Wednesday, April 26, 2006

Interesting confluence.

The data-driven trading goes on. Today, yields rose considerably after favorable economic reports presaged a "definite" 50bps increase in rates.

Some "predictions":

This summer will be interesting. Gulf waters at record (at least, since temperatures have been recorded) highs, interim elections, and rising rates. Equity markets will finally pop (probably on some seemingly innocuous event) then recover for the rest of the year for a year on year gain.

Japan is still attractive. Germany and France more so. I continue to think that the dollar will not weaken appreciably against the euro due to continued capital account surplus. The commodity currencies will depreciate as the big fish in the passive funds take their profit and go off to higher a world of increasing interest rates.

On numerous occasions, the Fed has implied it will bail out homeowners. Look for rates to stabilize then decrease in early 07.

The major factor in all of this is Bernanke. His interpretation of rate lags is crucial, as he is an academic and they all think that it takes 6-12 months for rate increases to be felt.

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