Decoupling theme finally dead?

Dec. 7 (Bloomberg) -- It turns out the U.S. economy matters after all.

The credit collapse and dollar decline that followed a surge in U.S. home foreclosures jeopardize expansions in the U.K., Canada and Germany, economists said. They also debunk ``decoupling,'' an argument advanced by analysts at Goldman Sachs Group Inc. and Morgan Stanley that the world wouldn't suffer as it did during U.S. slowdowns in previous decades.

The Bank of England and Bank of Canada this week followed the Federal Reserve in cutting interest rates, and the European Central Bank lowered its growth forecast for next year. British policy makers reduced their benchmark rate yesterday, even after Governor Mervyn King expressed concern about inflation just two weeks earlier.

``Two thousand and eight will be the year of `recoupling','' said Peter Berezin, an economist at Goldman in New York, explaining his firm's about-face. ``What began as a U.S.-specific shock is morphing into a global shock.''

Aussie vs. Gold...

FSA warns mortgage lenders over liquidity risk

FSA warns mortgage lenders over liquidity risk
By Peter Thal Larsen, Banking Editor

The Financial Services Authority on Tuesday warned Britain’s mortgage lenders to batten down the hatches as it told them to assume that market conditions will remain “very difficult for a sustained period”.

Clive Briault, the FSA’s managing director for retail markets, said lenders should be willing to rein in growth in order to concentrate on building up liquidity reserves.

“I realise that holding higher levels of liquidity, with longer maturities, is much easier said than done at a time when wholesale funding is much more difficult to raise, the securitisation market has virtually dried up, and loan books sales are harder to achieve,” he said in a speech to the Council of Mortgage Lenders.

“But it would be prudent to pay a correspondingly higher price – and to forgo some profits – to secure this protection, or otherwise to scale back balance sheet growth.”

The bleak statement reflects growing concern at the FSA about the financial health of the mortgage industry in the wake of the collapse of Northern Rock and the recent renewed spike in inter-bank lending rates.

Bank of Canada Surprises ...

The Bank of Canada announced its interest rate decision for its early December meeting. The markets had been anticipating the Bank fo Canada to leave rates unchanged, but the bank chose to cut back rates by 25 basis points ...

Bloomberg.com has the full story for your reading pleasure:

Canada's Dollar Declines to Lowest Since September After Bank Cuts Rates The Canadian dollar fell to the lowest in 10 weeks after the central bank unexpectedly cut interest rates to support an economic expansion threatened by slowing exports and a decline in the availability of credit.

Commitment of Traders Report thru 11-27-07

120307%20COT%20report%20112707.pdf

Comments:
· Overall positioning declining i.e. total open interest was 378,904 on 11/20; it fell 18,441 to 360,463 on 11/27
· Biggest change from euro i.e. a 7,213 decline in long open interest came out of year for the week; suggesting trader sentiment toward the euro may be fading