Stocks and Dollars

There has been much to digest since the last Bank of Canada decision, though little to motivate a major change to the monetary policy outlook. Central bank speakers have filled the calendar like never before, however none managed to reveal anything profoundly new on the outlook for monetary policy. The…

Larry MacDonald submits:

One of the more important indicators to follow for a sense of where the global economy and financial markets are headed is the yield curve. It’s defined as the difference between yields on ten-year and two-year U.S. government bonds.

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Roger Nusbaum submits:

Another assist today from Market Folly as they review an agricultural fund [James Cunningham and Ejnar Knudsen's Agriculture Fund] from Passport Capital. In the report that Market Folly published, Passport disclosed being up 10.3% in the period reported versus 66.6% for Market Vectors Agribusiness ETF (MOO). I recently added this ETF to client accounts.

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Robert Salomon submits:

Simon Johnson at Baseline Scenario, whose work I’ve immensely enjoyed reading over the years, posted a wonderful excerpt from his testimony before a Congressional panel about how best to put pressure on China to revalue the yuan (see Should We Fear China?).

China is the largest holder of official foreign currency reserves in the world, currently estimated to be worth around $2.4 trillion – an increase of nearly $500 billion in the course of 2009 (on the back of a current account surplus of just under $300 billion, i.e., 5.8 percent of China’s GDP, and a capital account surplus of around $100 billion). These reserves are accumulated through arguably the largest ever sustained intervention in a foreign exchange market – i.e., through The People’s Bank of China buying dollars and selling renminbi, and thus keeping the renminbi-dollar exchange rate more depreciated than it would be otherwise.

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Ralph Shell submits:

A review of recent history is beneficial, reminding us of some of the factors that brought us to the current levels and perhaps preparing us for what might lie ahead.

The euro has been suffering from concern about the sovereign debt problems of Greece. Germany, where national thrift is elevated to a moral issue, is conflicted. They are opposed to any direct help, however the Greeks have borrowed billions from the German banks, and aid to the Greeks may end up helping the banks. As the week progressed, the involvement of Goldman Sachs (GS) became an issue. Goldman was there at the beginning, helping the Greeks distort the facts so they could gain entry into the euro community. Now, according to Fed Chairman Bernanke, Goldman and its allies may be manipulating the value of credit default swaps, making it more difficult for the Greeks to borrow money and thereby hasten the default day. Goldman made money when they gained entry into the euro and, true to form, have found a way to make money from the current crises.

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The dollar fell on Friday following reports that Europe will give some financial support to Greece and US existing home sales unexpectedly dropped to a 7-month low. US Q4 2009 GDP was revised higher, but consumers spent less than initially reported. The S&P 500 rose 1.55 to 1,104.49. The oversold…

Payrolls could give the U.S. stock market some direction next week as investors comb through the key report on one of the economy’s weakest areas.

John Furlan submits:

Capital continues to move from euro assets to dollar assets. This is the very simple explanation for why U.S. equity markets are not falling in the face of poor news, e.g. on Greece, U.S. unemployment claims, durable goods orders, existing and new home sales, consumer confidence, etc.

The huge issue for investors is whether the U.S. will lift global equities up or global equities will drag U.S. equities down.

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