THE DOLLAR- WATCH OUT BELOW

On Aug 19, I said "We have had our first small whiff of possible economic slowdown and the buck was non-plussed. When the market gets stronger evidence of this possibility and starts to look forward to the day the Fed blinks, put a fork in it, the dollar rally is done.". Well, I think we are there. The fallout from hurricane Katrina will slow the economy. This will reduce the growth differential between us and Europe and stop the interest rate difference from widening further. Yes this will slow global growth but Europe will be seen as being less leveraged than the U.S. and of course they are not pursuing a Mideast war that is going badly. Can you imagine what our trade deficit is going to look like.

A weakening dollar and high oil prices should also be bullish for gold. I worry about gold stocks though, because they use so much energy in their operations and the gold price has not gone anywhere since year-end while oil is up 65%. Their margins are getting crushed.

The S&P topped out at 1246. If it could have made it to 1253, that would have been a .618 retracement from the 3/24/00 high of 1553 and the 10/10/02 of 768. Close enough for me . Take a look at a weekly chart and you can see this may have just begun.

Finally, the law of unintended consequences is at work. The ramifications of the hurricane and our responses have just barely been scratched. This will be a story with staying power.
Their will be negative news flow from these consequences for some time.