We are experiencing among our clients an awakening that the United States is in big trouble

November 8, 2007 at 4:52 am | Posted in capitalism, markets | Leave a comment

That is the most disturbing quote in this article about our market today.

Stock markets plummeted and the dollar sank to a record low against the euro yesterday as investors worldwide grew skittish over rising oil prices and the prospect of a substantial economic slowdown in the United States.

The Dow Jones industrial average fell 360 points and the broader stock market dropped nearly 3 percent, driven down by fear that the troubles in housing are likely to continue well into next year, contributing to further losses in credit markets and spreading pain to the rest of the economy. After a relatively strong summer, consumer spending is expected to tighten and business profits slow in the months ahead, analysts said.

We’ve been warned that this housing bubble would burst, and the result would not be pretty.

The rise in oil prices, which briefly traded yesterday above $98 a barrel before settling at $96.37, now appear to be pushing up the cost of gasoline, heating oil and jet fuel as well. That only intensified concern that American consumers may no longer be able to sustain their spending on other goods and services, particularly the large numbers of gas-guzzling vehicles still being turned out by the Detroit automakers.

The most immediate trigger for the sell-off in the dollar, traders said, was a jarring signal that suggested China might shift some of its enormous hoard of foreign currency reserves — worth more than $1.4 trillion, primarily in dollars and dollar-denominated assets — into other currencies to get a better return on its money.

“We will favor stronger currencies over weaker ones, and will readjust accordingly,” Cheng Siwei, vice chairman of the Standing Committee of the National People’s Congress told a conference in Beijing on Wednesday. A Chinese central bank vice director, Xu Jian, said the dollar was “losing its status as the world currency,” according to Bloomberg News.

Mr. Cheng later told reporters he was not saying China would buy more euros and dump dollars. But as markets opened across Europe, those words echoed as an invitation to sell the American currency.

The dollar fell to its lowest level against the Canadian dollar since 1950, the British pound since 1981, and the Swiss franc since 1995. The euro rose to a new record, $1.4729, before retreating.

I’m not a market analyst, so I’m not sure which way this will go, but it doesn’t look good.

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