The market has started to give back some gains it made, if you recall, first on Katrina not expected to be as bad as feared and then when it was actually worse, on the bump from rebuilding. The 40 pt rally in S&P is a perfect example of the old sayings, that the market can do anything, the market can stay irrational longer than you can stay solvent, the market cannot be predicted using rational means, etc. The rally looks like it was a bull trap, short and powerful. No volume on the downside yet, so they all got em. The market is supported by fiscal spending on Katrina, lower oil, and hope the Fed is done or close to it.
The bonds are coming under pressure. Last week's manufacturing surveys showed very large increases in the inflation indexes. We have also had many companies start to raise prices as their energy costs increase. Oil prices are starting to pass through. If the Fed blinks they may be seen as falling behind the inflation curve. That of course would be very negative for bonds and the dollar as well.
The dollar keeps getting bailed out. First there was the failure of the referendum on the European constitution and now the deadlocked German elections. The talk is, we won't know the election results for weeks. Eventually it will recede from the headlines and since nothing has dramatically changed the dollar will resume its underlying downward move. It's a choice between the lesser of two evils.
Gold is reflecting slower growth, higher inflation, increased demand from China and India, and lower production. Back to the 70's.
No comments:
Post a Comment