‘m back from my trip to Colorado. What a week I missed — a meltdown in commodities and a big melt-up in the US dollar. Here are two important charts …
Some people think the euro has fallen against the dollar too far, too fast. Why is the dollar so strong? Many traders believe that the bad news is already baked into the dollar, while Europe is just beginning its parade of pain. Indeed, the Eurozone may be the first major economy to fall into recession. Naysayers may point out that the US cooks its own economic books so much that Ben Bernanke should be called “Uncle Ben”, but you can’t fight the market, and the market is bullish the dollar right now.
Certainly, oil has been tracking the euro closely, so if the euro is going lower, oil should go along with it.
Is the pullback in commodities overdone? Merrill Lynch thinks so. “The slowdown in China is an undeniable fact, but we think the worries are a bit overdone. We expect the Olympic Games to have small negative impact on production and demand [in the July-September quarter], and we see a rebound post the Olympics on pent-up demand,” wrote Merrill Lynch economists in a note.
Meanwhile, gasoline prices continue to drop across the U.S. I think the inventory reports this week will be very interesting.
The Riddle of the Impossible Surpluses In 2005, the world’s current account balances - exceptionally - did actually balance. Since then, the surpluses have gained the upper hand. According to the IMF’s latest estimates, the world will show an overall combined surplus of $265 billion this year. Large surpluses in China ($385 billion), Japan ($193 billion), Germany ($191 billion), Saudi Arabia ($145 billion) Russia ($99 billion), Kuwait and the United Arab Emirates (each $66 billion) more than compensate for the red ink in the deficit countries, led by the US ($614 billion), Spain ($171 billion), UK ($137 billion), France ($67 billion), and Italy ($56 billion).
What’s the fighting between Russia and Georgia about? The New York Times has a good backgrounder in “Taunting the Bear.”
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