Dow stay above 12,000 by year end.

This is not the end of the world, but it is a concern and shows that fundamental weakness in the U.S. economy still presents problems and we are not out of the recession woods just yet. Data starts pouring out of the U.S. tomorrow and there will be an increased focus on the numbers as the markets decide whether to re-establish dollar positions or continue to short the dollar further into the abyss.

We could really use some good news.

5 Comments:

  • Damn! And I wanted to visit Europe this year. Oh well, guess I'll just have to head to another garden spot--one with a depressed currency. Wonder what Basra is like in the spring?

    By Blogger Kvatch, at 4:37 AM  

  • Here is a very interesting news story on Pope and Turkey. It actually also shows some common grounds. The story is from RFERL but appears in HULIQ at http://www.huliq.com/198/turkey-popes-visit-a-milestone-for-christians-and-muslims

    I think this is a great opportunity to strengthen the Christian Muslim dialogue.

    By Blogger Armen, at 4:38 AM  

  • Kvatch,

    Even with dollar weakness, the Czech Repubic is still very affordable and you are more than welcome any time.

    Funny thing... I'm fantasizing about going to Baghdad. I have a friend who landed a job with a private security company and I really want to go. I know it seems crazy but I am not a coward and I want to see if for myself.

    Armen,

    Um, you seem a little off topic here but welcome anyway. I'm all for anything that can strengthen the Christian Muslim dialogue so... go guy go!

    By Blogger Praguetwin, at 4:52 AM  

  • I guess this would be good news. I heard from an old friend a few days ago, I hadn't talked to him in over twenty years. He is now buying and selling (high$) homes in the Daytona Beach, Florida area. Sounded to me like he was doing very well for himself. He said that I have a place to stay anytime I'd like to come for a visit.Sounds like a plan to me.When we were talking it was 80 degrees in Florida, it's suposed to snow in Missouri tomorrow. All I need to do is come up with the needed gas money to drive a 1993 half ton Chevy pickup (4x4) from Missouri to Florida.

    God Bless America, God Save The Republic.

    By Blogger David Schantz, at 6:37 AM  

  • PT

    If you do get to go to Baghdad maybe you could also get to go see "Kurdish" Iraq. It would be interesting to get a first hand civilian contrast and comparison.

    By Anonymous Arch Stanton, at 3:06 AM  

Post a Comment

<< Home