US Dollar Forecast 2008
Brave new US Dollar forecast for 2008. Warning. I could always be wrong. But I doubt it.-)
Here is a quick and easy US Dollar forecast for 2008. The Dollar is going to get tanked. Deep sixed. Really hit hard.
Of course, anyone who has ever traded forex knows that I and all of the other forecasters out there could be wrong. Forex forecasting is a risky business and forecasters often get it wrong. So in the end you had best trade, if you must, based upon your own short term research and not look too far ahead or become too opinionated.
However, the US Dollar looks to be a doomed currency over the next few years and 2008 is likely to be the year that sends it unhappily on its way to currency hell. That is where currencies go when no one in his right mind still wants to hold them.
The subprime mortgage lending fiasco is likely to be the initializing event that drives the stake into the Dollar’s heart. Those who think that the liquidity crisis caused by that event is over will be sadly mistaken. The housing crisis in the US is just getting underway and will be much worse than that which seems to be the consensuses forecast.
The thought that you can solve a problem caused by too much liquidity in the banking system, much of which found its way into real estate, by pouring more liquidity into the system just doesn’t make sense. The present credit crisis is caused more by lenders being afraid to lend to each other because they are unsure as to the financial standing of the entire banking system than a shortage of funds to lend. Fear has taken over in the financial world.
Lenders do indeed have a lot to be fearful about as we enter 2008. Hundreds of billions of dollars of losses are accumulating on portfolios of housing loans made to people who do not have the ability to repay. Additional hundreds of billions of losses will soon appear with credit card debt. Credit card borrowers are already falling behind on loan payments at record rates.
What the markets have not realized yet, is that credit card debt has been packaged and sold off to unsuspecting and greedy investors much as has bad housing loans. Through the magic of packaging and reclassifying bad loans have been rated AAA and spread around the world as high quality investments.
The entire fiasco of subprime mortgages, credit card debt, and derivatives which have no market and can not be properly valued due to being about as liquid as a stone, is likely to unravel in an extremely nasty way in 2008. Many of these “investments” are in fact extremely risky misallocations of funds and have been marked to make believe evaluations that will prove to be in the real world grossly overvalued.
The Federal Reserve bank will very likely choose to let inflation run away uncontrolled as it attempts to prop up the economy as loan losses and investment losses mount at a terrifying rate. As the Fed cuts interest rates to fight a recession or worse, the US Dollar will be sacrificed.
The problem will be that in an atmosphere of fear the Fed will be pushing on a string. The financial excesses and misallocations of capital of the past many years will not be corrected with cuts of interest rates. Institutions, investors, and the general population will be fearful of borrowing funds at even very low rates.
The major trends in 2008 will be precious metals seriously up, the stock market down by 25% or more, and the US Dollar seriously down. Steps taken to prop up the economy will only make inflation worse. The word stagflation will be back in use after a long vacation.
Will it take another Paul Volcker and a 21% prime rate to save us? Who knows? But one thing I can say with certainly. The excesses of the past will be corrected only by a real to goodness recession. The US Dollar will have a hard time staying afloat with cuts in interest rates, a deep recession, and a serious bear stock market on the horizon.
Look for new all times lows against the Euro, perhaps to 160.00 or more, and for the Japanese Yen to break below 100. 2008 should be a most interesting year.
But of course, I could always be wrong. But, this time around with the perfect financial storm brewing, I doubt it
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