Tekmnd

JeffShepherd

Apart from the US jobs report on thursday I have noticed the markets have been rising on some good news in the past week or so and then giving up all or most of the gains later in the session, the FTSE 100 has broken out of the recent up trend and the S&P 500 seems to be at a major resistance level in the down trend where the markets crashed. Read the section "A warning from the charts" in this article Currencies: Could the dollar be in a new bull market? - MoneyWeek

talolard

Here's a theory.
What we are seeing with this rally in the stock markets is an increase in risk appetite. The stock market rising does not necessarily mean that we are in a recovering economy or that the worst is behind us. Or more precisely I think that the markets don’t rise because investors think the worst is behind us.

The markets rising and the dollar declining is an obvious sign in an increase in risk appetite. More and more people are willing to take risks in the market. But we can also note that this rise has been on relatively low volume so that it is not many many people or many many dollars that are pushing this rally but a smaller amount of people. We can also note that gold is rising and so are other base commodities and precious metals which show us that generally the market is risk averse.
But we should note that both stocks (at least the American ones) and commodities are quoted in dollars and thus their price must reflect their value after taking into account the value of the dollar.

The dollar is declining chiefly because of increasing supply and diminishing return (the fed printing money and giving almost no interest on it). Thus we understand why gold and commodities are rising and for the same reasoning we can understand why stocks are rising.

As Simit has been saying since this rally started, stocks are increasing because the currency they are denominated in is depreciating dramatically. While I won't go so far as to say that the depreciation of the dollar (i.e. that nasty word, inflation) is the sole cause of the rally I do believe at this point that the majority of this rally is actually investors going short the dollar.

So why are stocks not reacting to the economic data (and they have not been reacting to it "correctly" for the bulk of the rally). It is because this rally is fueled not by a recovering economy but by a depreciating base currency. In other words, a hedge against inflation.

I recall some of the best advice in "reminiscence of a stock operator" is that when the markets don't react to the news the way your analysis dictates they should then your analysis is wrong. The context of this rally is not a stabilized economy in which investors are willing to take more risk but rather a safe bet that the dollar will depreciate. Thus when we analyze the markets according to the previous paradigms we used of the markets being driven firstly by the economy then our analysis will be wrong, for example the lack of effect of unemployment. It didn’t have the effect that an economical analysis would dictate because buying stocks has been for the last months going short on the dollar and not "long on the economy".

As for why currencies are ranging, I don't see it. At least amongst dollar pairs, the only one that is really ranging is the GBPUSD and even that is only for the last month and a half. Everything else is showing a very consistent trend of down with the USD. On the longer term you can say that all of these currencies are trading but that is only because the dollar rallied as the crisis started and depreciated as the fed printed more and more of it.
Tal

Ruben..

Hi friends!

I think that the GDP grew is totally fake, in my opinion the numbers came positive because of the -cash for clunkers- program, wich help-artificially- on the sales of cars. This numbers didnt show a true/real economic recovery or so.

In my opinion, the worst is coming, because of the large debt, the large amount of printed dollars (in order to pay the debt and keep interest rates lower), the interest rates,etc.

What I think will happen next (and remember Im not an economist, just a student of finnance, so I could be really really wrong ) is that the stock market will crash, technically we are in a pullback to the upside of a major down move, maybe thats why the low volume on this "rally" (?)(I dont know..), and we are getting closer to the down trendline-ressistance level and the 50% fib retracement of the entire down move, so a pretty bearish outlook from the technical stand point. Fundamentally, this is not a real economic recovery, the lower interest rates can bring a very large inflation problems on the long term, and the FED cant rise the interest rates because of the still so hight unemployment (a rise on interest rates in this moment would hurt the already hurted private sector, the business, wich at the same time would bring unemployment higher). So a raise on interest rates is not an option at the moment. If the interest rates wont be higher on a long time, the dollar will devaluate.

Now this may look like Im contradicting myself, because Im saying that the stock market could crash again but at the same time Im saying that the dollar wont rally over the long term, but I really think that the dollar wont be a safe heaven currency anymore , or at least not at this time/recesion, because of the large amount of dollars printed by the FED and the low interest rates, wich over the long-term will cause a really big problem of inflation, wich will bring down the confidence of the investors on the U.S. dollar. Instead I think the commodities (hard assets) will rally over the long term (maybe a bubble in commodities??, who knows..)

About currencies, I do see a lateral range, but I think this is just a rest of the almost-all-year-long uptrend, in fact Im not expecting a major retrace on the most against dollar-pairs.

See you around my friends!

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Determination, its all that we need.

z-h

IMHO the timing of real economic recovery is about a couple of years down the line.Sensitivity to economic indicators by investors might vary significantly in that timeframe leaving some rich pickings for switched on traders looking in the right places at the right time.

PS I may be wrong!

