The dollar is higher across the board this morning

Outlook:

Today we get Oct pending home sales and the Chicago PMI, likely to show a re-treat and offsetting the good Philly Fed activity index last week. We do not have a sense that the US economy is roaring along on all cylinders.

The climate change summit in Paris comes under political news rather than commodity news because the likelihood of anything significant emerging is very low. Possibly more promising, Bill Gates is lead-ing a clean energy initiative with a bunch of other billionaires seeking practical solutions. Bridgewater’s Ray Dalio is part of the clique and that’s always interesting.

It’s month-end and that brings some position adjustment, but more importantly, the December month starts tomorrow and that brings the year-ahead crystal ball-gazers out of the woodwork. Forecasting is our business but we find these exercises tiresome. The Economist version had two items of note—first, emerging markets failed to adapt to the looming US rate hike and continued to borrow vast sums in amounts about to become too expensive to repay, especially coupled with the fall in commodity prices. Since we have been talking about this for over two years, it’s a sad verdict on EM management capabil-ity. We always think it will be different because communication is so much better now, but alas, no. The only interesting EM news is from Argentina, a country stuffed with excellent economists who nonetheless can’t get anything right done (like India). We will soon get some fireworks from BA.

The other nugget of information from The Economist is that the China slowdown will affect only some suppliers, like raw materials, and some competitors, who will suffer from falling Chinese prices. But on the whole, most companies will be unaffected, especially in the US. “… less than 5% of big listed West-ern firms’ profits come from China. Of the profits made there by all listed firms, only 10% accrue to foreign ones. Only 19 members of the S&P 500 index of America’s firms make over a quarter of their sales from China, mainly technology component makers and Yum! Brands… “

Bottom line, the China boom was “epochal but didn’t revolutionize the world business hierarchy.” Japan’s just-in-time manufacturing did, for example. “China has exported $16 trillion in goods over the past decade, but not a big business idea. Its state-owned firms are mired in debt and over-capacity.” The interesting news is that the new super-elite of American firms with market cap over $200 billion (like Apple, AT&T and Berkshire Hathaway) have nothing to do with China. The mere mention of Berkshire Hathaway reminds us of a big purchase a few years ago—in railroads. The Economist writes that the smart money left China two years ago… but some smart money will start to go in sometime soon, a ver-sion of the market lore that the best time to buy is when there is blood in the street.

We will easily get used to slower growth in China. We will have the same response to EM debt crises as in times of yore—some will get rescued and some will not.

As for our immediate future in FX, talk of the ECB dovish moves this week is universal but that doesn’t mean it’s fully priced in. The same thing is true of the Fed hike two weeks later. We may see some back-ing and filling, but 1.0700 and 1.0800 can now be seen only in the rear-view mirror. It is conceivable that Mr. Draghi surprises with some lesser moves, but not likely. Besides, historically the dollar rises ahead of payrolls, usually on the Wednesday but there is no strict rule. We could have a lot of chop this week. Stay the course.