Thursday, October 30, 2014

Emerging Markets

As the US Federal Reserve moves to a more normal interest rate policy that is characterized by modestly higher interest rates, the US dollar should continue to gain strength. This strength will be a sign of a stronger U.S. economy. The Fed will be "data dependent", as they have stated many times, so the transition to higher interest rates will be a slow one. If a strong US dollar persists it should stimulate exports from the "extractive" economies in the emerging world. A strong dollar makes it cheaper for US consumers to buy imports and that will continue.

Gold looks set to confirm a medium term downtrend, making a declining triangle on the weekly charts. A drop through to new lows will probably happen in the next few weeks. (strong dollar)

In my longer term view I have to concede that the lows for Europe are probably in. Europe seems on the verge of stimulating and eventually developing some sort of Eurozone bond sale. European recovery will help the Euro. This also should revive demand from the Emerging markets.

It is for these reasons that I went long the emerging markets today.
I had bought the US small caps a couple weeks ago on purely oversold conditions and that they just seemed to have declined for technical reasons, the decline being so fast.

I believe that over the long term low energy prices are good for world economies and will restart inflation later. In the meantime, probably several years of demand will recover.

The swing trader in me thinks we might have another down leg, but the market is strong.

Blah, Blah, Blah....


Quite a reversal from my last post, eh? The debt issues will rear again, but not for now.

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