How Things Are Holding Up
Written by A Forex View From Afar on Wednesday, March 05, 2008Back to www.thelfb.com
The credit crunch is affecting borrowers more then ever, with the spread between the e 30-year fixed mortgage rates and the 10 years Bonds, the "penalty" yield for having a mortgage security, having reached 208 points, the biggest since 1986.
The Rate cuts didn’t have any effect in helping the Credit Markets, but they had an effect on the Forex Market, with the dollar reaching its lowest value since the scrapping of the Gold Standard. Commodities get more and more expensive because of a weak US Dollar. Equities are now concern about the Credit Market, but soon they may be more concerned about higher Commodity prices wiping out dividends.
Here is the complete picture; the Credit Market is pushing Interest Rates up, the Dollar lower, and Commodities higher. The same Credit Market, together with very expensive Commodities, are sending Equities lower, thereby creating the demand for more rate cuts. If the wheels of the Credit Markets are not greased soon the whole liquidity issue may implode on itself, cutting Rates however is a bit of a vicious circle, it just seems as though the ‘one last Cut’ is never enough.
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