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Making Bets Dollar's Fall Has Ended

by Travis Pantin
Tue, 18 Dec 2007 at 8:51 PM

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On Carpe Diem, a University of Michigan professor, Mark Perry, looks at market signals to predict the fate of the dollar. The greenback "is now selling at a one-year forward premium vs. at least a dozen currencies," he writes. This indicates that many people are betting the dollar will appreciate relative to those currencies over the coming year.

Mr. Perry writes that these signals suggest "the fall of the USD is probably over and we can expect an appreciation of the USD vs. the pound, rupee, peso, etc."

Mr. Perry also analyzes the prices of gold futures contracts, noting that because gold "is a hedge against inflation, the moderate increases in gold prices through 2011 indicate that there are no inflationary pressures building in the U.S. economy."

The bottom line: "The current rise in inflation … is probably temporary, and we can expect lower inflation in 2008 and beyond."

Subprime Mortgages and 'A Wonderful Life'
"If you think about it, the classic Christmas film 'It's a Wonderful Life' is really about subprime mortgages," Paul Kedrosky writes. Mr. Kedrosky has a particular moment in mind: an "emotionally manipulative" speech by the character George Bailey in support of a $5,000 home loan given to someone with dodgy finances.

In the film, George Bailey addresses the tightfisted creditor, Mr. Potter, thus: "What'd you say just a minute ago? … They had to wait and save their money before they even ought to think of a decent home. Wait! Wait for what? … Do you know how long it takes a working man to save $5,000? Just remember this, Mr. Potter, that this rabble you're talking about … they do most of the working and paying and living and dying in this community. Well, is it too much to have them work and pay and live and die in a couple of decent rooms and a bath?"

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