Dollar reacting to decline in economic growth due to real estate foreclosures and lack of buying power
Peter Oberois
Nov. 26, 2006

The currency market senses the coming recession much faster than anything else. In spite of bullish technical patterns the dollar has decided to go down violently. A technical bull pattern can turn bearish very violently if the bases are taken out.

The dollar is going down when the trade and budget deficit are actually getting better. The gold is actually falling again the Euro. The reason behind it is the coming waves of foreclosures and bankruptcies in the real estate markets. Millions of properties are hanging there in the hands of so called ‘quick rich’ investors that have to finally declare bankruptcy and eventually the properties will be foreclosed. The effect on the banking system will be hundred times larger that the Saving and Loan scandal in late eighties.

The expected real growth of the economy as a result will be very negative. But there are no mechanisms in place to capture the same in the GDP reports or Leading Economic Indicators. Housing prices is just one component. The retail sales especially car sales will reflect the reality.

The currency, stocks and bonds will also reflect the reality. The 4.5% yield in long bond rates (10 year note) with much higher short term rates is significant. It says some thing is happening in the economy that is not being reflected in the reports. It is the hosing collapse and stagnating underemployment that is creating the real negative growth while the official reports show all green in the forefront.

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