November 13, 2008
I read this great article today about the Skyscraper Index. It’s a bit dated and you may have already heard of it, but nonetheless I find it very interesting so I figured you might too.
The index was created by economist Andrew Lawrence in 1999 and based upon his analysis, major downturns in the economy has coincided with the development of the “World’s Tallest Building.” The quest for extravagance tends to happen at the peak of any business cycle and by the time the world’s next tallest building is underway, the economy is headed for a significant contraction. Lawrence’s study was based upon 100 years worth of business cycles.
Here is the full 41 page report on the Skyscraper Index written by Mark Thorton of the Ludwig von Mises Institute.
What do you think?
Source: MoneyWeek
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Posted in Forex, Forex News, Forex Podcast, forex blog, skyscraper index
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November 13, 2008
When the labor market is in trouble, the US economy is in trouble. Jobless claims rose 516k last week to the highest level since September 2001. The claims for unemployment benefits was only surpassed in the 2.5 weeks following 9/11.
Extrapolating the jobless claims data to non-farm payrolls and we could see non-farm payrolls top 300k before the end of the year. In September 2001, the last time jobless claims were at current levels, non-farm payrolls dropped 244k and in October of that same year, it hit that recession cycle’s low of -300k.
Retail sales also dropped 1.8 percent in September 2001, indicating that the deterioration in the labor market will cause a sharp contraction in consumer spending. Although the NBER has yet to admit the US economy is in a full blown recession, the jobless claims data is already beyond at recessionary levels.
The US dollar remains firm as the latest piece economic report from the US confirms the seismic challenges facing the US economy. The global markets did not receive Paulson’s changes to the TARP plan well and I continue to believe that in this troubling market environment, the US dollar and Japanese Yen will be the winners.
G20 Meeting Right Around the Corner
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Posted in Bernanke, Fed Rate Cut, Fed Rate Cut Expectations, US Dollar, consumer spending, forex blog, jobs
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November 12, 2008
If Martin Feldstein, a member of the National Bureau of Economic Research is right about the unemployment rate surpassing 8 percent, then we could expect consumer spending to slow further, pushing more retail chains into bankruptcy.
The NBER is the organization that officially determines whether the US economy has fallen into a recession. Although Feldstein is only one of its 8 members, I find it particularly interesting that he said the US recession is just beginning. I think that we are halfway into the recession.
The NBER has yet to officially recognize the recession and his comments are a step in that direction.
Officially recognized business cycles and expansions by NBER
Source: National Bureau of Economic Research
Posted in Forex News, Forex Podcast, forex blog, recession
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November 12, 2008
The global unwind continues this morning with US equities, commodities and currencies taking another beating. The US dollar and Japanese Yen continue to outperform with the British pound hitting a fresh 5 year low.
The story is still the same, which is sell first and ask questions later. It is earnings season and the reports that we have seen so far are a harsh reminder of the growing problems in the US economy. Retail sales are due for release on Friday and the warnings from retailers indicates that consumer spending has slowed materially.
Best Buy cut its full year forecast today, DHL is shutting down its US operations and Circuit City became the 14th retail chain to go bankrupt, joining companies like Linen N Things and Steve and Barry.
We are in a global easing cycle and the market expects central banks around the world to follow the UK’s aggressive interest rate cuts.
Central Bank Meetings: What Do I Expect for December
Federal Reserve: 50bp cut
Bank of England: 75bp cut
European Central Bank: 50bp cut
Reserve Bank of Australia: 75bp cut
Reserve Bank of New Zealand: 75 to 100bp cut
Bank of Canada: 50bp cut
Bank of Japan Japan: no rate cut
Paulson’s comments aren’t helping either:
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Posted in Bank of Canada, Bank of England, Bank of Japan, BoE rate cut, British Pound, Canadian Dollar, Carry Trades, ECB, Fed Rate Cut, Federal Reserve, Forex News, Forex Podcast, ecb rate cut, eur/usd, forex blog, retail sales
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November 12, 2008
When the Bank of England cut interest rates by 150bp last week, I turned aggressively bullish EUR/GBP on the belief that interest rates are headed below 2%. The currency pair has now hit a record high as the market realizes that not only will UK interest rates fall below 2%, but could be headed to Japanese levels. Against the dollar, the British pound has fallen to fresh 6 year lows but the historically significant moves are in EUR/GBP.
According to the November Inflation Report, the monetary policy committee believes that inflation will fall below their 2 percent target with the potential of hitting 1 percent. With price pressures expected to ease significantly, the Bank of England sending a strong signal that interest rates will continue to come down.
There is talk that the recessionary conditions in the UK economy could turn the UK into the next Japan. Another 200bp of easing by the end of the first quarter has been priced into the markets, which would take interest rates to 1%. If the BoE chooses to overshoot monetary stimulus, UK interest rates could be at Japanese levels.
Mervyn King has become quite a maverick and we would not be surprised to see another large rate cut from the central bank.
When the dust settles, the UK’s aggressive monetary stimulus should turn their economy around faster than the Eurozone or the US, but in the meantime, more rate cuts mean more weakness for the British pound.
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Posted in British Pound, US Dollar, forex blog
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