Don’t put too much faith in the dollar just yet. A lot of the dollar rally can be attributed to a rush to cash in a world of dollar denominated assets.
Inflation may still rear it’s head thanks to Hanky and Beranke’s blank checking spending sprees.
If those trends continue, and they show no sign of slowing, there’s little reason the fall in commodities won’t reverse.
“…there is a difference between markets decoupling short term and economies decoupling long term. In a crisis, stock markets do move in unison. But eventually, stocks respond to economic strength.
The U.S. economy is expected to contract, and though that will impair other economies, those other economies continue expanding. China is certainly downshifting, as evidenced by the weekend’s announcement. But even taking the crisis into account, the International Monetary Fund expects China’s economy to expand 9.7% next year and 8.5% in 2010. Even growth somewhat slower still would mark a faster rate than the developed world.
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Certainly, the economic fate of some emerging nations dependent on foreign direct investment in places such as Eastern Europe and Africa will remain closely tied to the struggles of the U.S. and developed Europe.
But by and large America’s economic margin is shrinking, which means the U.S. becomes a smaller player in the global economy over time.
“That’s the essence of decoupling,” said Bob Andres, chief investment strategist at Portfolio Management Consultants. “That’s not saying the U.S. is losing economic power, only that the demise of the reliance on the U.S. is clearly a trend. And it’s healthy.”
The BRIC countries will start consuming their own goods – look at China’s bailout, and they’re spending money they actually have.
