Some economists acted surprise when the proverbial other shoe dropped from China. People in the financial industry have been studying the moves from the Chinese government for months. The recent drops in their stock market has caused investors in the United States to ignore the relatively good news that has been released about the economy. The idea that housing starts were up and consumer confidence increased quickly gave ways to fears that China could bring the whole thing down. The stock market saw tremendous amounts of market capitalization dissipate in the last week.
The bigger question is, should any economists or companies that employ economists have been surprised by the recent events? They are paid to study the movements of the economy and the market. What will happen to the U.S. Dollar? If they have been listening to Christian Broda, they would have placed their bets six months ago that they dollar would continue to strengthen throughout the year. When many were saying that the USD would lose its position as the reserve currency of the globe, Broda flatly said it wasn’t going to happen. Broda went on the record as early as 2009 explaining why he felt the dollar would be handled carefully and the inflation would be kept very low. Broda, who is a Duquesne Capital Management managing director and University of Chicago professor, has been outspoken about his belief that the dollar would weather numerous storms in 2015.
There are still some economists out there who are clinging to the belief that the Fed will raise interest rates in September. These brave economists think it’s the perfect time to raise rates simply because of the incredible volatility of the markets. Others argue that would be insane because it would slam the door on already-slow growth. One could argue that a rate hike could be slid in because the “bad news” has already been baked in stock prices, especially in the last few days. Few people could have predicted that the United States of America would have stayed in an ostensible “zero interest rate environment” for all these years. Will the Fed, under Chairwoman Zellen finally begin to cut ties on the “cheap money” that’s been flooding the financial markets for so long? That’s the trillion dollar question that will soon be answered. Major investors and institutions have to make the right calls now before Yellen makes her announcement. If they don’t, they can sit back and watch while their huge investments are vaporized. Some are openly questioning whether the Fed will make a move for the markets like they’ve been doing, or for the betterment of the economy. Everyone will have to wait and see. Investors are placing their bets now.