Saturday, February 8, 2014

Thinking Ahead

The last couple of weeks have been interesting, to say the least, in the markets. The volatility has been beneficial to this trader.

The last couple days have seen a sharp shift in the market outlook of the talking heads from negative to positive as the averages hit a "bottom" and moved sharply higher. (See my Jan. 5 post as I felt the bottom happen)

However the US dollar continued it's weakness even as the stock market went up for the last two days. That is a divergence from what had tended to happen over the last few months. The talk of a stronger economy had seemed to keep the stocks up AND the dollar up.

The weakness in stocks of the last couple weeks however has weakened the US dollar. If the selloff was triggered by speculation of weakness in emerging markets as a result of a tapering of USTreasuries by the FED then I would expect the dollar to gain strength with an expectation of higher interest rates going hand in hand with a strong economy.

If the new FED chair, Janet Yellen proves to be the dove on inflation that she is rumored to be, then it would make sense for interest rates to be kept low for an "extended period" even in a relatively strong economy. And that would be detrimental to the value of a dollar, and inflationary. And that would explain the Dollar weakness, the two day rally in the stocks and the rally in gold and gold stocks. And if she keeps money easy due to a fear of a global emerging markets rout that would explain things as well....
Or the world knows the stocks are going to crash and they are buying gold with their dollars that they have from selling stocks.....

Whatever happens I will keep reading the tape and adjusting as needed.
Commodities look to be strong. Oil is going up, gold looks like it might go up. Silver finishes surprisingly strong Friday, and the grains are trying to rally.
Looks like a weak dollar to me!
It seems like back in '06 the markets were strong when the dollar was weak.
I think the phrase is ZIRP.


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