Finotec News Archive - July 01 2009
Dollars, Any Buyers??
So, after the much anticipated statement from the Federal Reserve which reassured the market players that the rate is not going to move any time soon while indicating deflation is no longer a dire threat, what direction will the greenback take???Sagiv Perez 
01 July 2009
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So, after the much anticipated statement from the Federal Reserve which reassured the market players that the rate is not going to move any time soon while indicating deflation is no longer a dire threat, what direction will the greenback take??? For the long run there seems to be a consensus which predicts that the dollar will be under severe pressure especially if it will lose its crown as the world reserve currency. Chinese and Russian officials are being quoted in the press quite often showing their distress about the future of the greenback and the need to diversify away from it and create a world currency. However these countries are in a catch-22 that is preventing them of selling their dollars without being hurt, a steady decline of the dollar as a reserve currency is being noted around the world for the last seven years.
So what is so bothering about the future of the Greenback?
“As previously announced, to provide support to mortgage lenders, housing markets and to improve overall conditions in the private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn” a total of 1.75 trillion dollars and this is without including the government rescue plans. The total US debt is standing at 11.45 Trillion dollars and is expected to rise above 13 trillion in the coming years. The budget deficit is not helping and the biggest fear lies with a situation in which the US won’t be able to sell its debt to foreigners. The yields on treasuries will rise the currency will be a persona nongrante and the economy might go into a nasty spiral. Another fear concerning the US dollar is that the government will inflate its way out of debt, a move that will crush the dollar if happens.
Not all is doom and gloom on the US economy and its currency, one should still remember that it is by far the world biggest economy. It is starting to show signs of recovery although weak and it is still extremely dynamic and flexible and has great potential to come back from this crises with a vendgens. Should the Obama administration in cooperation with the FED join forces in targeting a decrease in US debt and maintain a positive budget a free fall will be averted.
Red is good for the Green
In the past year we had witnessed extended moves on the dollar that were derived from the levels of risk appetite in the market. Last week we got some mixed sentiments on the world economy coming from two very respected intuitions, the world bank and the OECD. The World Bank downgraded its forecast on the world economy and the OECD had upgraded it. However when looking at the numbers there is not much reason to celebrate as both numbers indicate we are not going to be back on track any time soon. The markets had rallied for the last three month and the P/E ratios are currently at a 4 year high. Should we experience a much anticipated correction in the stock market a flurry of investors will probably seek the greenback as a haven once again.
Finotec Analysis Team
01 July 2009
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