13 June 2008 - 14:49Market Commentary 6/13/08

It has been a very interesting week with the dollar gaining ground as inflation is growing and oil is remaining at all time high prices. Bernake recently admitted that the high price of oil is due to the meddling of the Fed and their week dollar policy. It appears that the markets expect him to reverse course and start raising rates again to counteract his previous blunders. Let us hope it is not idle talk and that he will follow through with it now that the Fed has bailed out it’s member banks. Meanwhile the Japanese decided to hold rates steady and forecast “slowing growth” in their economy. No doubt due to the recession in the U.S. and it’s implications to exporters like Japan. I am sure the Japs are happy to see the yen backing off today after their meeting and somewhat gloomy forecast. They do cite inflationary pressures but it does not look like they are poised to raise rates anytime soon to curtail it. Especially when doing so would cause the yen to appreciate and they are not comfortable with that scenario. No doubt they are counting on the Fed to raise rates and thereby ease Japanese inflation because oil is being sold only in dollars outside of Iran, who began accepting the yen and the euro at the end of April. No wonder so many people in Washington want to invade them now.  It seems that the BOJ is betting on raising rates so they won’t have too. Higher rates in the U.S would ostensibly solve two problems for the Japanese, increase the purchasing power of the dollar, and decrease the  cost of food and fuel which is priced in dollars. That is of course assuming that the dollar actually rallies if and when the Fed raises rates. Of course the Japanese who have a notoriously weak currency despite being the number two economy in the world have shown they are not afraid of a little inflation. In fact over the years they have proven quite happy to devalue their currency in an effort to give themselves an unfair trade advantage over western rivals. We all know we are already at their mercy should Japan and China decide to unload all the dollars they have stockpiled one day and bring the U.S. to it’s knees. Who knows, maybe that’s what the Amero proponents are counting on.