Trapped in a Time Warp - Morning Market SnapShot for Friday, September 10, 1999
Deja News
The headline in the Wall Street Journal reads: "Bank of Japan Move to Stop The Yen's Rise Boosts Dollar". The article quotes James O'Neill, chief currency economist at Goldman Sachs Group, who points out that the U.S. current-account deficit is running at an annual rate of $350 billion to $400 billion, or about 4% of America's total economic output.
The conclusion is this: "Since Americans don't save enough, that shortfall must be financed by foreigners. So far, they have been willing to, gobbling up U.S. stocks and bonds. But Mr. O'Neill argues that the deficit "is unsustainable at current levels of the dollar and [U.S.] financial asset prices." In other words, he says, "To keep foreigners buying, the dollar must fall enough to offer them a chance of capital gains, or U.S. interest rates must rise high enough to offer them protection against a weaker dollar."
Don't Play it Again, Sam
All who have watched the markets since the 1980s can recall the news stories of the ballooning U.S. trade deficit, the weak dollar, rising oil prices and interest rates. It was similar circumstances that set up the 1987 Crash, but things rarely happen exactly the same way twice and we shall just stand aside and let this story unfold. Our only comment is that things should be coming to a head shortly, with the financial media in a frenzy, causing market paralysis amongst traders who are basically crawling from one economic statistic to the other, trying on all the combinations and permutations of possible Fed action on October 5. No matter what, we do know a few things. With all the poor fundamentals, such as the weak U.S. dollar, the Bank of England's rate hike, oil prices up, and the tight labor market, there is not much room for lowering interest rates, so the prognosis for interest rates is asymmetrically tiled to the upside. It would take statistics pointing to a serious slowdown in the U.S. for the market to find relief. Who would have thought that good news for Main Street is bad news for Wall Street?
The Producer Price Index is due out this morning. Treasury bonds remain in a trading range on the daily chart, very close to the June/August lows. At this juncture traders are simply waiting for statistics to come out one after the other.
The S&P 500 Index is in a trading range on the weekly chart. On the daily chart, we can see that the trading range has contracted over the past several months to form a triangle, confirmed by the amazon.com Average Directional Index (ADX). The market is ready to make a decisive move shortly. All it is waiting for is a catalyst.
Charts specific to these comments have been posted to
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