Mar

21

I figure there are a lot of phone calls between central banks [now], namely the Fed calling the shots [just like] after 2008.

I see that after consolidation, the dollar yen ramped up for about 10 months (after the Japanese stepped it up the week after the Fed stepped it down on qe) and eurusd was belted for about 10 months from top to bottom. Funnily enough Draghi had his cake and ate it too. (The last sentence kept the Fed happy).

So how about the USD has a breather [i.e declines] until about October, and then everyone has had their day in the sun [i.e has had a turn at depreciating their currency], and maybe fx101 is back on track.

John Floyd writes: 

I would caution some danger of being too sanguine of such prospects and consider the following question: "What are the differences between 1998, 2008, and the current set up in 2016?".

One might consider the key question to ask preceding 2008 was what was driving the US consumer and what were the prospects for housing, mortgage equity withdrawal, the size of consumption as percent of the US economy, and the US economy as a percent of world GDP.

The vulnerabilities in 2016 are not centered in the US and the emerging markets represent a significantly larger portion of world GDP. China is now the world's second largest economy and emerging markets as a whole account for about 40% of the world's GDP.

But, unlike 1998, the emerging world's weakness is not anchored to fixed exchange rates that were prevalent in Asia and Latin America and public finances are in better shape.

Rather than being US centric fault lines are seen on multiple fronts such as the UK, China, Brazil, South Africa, Russia, Japan, and the European periphery to name a few.

The room for official policy maneuvering is also very different in 2016 than it was in 1998 or 2008.

One of the things I found most helpful pre 2008 was the simple math of looking at the components of GDP by country and the global weights of GDP and anticipating the direction and size of changes. Today, that same math yields some interesting conclusions into the possible outcomes and market reactions.


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