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1/20/10

Euro/Dollar Weakness Foretelling Equity Decline

The reactionary policy of central banks and governments in 2008-2009 re-opened the monetary floodgates, a supply increase that outpaced the increasing deleveraging-based monetary demand. The injected liquidity also loosened credit markets, allowing monetary demand and safe haven demand to fall, and increased investor perception.

The next cycle in this reactionary and interventionist game that central banks are playing involves a resurgence of the monetary demand side offsetting the supply. At this stage, an increase in interest rates or another liquidity extraction tool isn't necessary to catalyze a rush to liquidity. The deleveraging and credit tightening is already there and has been continuing, even into the face of a massive rally. This status quo merely needs to offset what's left of monetary supply increase.

For more: Euro / Dollar Weakness Foretelling Equity Decline? -- Seeking Alpha


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