Interesting read by Cramer:
Watch That Euro
By James J. Cramer
Originally posted at 1:48 PM ET 9/19/00 on RealMoney.com
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When we think of 1990, we think of external crises that created a climate of worry and fear. We had a doozy of them at the time, everything from the S&L crisis to the Iraqi incursion into Kuwait. It took a war to bring oil down then. But the S&L crisis was brought to a conclusion by much lower short-term rates.
This time I think the market will have to work its way through the oil situation through the time-honored processes of drilling and de-bottlenecking. It won't run its course immediately, but a top does get put in at some point.
But our other crisis, the debilitated euro, reminds me more of the S&L crisis, because the Fed can do something about it. As the euro gets kicked down to new lows, we have to think about what whether the collapse of this currency is the kind of crisis that will cause the Fed to act. If the Fed were to cut rates, it would take pressure off the euro, because right now anybody with a euro wants the dollar. But if you knew that the short-rates that you earn for owning dollars were about to go south, you might be tempted to sell dollars and buy euros.
I think we get out of this euro jam by the Fed coming to its senses and realizing that it has to cut rates to keep the euro from hitting some absurd level like 75 or even 70. That's how we put a real bottom in our market, rather than a trading bottom. As the euro falls, watch for this to happen. Currency crises have often provoked the Fed into action that benefited the U.S. stock market. I see this one unfolding by year-end, or at the latest, by January. So watch that euro. It might hold the key to the U.S. stock market's moves in the next six months. |
