Business-Insider

By John Jagerson, 28 Aug 2007

I am already seeing some reports today that the huge decline in U.S. consumer confidence was due to housing problems. For once, that is not the only culprit. Concerns about job security and the labor outlook in the confidence report was the big leader. Overall confidence fell to June levels and completely reversed July's "confidence rally." With a reading of 105, the report has hit a year low at a level we have not seen since 2005.

This volatility in consumer confidence is not a surprise. Debt his very high, savings are extremely low and anxiety over falling home prices and rising mortgage rates are psychologically very stressing to the U.S. consumer. This volatility is only going to increase and ultimately it will undermine the fragile strength in the U.S. economy to the point that the Fed may have to jump in and take extreme action. Lowering interest rates aggressively could buy a lot more time for the economy to work itself out and may begin to reduce the impact of the sub-prime nightmare on the U.S. consumer and businesses.

In my opinion, the take away here is that investors are going to have to deal with a high risk financial market environment in the near term. The wild-card Fed will continue to spook investors and a shift out of riskier assets is likely to continue. Therefore, I think the USD/JPY is a long term sell and the USD will ultimately weaken against currencies with monetary policies that emphasize stability over growth.
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