The news today from euro central bankers talking about raising interest rates was a big deal. It took the euro up 1.35 pts to 133.41 and that helped gold tack on $5.60. You have to wonder what are they thinking. Their economies are staggering under their strong currency. Do they just want to shoot themselves in the foot with these kinds of comments? Remember the South Koreans comments on diversifying their reserves a week ago? They had to back pedal pretty quickly. It would not surprise me to see the same reaction here, in which case the euro and gold would give back some of todays gains. The long term trend of a lower dollar will still be intact even then. It won't be this trade figure but perhaps the next one, which, with the move in oil we had will be quite large and cause the euro to test its highs.
Stocks were down with the S&P falling 5.88, but considering oil touched $55, you have say that was a pretty good performance. Also, the bonds got hit pretty hard today. The long bond fell to 110 today driving the yield to 4.71. The excuse given was the CRB index led by copper moving to 24 yr highs at 312.65, reviving inflation worries. The coming 5 and 10 yr auctions also were a factor. We always liked to get prices down when we had to buy a bunch.
The market seems to sit still for long periods and then lurches up or down to sit again. Which way will the next lurch be. The market is so close to a new high, it doesn't want to give up easilly, but the combination of higher oil and interest rates has been lethal every time before. If these trends continue stocks are living on borrowed time. Sometimes the market has to see the whites of their eyes, i.e. actual damage from higher rates or commodities and sometimes it just takes a mild comment or event ala 1987. Whatever straw breaks the camels back this time, I don't think lies to far ahead. The stage is set. We are at multi-year highs, valuations are stretched, There has been little action to deal with the deficits. Bush's reform programs seem to be losing momentum. A little bit higher in oil and rates would tip the scales I think. There is the chance we could pull back from the brink once or twice before we go over though. I'm writing this late so excuse the typos.
1 comment:
Don Luskin, etc.
Honestly, I like kicking Kudlow, because he represents all that, IMO, is wrong with bubblevision, where they are always bullish, always concentrating on the short term and beating estimates by a penny. I have been saying inflation is a danger, that the government statistics are "cooked", and that one of our alarms, Gold, has been capped, to prevent us from taking evasive action.
Don Luskin has a great article about inflation:
Consumer prices don't need to be rising uniformly for inflation to be a problem. They aren't, but it is. in Trendmacrolytics.
Luskin has noticed that long bonds have moved from 3.97% to 4.5%, because investors are seeing the first signs of inflation and he explains how it is working in this global economy.
Mover Mike
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