Transition point; USD, gold, or Dow?
Christopher Laird, October 15th, 2009
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Now that the credit/bank crisis is two years old, and the Dow around 10,000, gold is at highs over $1000. One would think that with $3 trillion of direct US Fed bailout cash, plus $17 trillion of various guarantees and singlehanded support for the US mortgage/financial markets would do something.
After the ‘Cash for Clunkers' stimulus, and all the other money thrown into the banking system since the collapse of Lehman a year ago, one would expect some kind of economic rebound.
The financial pundits are all making a big deal out of the Dow rally to 10,000. Will it stick? Or will it falter, if the economic data in the US and Western economies again sputter?
Tepid data
Case in point, the New York Empire State manufacturing index posted at 34.6 compared to 18.9 in September. Readings above 0 indicate manufacturing is growing.
US unemployment applications ‘fell' to 514,000 compared to 524,000 expected. It's the ‘lowest figure since January 2009'.
Scary data
Or try this: Sumitomo Bank just stated the USD will fall to 50 yen in 2010, due to an expected double dip recession, and lose its status as the world reserve currency. They stated that central banks cannot stay ahead of a falling USD, hence their prediction.
Or consider that just recently when the USD broke first below 77 on the US Dollar index currency basket, that the Far Asian central banks got together to support the USD and it temporarily rallied above 77 and stopped the slide. Well, that major intervention lasted about a week, with the USD now at 75.71 on the USDX. Gold fell off a bit from its recent $1070 highs, but is still around $1050.
Big change?
One gets the feeling that there is a fundamental change going on here. We are not in the financial panic of a year ago, that was followed by a massive drop in world economic production in the last two months of 2008, and the first two of 2009.
The economic rebound after February 2009, which led to the March stock rally to its present levels around 10,000 on the Dow Index gives hope out there.
But interestingly, many people have not yet returned in a big way to stocks, as mutual funds are sitting on $2 to $3 trillion of cash accumulated since the Fall 08 Lehman bank crisis. Supposedly now that the Dow is at 10,000, they will come back in...it's speculated.
But the tepid ‘improvement' in the US employment numbers (510,000 unemployment applications is improvement?) and the manufacturing data which really reflect a bounce from the utter collapse in latter 2008 into early 2009 are not convincing. This ‘recovery' reflects the huge stimulus from the central banks, and zero interest rates.
And, zero interest rates tend to force idle money back into financial markets, as people lose patience. Investment funds cannot sit on cash for long.
I think the economic ‘recovery' is bunk. All that happened is a bounce from the total collapse in world production after Lehman. But a bounce to what level? A US unemployment rate of about 10%, which is really more like 18% if it was calculated the same way when Clinton was first elected is not exactly a rosy scenario.
Is 10,000 Dow going to carry forward, and are people going to start moving money back into stocks now?
