A Forex View From Afar

More problems ahead?

Written by A Forex View From Afar on Thursday, April 10, 2008

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Two big problems are lying in front of every Central Bank member now: who will date Britney Spears, and what is Paris Hilton doing lately?

Seriously, the problems are inflation, lead by commodities and higher food prices, and the current uncertainty in the market.

We have also got the world divided in two at this point: The Fed, Bank of England, Bank of Canada and soon Bank of Japan will join (the market says) the group that now battles recession fears; On the other side of the fence there is the RBA, and the ECB plus the regional banks that are under ECB's "hand", and China that battle inflation.

I think the charts speaks for themself, the commodity index had raise to unseen numbers, with grains having a 12.4% gain, industrial metals 22.2% and crude oil 14.8% gain this year alone, and only a quarter in to the year.

What is worse, since everybody is seeing a global slowdown, these prices should go down due to lower demand, But they are not and their motives some say are speculative interest, others say due to emerging markets demand. I say they are both, plus a weakening dollar

The other big fear nowadays is the market-uncertainty. The biggest bet these days is to guess if any bank will default (again) and which one it will be. Of course, this fear is seen in the markets, not only in Forex or Stocks, but in money markets too.
The spread between the Three Months T-Bills, which are considered risk-free, and the 3 Months Libor rate, the rate at which banks loans between them, is at a high level, and worse, it's starting to rise again.

At this point in time, I can't tell who's doing a better job, the inflation-fighters or the credit crunch wrestlers, but all I know they are moving in different directions at this point in time, and this doesn't help either of them too much.

But If I had the ability to influence something I know what I would do; send regulators to banks to write downs all toxic assets (or at least to know how big they are) and force banks to start lending to each other. One more thought, as a simple citizen, inflation isn't doing too good for my state of health, my budget, not my savings either.

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