The Chartist

Tek, it’s supposed to be confusing. That’s why we must leave all this to the professionals. As these professionals decide what is going on and what they want to tell us, we all need to live inside our own little world. The market is fine. We need not to inquire or question these professionals.
I was sarcastic to show what the government wants us to be (sheep) and how they want us to think.
GDP is manipulated by many things, two of them being government spending and government borrowing. So if you look at GDP as an economic indicator, the government can spend to give the allusion of a recovering economy.
Since the formation of the huge inverse head and shoulders, the charts show us that volume has been steadily dropping off; which means less participation in the market. The reaction the news has on the market starts to fall apart when there are lesser and lesser investors every day, week and month. But how can the market rise if there aren’t a lot of people buying. Many reason but not limited to Inflation, the devaluation of the dollar AND people buying shares of companies because they rather have it than the physical dollar.
Gold of course is a hedge against the dollar. It’s the save heaven for anyone investor and a holder of the US dollar. I believe on the 2nd we saw an enormous up move in gold. This was because India purchased 200 metric TONS of gold. What does that say about their outlook on the US dollar? China is about to do the same.
Finally the grand question… What’s next? What’s next after the economy has been beaten to a pulp where the only remedy given has been continuous beatings. The short answer is a collapse; one that has been pushed back due to all the malinvestments made by easy credit due to the irrationally low interest rate. We have seen nothing yet but a phantom recovery. Housing prices have been propped up, banks and auto companies have been bailed out, regulations have been increased, debt covenants have been violated, and unemployment insurance has been extended.

Simit Patel

i think there may be a war between various big money groups. i think some want the dollar to stay as the centerpiece of the global economy, while i think others want a run on the dollar. this is just a hunch based on my market experience over the past few years -- i don't really have any concrete evidence, just a hunch.

so i think that is why we are seeing gold and the dollar rally. there are big money groups buying both, and that they are warring with each other. economic warfare.

i think the gold groups are going to win. not a reflection of who i think should win, if in fact the situation i'm proposing is even happening. i simply think the environment for gold now is still very strong, and i don't see any sign of these trends reversing.

my $.02 for what it's worth.

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jringo

Well, I'm a beginning beginner. But I've been doing a fair bit of studying and reading over the last year. I don't know much about the currencies or much about precious metals but could it be that people are speculating that gold will hold up in this recession much the same way real estate held up the last recession at the turn of the century, basically increasing demand on gold as a safe haven and thus increasing price of gold. Perhaps gold is the next bubble to burst. If this happens won't that cause stocks to turn south as well. And when new, more conservative monetary policy you spoke about recently gets implemented, causing banks to have higher reserves and thus less money in circulation, won't that also put increasing downward pressure on stocks and the economy in general. So when gold and stocks go south then the only safe haven then would be to hold cash, further decreasing supply of dollars in circulation. But if people hold cash in the bank in something simple like a FDIC insured savings account, content not to earn intrest in order to preserve capital that is now more valuable (which, to me, seems just as good as earning interest) doesn't that then increase the bank's reserves and thus put our banks in a better more responsible position to start lending again thus sparking a flame in the economy.......so many different angles of cause and effect. It boggles my mind.

freiheit

In my opinion, when you are looking for the gold-bubble to burst, you're looking at the completely wrong place. Gold isn't even very high when you compare it to the increase in money supply, or past crisis levels. When we talk about a bubble, usually the masses of people and the media hype it, but honestly, do masses of average people buy precious metals yet, does the media push you to buy them, I mean in physical form, not in form of certificates?
But the stock market, and particularly the US stock market, is indeed quite high considering the continueing rise in unemployment and the further worsening of the real estate crises, which triggered this whole mess in the first place.
I'm 100% sure that we didn't see the last huge bailouts, there's more to come, and each time the FED's balance sheets increases, China and other creditor nations will become more reluctant to take on long term debt, eventually they'll search for replacements for short term US debt, too. Commodities are just the logical choice for a still growing economy, they'll need oil and metals anyways, and who in their right mind believes, that oil or metals will be cheaper in 5 or 10 years, I mean in dollars? Come on, you must be joking.

jaro g.

folks, folks, folks ... different questions, but my big-picture answer is esentially the same as my response to tek's question abt the reseve requirements for banks few days ago:

what we see in stocks, gold, commodities, ... is IMO the fear about USD out there. the folks (americans & foreigners at the same time!) are trying to escape from their paper USD assets and to buy some hard assets at any price!

=> WE ARE IN THE EARLY PHASE OF AN INFLATIONARY HARD ASSETS RALLY !!!

no matter how expensive gold and other commodities are, let's change the dollars into real value (e.g. india's central bank purchased 200 tonnes gold at record price from IMF last week, the second half of IMFs fire sale will prolly go to china soon ...)

no matter how bad the current economic data is (record unemployment data, record P/E ratios because of soooooo sad earnings outlook, ...), the folks are buying stocks because a stock represents a piece of company/business and is not only a worth-less promise of u.s. government like a dollar note is (bye-bye fiat currencies!)

btw, i do not think the €uro is much better than the USD and IMO it would collapse just few seconds later , because the ECB is not so committed to fight against inflation as the good old german bundesbank was (... do not forget, we germans had twice hyperinflation in the last 100 years, so the bundesbank still remembers the impacts of hyperinflation in some way)

well, james turk told yesterday in his great presentation at the munich's precious metals fair (presentation should be available at www.goldmoney.com in approx. 2 weeks in english and german), that the tipping point for the USD is just weeks/months ahead (before summer 2010?) and -if nothing changes- that usa is heading to inflation/hyperinflation of deposits accounts like argentina was few years ago .... pls do not ask me what deposit-accounts-inflation is concretely as i just would tell you that we can be lucky because we don't have to carry waggons of paper money (what a cold comfort, isn't it?) as the folks in germany in 1920ties or in zimbabwe 2 years ago in their paper-money inflation had to ... btw, as far as i know there is no zimbabwean currency at the moment and they use just foereign currencies like usd, €uro, rand instead.

what about the gold/silver backed amero, am€uro, global, golddollar, gulfdinar, goldyuan, goldrubel soon?

of course, read my big picture outlook for stocks, bonds, gold, commodities here

jaro.

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