Which does the stock market fear more? A weak, trashed dollar, or a tightening Fed?
Both, for different reasons.
Meanwhile, it looks like both are realities here to stay for a while. There is little hope that USD will climb to parity with EUR in the foreseeable future, and judging by declining liquidity numbers, Fed has already pronounced the end to the times of plenty.
There is no doubt that the Fed will have to tighten. The question is when. The Fed IS between a rock and a hard place, for if they increase interest rates in a meaningful way, they will burst the credit bubble, possibly even causing massive mortgage defaults and a real estate market crash. And if they don't, inflation will surely raise its ugly head.
We'll just wait and see, I guess. What I would love to know is, what on earth happened to all those devout believers of the imminent dangers of deflation, who refused to see PPI & CPI numbers and looked only at "core inflation" as ordered by the Fed... Where are they now? Do they still stroll the streets with "Deflation is upon us! Repent!" signs on their backs? :-) |
