Once again we witnesses the Chinese devaluing the Yuan. Remember what happened last time? Well, if I recall, Australia, Japan, South Korea, America, and several other key countries lowered their rates to drive their currency strength down to compete with the Export advantage the Chinese gained. Will we break the trend and really raise rates in September? I would say NO if I would believe the Fed really wants to compete in the currency wars. However, a political YES has high probability simply because of all the hoopla the Fed has led us on the entire year. Will the stubbornness of the Fed who kept promising a rise stick with it to buck the trend?
Let's say YES. What are the repercussions? Well, the Dollar gains strength. Not good for our exports, meaning not good for our a whole lot of important, large, businesses. Could be the time to look at the NASDAQ's small companies who focus only in the American marketplace. But, a small raise in rates with rhetoric that we shouldn't expect another for at least a year could be the catalyst, after a slight down market, to show the world that our businesses can endure regardless of the currency wars the others have begun to SAVE their economies.
If you followed my predictions, or the crystal ball my dog Sam left me, 2015 turns out to be a ho-hummer, slightly positive year for the markets. Thus, negative volatility will again be upon us, as will a recovery. Only question is will the recovery be quick enough to end 2015 positive? The question you should be asking though is where will we be 2-3 years out and start INVESTING rather than gambling short term.
Like our recovery after the financial crisis, the rest of the world is still digging themselves out. They have to continue QE and other means to get their individual economies positive. Emerging Markets still suck as commodity prices continue to drop because demand is pathetic. However, what happens when a countries GDP doesn't increase from already to low lows? The Government has to spend! China has been injecting Yuans into their businesses not only to keep them afloat, but to give the impression that the GDP isn't as bad as reality. They have tried to get consumers to spend more, but little help arrived. Of the Emerging Markets, only India is growing. And its because of India I am holding my DEO stock, betting with Diagio that their investment in India's distiller will spark a buying binge in a country that has shown no real market due to a lot of reasons. I see India continuing to grow the spending habits of its population.
In summary, Currency Wars are really no more than a war to see who can take down another countries economy by driving its export revenues up and gaining market increases. I think America can withstand any of those wars even when raising rates. The strength of the dollar is exactly what we need to curtail China;s push to make the Yuan a global resource for trade. See #696 for a insight on how Energy rules the world and our Dollar is the Petro Dollar. We can't let this slip away.
Entry #668 introduced a great book to read about Currency Wars: Currency Wars by James Rickards - Excellent book ties together the way nations manipulate their currencies to get an edge on other nations. Both history and current events. A+
Entry #696 presented another key book re petro dollar importance: "The Colder War, How the Global Energy Trade Slipped from America's Grasp" by Marin Katusa.
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