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What Greenspan Really Said about Home Prices Yesterday
Greenspan just announced to the world that the drop in home prices will probably end “well before” early next year. Now to me, “well before early next year” seems to translate into a housing recovery at the end of this year (or possibly the first month or two of next year). He has a weird way of saying it, in typical Greenspan code. Sometimes I wonder if his wife can understand him. If so, maybe she could translate for us. “Honey, I’ll take the trash out well before next week.” When is that? Anyway, back to translating. If the housing market stabilizes enough that consumers can see the end in sight, then they’ll re-open their wallets and start spending again. So when they start spending like there’s no tomorrow (what they do best), the economy will get back on its feet. Now if this happens at the end of this year or the beginning of 2009 then the savvy investors will start buying stocks now in anticipation of an economic recovery. So “the worst credit crisis in 50 years” as he put it, may be coming to an end soon. In fact, he states that the recovery will be “slow and hesitant.” I’d have to agree – slow and hesitant, as in “it’s not near over yet.” So where does this leave us as far as currencies are concerned? The U.S. slowdown will have a “weighing” effect on the Eurzozone. European Central Bank President Trichet will likely cut rates in the latter half of the year as the effects of the U.S. slowdown all over Europe. As he does, this should put a medium term top in on the EUR/USD pair. The British pound is further ahead in this cycle so it will continue “show the euro the way down” as the GBP/USD plummets even more.