I am just looking at this $/Mark chart which I have superimposed on DJIA-- wanted to see what happens when $ has been weakening in this bull trend, from July 96 since inception of the bull trend I have seen following periods-- one needs to appreciate that currency weakness is always associated with stock market weakness but evidence in case of US is suggestive of slightly different pattern.
July 96-Jun97-- DJIA moved from 5600 to 7600$/Mark in this period moved from lows of 1.48 to 1.72Within this bull move up $ strength between Feb and June resulted in that big dip to 6400 level the most profoundest of three major down moves on DJIA-I remember that in those days as $ strengthened markets were worried about strong $ impact on balance sheets, they thought profits will suffer, it was only after April earnings that $ strength was discounted as a threat. Now lets move on to Aug 97 here we saw $/mark moving up to that 1.90 level this coincided with drop in DOW from 8200 top to 7800 while $ dropped to 1.80 area--
The Oct move to 6955 intraday saw $/mark falling from 1.90 Aug highs to 1.72, a drop in DJIA is always associated with sharp drop in $/Mark- It was after Oct $/Mark rose higher and so did the market, we saw $ reaching to 1.84 in March of 98 however the market peaked in all these months reaching it highs in Jun to 9200 plus--
Today we are back at 1.72 level and market is trading at my intermediate support, that is 955-990 band I will think that going by past performance of this bull trend I would like market to start appreciating the positive impact of $ weakness for export related corporations- the virtuous cycle of export growth from ASEA and Latin America will be another bonanza- imagine that most of the countries are poised to export higher as their currencies stabilize but US exports will now become cheaper-- the trend of falling exports from US will now be helped as cheaper $ makes US goods more competitive, companies who have survived and made profits on 145 Yen to a $ will certainly be coming with lot more positive cumulative translation adjustments.. $ weakness in long term will help corporate profits take off and as ASEA Latin America comes out of this doldrums we may see that 8100 may be taken out soon as we attack 1015 area and move up to 1030--
The problems I see that Russia PM needs to be installed today for this European drama to continue, their is a point to be appreciated $ weakness puts European companies at a disadvantage-- like Air Bus will need to make 10% adjustment in price against any future tender with Boeing-- we saw Boeing being hard but with present weakness of $ it is going to be companies like CAT BA even HWP IBM whose big portion of rev is generated globally makes better numbers as result of translation of these numbers in $'s... One positive side of all this is--
1- Were we all not worried about PEG being taken out--
2- Were we all not worried about taking out of HK peg so as to start a new contagion which will push ASEA and Latin America to ice age-
3- Were worries about Latin America not related to Chinese devaluation in wake of Yen at 155
4- Were we not worried about a new crisis of devaluation's, with capital controls in place most of these countries will be able to service their debts instead of using their hard earned resources on fighting off the speculators..
5- If Russian PM is elected and if we have EU supporting Russia which they have announced and if the market opens with all these fears properly discounted the only issue I see is that initially market may still sell seeing the $ weakness however this is a making of a major platform here of a move of very significant proportions, the bad news areso much built in the market that a good news will be really helpful. I would think that $ weakness will have a goood impact in this globalized US economy, I would also think that $ weakness has nothing to do with flight of capital that would have shown up in TB yields rising, even on Friday we saw TB closed higher, however Russian situation today afternoon will decide the fate for next weeks but DUMA will vote for Chernomydrin if not today may be the last vote, the possibilities of a good vote today in my opinion are bright, anyway the real threat of a new break down of order is now very much contained.. The time of celebration have not yet started for the bulls- once these issues are resolved I see good move up, however even if Russian issue is not resolved so much is setling on macro front is good news. .we may be approaching island of stability. If things fall in place we may see bond moving in opposite direction and money flowing back into stocks which has been deserted but it is all if today we have this final missing puzzle in its place on global economic jigsaw-- |
