Weekly Market Review (Nov.16)

Weekly thoughts

I spare you any in depth analysis. Last week, most of the gains came on Monday as all the world celebrated the G20 reiteration that easy money shall continue to flow , especially from the developed countries. The rest of the week was a technical battle between a double top on the S&P 500 and double bottom on the dollar. But this now is a market with the IQ of a parakeet; the only thing that matters is the dollar and basing all decisions on its movement. Let’s not kid ourselves with any further analysis.

This week there will be a myriad of economic reports. Each one will move the dollar in knee jerk response. Every investor will do the opposite of what the dollar does. That’s all there is to review in the market anymore. Investors pray the dollar can be crushed further so the S&P 500 breaks north of 1103 or so, and everyone can jump in and buy. Tim Geithner, like countless Treasury Secretaries before him, pleads to the world the US stands behind a strong dollar.

“It’s very important to the United States, to the economic health of the United States, that we maintain a strong dollar,” Geithner told reporters in Tokyo Nov. 11. He also underscored the U.S. intention of reducing budget deficits.

The world used to laugh at such comments while watching what the US does rather than what it says. Now it fears what the US is doing as country’s such as Brazil and Taiwan try to put up barriers to the avalanche of US dollars pushed out into the world by Sir Bernanke.

After Hong Kong’s leader warned about the US inflating the world into bubbles again last week – so did China and Japan this weekend. Timmy’s response? “Seriously… we believe in a strong dollar.”

Financial officials in Japan and China, Asia’s two largest economies, warned the Federal Reserve’s interest-rate policy risks spurring speculative capital that may inflate asset prices and derail the global economic recovery.

Emerging economies “might overheat and experience financial turmoil,” Bank of Japan Governor Masaaki Shirakawa said in Tokyo today. “Monetary easing in advanced economies has stimulated capital inflows to emerging economies,” Shirakawa said. If emerging nations continue to recover at a faster pace than advanced ones, they “might overheat and experience financial turmoil, triggering a recession,” he said.

The comments reflect concern that the Fed’s pledge to keep rates near zero for an “extended period” may lead to a repeat of the financial crisis.

The continuous depreciation in the dollar, and the U.S. government’s indication that, in order to resume growth and maintain public confidence, it basically won’t raise interest rates for the coming 12 to 18 months, has led to massive dollar arbitrage speculation,” Liu, chairman of the China Banking Regulatory Commission, said in Beijing yesterday.

Low rates and the dollar’s tumble have “seriously affected global asset prices, fuelled speculation in stock and property markets, and created new, real and insurmountable risks to the recovery of the global economy, especially emerging-market economies,” Liu told reporters in Beijing at the International Finance Forum.

The debate over the Fed and asset prices comes years after some analysts criticized the U.S. central bank for holding down borrowing costs for too long in 2003 and 2004. (emphasis added)

We’ve been warning about this for a long time, but now financial heads in major nations are saying it out loud. But that’s ok… certainly repeating what got us into the last financial crisis but doing it to 50x the degree is not a cause for concern. Because our leaders back a strong dollar… just ask them.

I won’t bother you with any further analysis because everything else has become moot… the lower the IQ level you think at (parakeet) the better. Any other information will cloud your thought process as you stare at the intraday tick of the domestic currency. As a speculator. cheer for a lower US dollar (and hence lower living standard) and cheer your Etrade account ever upward. When it ends badly in 4 weeks, 4 quarters, or 4 years… clap at the exhilaration of the boom bust economy our central bank now gives us twice a decade, and begin asking when can we start a new cycle again? Whomever our central banker is at the time of the next crash will offer a great solution to get us out of that mess… and it will be the exact same thing we’ve done the past 2 decades. I suppose even bigger the next time around.

Rinse. Wash. Repeat.

About Mark Hanna 543 Articles

Affiliation: Hanna Capital, LLC

Mark Hanna is President and Owner of Hanna Capital, LLC, a registered investment advisory firm. Mark has been a follower of markets since the late 80s, with a focus on individual equities since the mid 90s. He has been a well known commentator in the financial blogosphere for the past 5 years, following a career in corpoporate finance and accounting. Mark attended the University of Michigan where he graduated with a degree in Economics.

As an avid reader, Market Montage is the personal blogging site for Mark to share his views on economics, markets, and the like. Occasional cynicism and wit shall be deployed in his postings.

Follow Mark on Twitter @fundmyfund.

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