Wednesday, December 5, 2007

Canadians Buckle Under US Pressure - Cut Rates

Well I am disappointed in those Canadians. As I wrote yesterday I expect a worldwide drop in interest rates to help good ole America inflate its economy into a new bubble. I did NOT expect it to happen so soon. I wrote yesterday:

At this point other central banks are holding rates steady or in fact raising rates (i.e. Australia) to fight inflation. I think this changes once the reality of the US situation happens. After all we are all tied together, and a recessionary USA is not good for anyone. I think central banks in developed world by next year will begin cutting rates in unison as (a) Western Europe enters its own slowdown and (b) they are forced to, to bail out the USA for its mistakes. Inflation will have to be worried about another day. We will be going back to a world of easy money, so we can repeat this whole cycle once more (how sad)

Yesterday the Bank of Canada, which only in July was RAISING RATES, buckled to Goldman Sachs, errr I mean the US Government and cut rates out of the blue. This messes with one of my trades which was the buying the Canadian Dollar ETF (FXC) [Adding 2 Weak Dollar Plays] since it would hold up relative to the US Dollar. That trade is now moot since Canada is going to just follow us into the abyss of 'easy money' (anything to help a friend!)

Hence I am closing my position in Canadian Dollar ETF for a 3% loss and need to go find a country who is not America's lap dog. How disappointing (but not surprising). Australia just raised rates, but who knows what pressure is being applied there from our government, and I am 100% sure the UK will follow in tow soon enough, because their own situation is now closely mirroring the US. Maybe the Swiss will hold out.... they are supposed to be 'neutral' type of people.

Bank of Canada Cuts Interest Rates a Quarter Point
  • The Bank of Canada unexpectedly cut interest rates Tuesday by a quarter-point as the rally of the Canadian dollar slowed inflation and market "volatility" threatened to cool economic growth.
  • The bank is the second among the Group of 7 to reduce borrowing costs as officials try to keep the credit collapse of August from pushing the world into an economic slump. The bank's governor, David Dodge, and his team are also concerned that a stronger national currency is making Canadian products uncompetitive.
  • The Canadian dollar fell and bonds gained after the decision, which pushed the target rate for overnight loans between commercial banks to 4.25 percent. The change, which reverses an increase in July, was anticipated by 12 of 27 economists surveyed by Bloomberg News.
  • "We are likely going to see another cut," said Paul Ferley, assistant chief economist in Toronto at Royal Bank of Canada, the biggest lender in the country. "Going into the fourth quarter, our sense is the growth rate in Canada could get halved" from 2.9 percent in the third quarter, he said.
  • Across the Atlantic, the European Central Bank and the Bank of England have so far resisted cutting borrowing costs, while trying to push down market lending rates by offering banks extra cash. The Bank of England and the ECB are to meet Thursday. (PREDICTION? A CUT! TIME FOR EASY MONEY WORLDWIDE - NEW BUBBLES NEED TO BE FORMED SO WE CAN DO THIS ALL OVER AGAIN in 2010) woo hoo
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