The curious case of the USD
The dollar has been showing strength, or has it? Could be more the Euro has been showing weakness than dollar strength? I think this is the case to a larger extent than people give it credit. Europe has to devalue the Euro in order to survive. This means the positive correlation between the Euro and the $spx must come to an end. If a lower Euro is good the stock market should start responding positively to a lower Euro. At the same time shit is crazy out here and some dollar strength can be attributed to safe haven hiding.
When ever you talk about currencies you have to include gold. The $yg_f chart looked really bad mid week but by the end of the week it looked like a buy. The powers that be HATE gold. So you see all types of shots being fired at gold investors. The truth is gold is a currency the same way SDR's are a currency. You'll get people who will say SDR's are currency but gold is not. Even though gold has been currency since the beginning of mankind. Every developed government in the world has put tremendous strain on their fiat currencies. Europe and the German bank were the last hold outs and comments a couple of weeks ago announcing Germany "has to be prepared for a little more inflation" signaled to the market that they finally got the memo. That Monday the Euro started nose diving and the dollar started spiking. Confusion brought the markets down until Gold spiked bringing the dollar down and the markets caught a bid and for the most held their gains. Gold has tested the lows and rebounded and I'm saying it's a buy here.
Since last year I've been looking for a return to $spx USD positive correlation. I thought we'd get to the point where growth for the US would spur world growth or more so confidence in world growth. Not because the US is so much of a better market or economy but because of the exact opposite. It would go "If America can still grow anybody can." It's a component of what I've been calling "The America trade" where for different reasons foreign and domestic investment in America will rise. Labor getting cheaper, talent, chaos most other places, and just all around atmosphere. This should give the $spx and the dollar a floor. Cash has a problem right now. Where to go? Wealth is running away from destruction constantly in this market. On a relative basis the US looks better and better as time passes. This pick up in investment should give the government room to address it's unsustainable budget trajectory.
And now we come to the part in the program, ladies and gentlemen where we talk about politics.
This is the snag in the proverbial stocking. For the America trade to work we need a functioning government. No matter what side of the argument you stand on you have to agree that what we went through with the last debt ceiling fight was unacceptable.
Once we agree there we've found common ground. Standing on this common ground and working from there is the foundation of democracy. That person's opinion means just as much as this person's and so forth. In the GOP and the Dems parties there are huge differences of opinion but also huge common grounds. No one wants America to crumble under it's own weight, right? Well let's start there and work our way out. What needs to happen to better assure this won't happen? First and foremost is the debt trajectory. How do we fix it? This is where the snags come in and we get bogged down in arguments. Do we raise taxes? Do we cut spending? Do we do a combination of both? The problem is there's a time limit. There's an invisible deadline out there that warrants a sense of urgency.
We have to get over ourselves.
On this Memorial Day weekend we need to be reminded of what this holiday is all about. People who've paid the ultimate price and gave their lives for this country. We owe them not to just completely fuck this whole thing up! Or else they died for nothing! They died so you can have a cookout and eat some great food? I say hell no.
American politicians have a choice right now. They can go down in history as the ones that jumped the shark. Or they can be looked back on as the ones that righted the ship. This can't wait for the election. This can't wait until 2013. This needs to start happening now. We need to see genuine compromise not party line proposals that do nothing but create more things to argue over. We need to cut spending and we should. This only get's us half way there however. The tax code needs a complete over haul. Close the loop holes, broaden the base, and simplify the whole thing. I don't see enough plans being put forth to solve this problem. It seems like everyone is content to wait for the election results before acting. There has been ideas for years put forth to fix much of the problems but no serious attempt to pass legislation has been made. This is a mistake.
This is why the market is seeing these wild swings. Instead of reducing uncertainty politicians who have waaaayyyyy too much influence on markets won't clarify the rules for the players. At the same time the fighting breeds hopelessness. At the center of it all is the question of who pays for what in America's future. The GOP accuse President Obama of class warfare, The Dems accuse the GOP of not wanting to pay their "fair" share. Both are right and wrong at the same damn time! You can't expect people to give up their hard earned money to get thrown in the bottomless pit that is the national debt and you can't expect people with little or no income to pay more of what they don't have than those who have plenty. Who decides? That's the slippery slope. On the one hand, we hate the thought of government telling us how to spend our money, but on the other hand when the shit hit's the fan we scream at the top of our lungs for the governments help.
There's a famous clip of Jim Cramer in the thick of the crisis in '08 on T.V. screaming "They know nothing!" Remember that? That was us screaming @ the top of our lungs for government help.
The truth is that the people are as divided as the politicians. Will it take a catastrophic plunge of the American economy for us to see that working together is our only hope? This ran over and got a little off subject but it's all macro connected so... yeah.
Right now as I write this the index futures are up on a gap up and the dollar is down. Price retraces, this is fact. Once we get to 1343 $spx then we'll look again. I'm holding an $nq_f long from 2550 from Friday
Stay nimble and keep your positions manageable. If your not sure get to shore! We can't control the market traders. All we can control is ourselves. Watch the charts like hawks! They will tell you what's what before any economic news network ever will. Men lie, Women lie, but charts don't lie! But they do mislead occasionally so sell small loser trades before they become big loser trades no matter what you think.
Good luck traders!
The drop in oil is a stimulus.