Fed will raise rates twice starting March 2007 – bullish for dollar bearish for stocks
Joe Weinman
Dec. 8, 2006

The US Dollar is following the US Stock market with two-year delay. The effects of interest rates trickles down to dollar slowly while the stocks react very fast. The job data showed that the economy is in sound condition – at least according to official measures. The inflation is slightly above Fed’s goal. The lack of employment in correcting housing sector is compensated with business and financial services jobs.

Next year, there is more than 68% probability in a high confidence level that Fed will raise rates two times starting in March to cope up with inflation. Then they will pause again. That will be very bearish for stocks. Today’s stock market action in spite of great job data provides clues to what will happen in 2007. Any further rise in rates will; create a bear market in stocks. The dollar will rally very fast. The current low dollar will be the root cause of major slowdown in Asia and Euro Zone by 2007 March. As Fed will raise rate, ECB will stay put – even they make cut rates. The stocks in US and worldwide will suffer heavily.

The dollar will follow the two year lagged cycle of Dow. The dollar index can reach as high as 120 from current 83 by 2008-2009. The Dow will fall below 7000. Gold will retest the $400 an ounce. The oil will also trade down due to lack of worldwide demand in 2007-2009. US trade deficit, budget deficit and balance of payments will improve dramatically. Iraq will have a political solution.

Fed will raise rates twice starting March 2007 – bullish for dollar bearish for stocks
Joe Weinman
Next year, there is more than 68% probability in a high confidence level that Fed will raise rates two times starting in March to cope up with inflation. Then they will pause again. That will be very bearish for stocks.
READ MORE>>

Economy in the middle of a tug-of-war between lower home prices, increasing stock market and lower gas prices – where does consumer stand?
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The consumer will eventually further contract. But that will affect Euro Zone and Asia much more than US economy. The US exports will remain steady but the imports will plummet sending the word economies in economic recession.
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A steady Michigan Consumer Sentiment index with lower retails sales bearish for stocks – 1928-29 parallels
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The stock market has lost touch with the real world – the grass root economy. Last that happened was in 1928-29. A severe depression followed that in 1929-33. 1928 Christmas was great for the Wall Street.
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A correlation between CRB index, Dow and VIX shows Stock market ready to plunge in January 2007
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Stock market is guided by profitability. A sharp rise in CRB index means higher raw material cost. That, if significantly higher causes a major problem for corporations.
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Unemployment data ready to reveal economy stronger than many thinks but a major recession is eminent
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The unemployment data will be surprisingly strong because of early Thanksgiving and late survey of last month. The real estate gloom is spreading fast in the labor market but this report will show stronger job growth than the consensus.
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European Central Bank President Jean-Claude Trichet signaled he's in no rush to boost interest rates – bullish for dollar?
Preity Gallop
ECB feels the rates are low enough to help dollar recover grounds and Euro Zone to keep growing. At the same time ECB is in no hurry to raise rates as US economy have started to slow down.
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