So what can we take away from some interesting two-day market action? Well for once we could finally confirm, at least on Thursday, that a (much anticipated) surge in U.S related equities could indeed occur at the expense of both a weaker dollar and a weaker treasury offering. Add to that a rally in gold, and here we go: Inflation, waiting at the doorsteps. We were even beating out our yen counterpart. Just to emphasize where our greenback really stands.
Okay, not withstanding Friday’s reversal in the bond market, crude, equities (though late-day), and just about everything else, we could have looked pretty good selling an environment of higher interest rates and (possibly even) hints of economic growth a la Wal-Mart. It’s hard to believe that equities could even rise in such an environment. And sure enough, they could not hold on today. But when you find yourself in a recessionary/deflationary tailspin, even (slight expectations of) higher interest rates will lift the markets.
But the overall bad economic data just ruins it all And of course, the credit crisis, (believe it, or not) still lingers. Credit is still not (so) secure. No worries. Hank Paulson strongly believes that the Treasury and (remnants of) Wall Street, will equally (and positively) impact credit conditions. Really? Well then, Lehman was just an old adversary, I guess.
Come on. Let’s not be so negative. After all, the (much anticipated) new era of economic growth, will more than likely be challenged by increased inflation (expectations). And a relieved Fed will eagerly waltz in to (oh so gingerly) steer any such trend reversals. That era will (first, foremost and this time for real) drive up (something like) the cost of energy. But, hold it. Until then, let’s deal with these poor economic indicators. That is what the equity markets understood quite well today as they fought so hard. Inflation is hardly (ever) going to happen without some sort of signs of economic life. And just about anything (alive) should do. So, for now, the equities will just have to fight it out. Just so that they can be around for a brighter (and inflationary) future.
Disclosure: no positions