The dollar, towering like a mighty oak above the world economy, contains the acorns of its own destruction. That’s because exports, which water the tree’s roots, are facing a lengthy drought. At least Tuesday’s report on the June trade deficit will provide a modest indication that the situation is improving, said Chicago economist Samuel Kahan. “The trade gap should narrow to $15 billion, from $15.7 billion a month earlier,” said Kahan, of A.S.K. Financial Research. The question, he said, is whether we have seen the worst effects from the Asian crisis. “There is deep concern that China will devalue its currency, which would create additional pressures on other Asian countries,” he said. “But there is cause for at least some optimism about Japan, which is taking steps to revive its economy.” Kahan said the dollar continues to enjoy plenty of support because “there is a continuing flow of money into this country. It is part of a worldwide search for safety.”
INTEREST RATES
EXPECT STATUS QUO
Policymakers of the Federal Reserve meet Tuesday to discuss interest rates, but Chicago banker Kenneth Skopec sees little chance they will do anything to upset the status quo. “At this juncture, the fragility of Asian markets and the worrisome situation in Russia make it very unlikely the Fed will take any action,” said Skopec, president of Mid City Financial Corp. He said the central bank has plenty of concerns, including signs that banks are becoming more lax in their lending standards. Adding to that are worries about a recent downtick in labor productivity. But the bottom line, said Skopec, is that “interest rates will remain where they are, until at least near the end of this year.”
HOUSING STARTS
FEWER NEW HOMES
Home prices have been rising much faster than overall inflation, and some analysts blame a slim inventory of structures for sale. Thanks to lower interest rates, a torrent of money has been chasing relatively few homes that are on the market. Wednesday’s report on July housing starts may do little to offer a remedy; a consensus of economists says new construction for the month slipped to an annual rate of 1.56 million units, from 1.62 million in June.
STOCK MARKET
BULL FEELING ITS AGE
It drew little attention, but the bull market in stocks turned 16 last Wednesday, even as the aging beast was tottering. Market historians date the so-called super bull from Aug. 12, 1982, when the Dow closed at 776.92. Flossmoor investment adviser Richard Evans says, “Stock prices will struggle for awhile. We won’t see 9300 on the Dow Jones industrials again anytime soon.” Evans, a specialist in the Dow Theory, which says groups of equities must move together, notes a bloodbath has beset small stocks and the Dow transportations. “The transports have fallen back to their lows of last October, and they have tumbled more than 18 percent from their highs,” he said. “Transports have led equity prices lower and . . . it will be hard for the stock market to mount any kind of rally at all.”
