The dollar is putting in a bottom and it's acting bullishly. What's the evidence? When the players sell it, the dollar drops quickly and covers several sigmas on little action. When it rises there's strong buying underneath but it hardly moves up. This is the average state, This average state attends all bottoming markets.
Over the last several years the inverse correlation coefficient between the dollar and stocks has moved between .2 and .8 randomly. Currently, it's about .7, and rising in its inverse. It's all knee jerk, no material reason for it except traders are using the apparent inverse correlation to sell on dollar rise. Sometimes one hears "a rising dollar means rising output which will lead to rising interest rates", which is conjured up to imply that since the US has become used to flat and low rates the presumed effect would be like a rate increase of 400 basis points from 4%. The stock market presumably would get hit under that presumption. Then one hears a deflating economy which the US has means the inverse of an inflating one. Inflation has the effect of causing foreigners to get rid of falling buying power dollar, so a relatively deflating US economy should cause the opposite, a rising buying power dollar for foreigners. Apparently, this is why foreigners continue to avidly buy Tpaper.
It should be pointed out though that a deflating economy which the US has(I repeat myself) precludes the possibility that interest rates will rise for any reason. Also, FED is dead. They can't open Temporary FOR ANY REASON(I repeat myself). We have a free market in money! Yeah. Finally.
Thus, the economy can go to equilibrium and is doing so. What is equilibrium? High unemployment because In spite of weak tax cutting fiscal policy the US remains inefficient. Now fiscal policy is expected to be restrictive. The 'crats have a war on wealth to wage and so the wage earners are warred upon.
In a deflating economy anything that's truly of value to people will do well, and all the crap, like RE, will do what it should do. Nada. It adds no value. It's like idiot gold. Just sits there and fools and steals. That won't work when the inflation gun is out of bullets, the banks won't lend, and the 'crats wage war.
So what stocks do well during deflation? Many Chinese companies. Plays like DIS, or pharmas, the stuff that's got a claim, that people want. What doesn't work? Commodities. All of them.
So what is my evidence that the US is in deflation? Rising savings? High unemployment? Closed Temporary? Few buyers and lots of RE supply Well, how about prices at the supermarket that keep declining because they haven't yet found the marginal buyer? I like that one best. |
