Dollar Stabilizes, Rally Slows

[Excerpted from Bill Cara's Daily Report]

From a session low in the mid-day Thursday, the major indexes began to rally, but ended the session near the middle of the day’s trading range.

In the continuous to and fro of the market dance, prices in New York attempted to advance as usual, but failed and ended down. At the close, the S&P 500 (1,065.49 -3.27 -0.31%), DJIA (9,783.92 -7.79 -0.08%) and NASDAQ Composite (2,126.75 -6.40 -0.30%) were all a tad lower.

For the first three days of the week, following a brief sell-off at the open, traders soon after lifted their bids through to the closing bell. That action was supported by the gains in international markets that were getting their power from the falling US Dollar. But after eight consecutive days of losses, the $USD stopped falling. So, the low and subsequent rally happened later in the session, and by the close didn’t make it back to positive territory.

With the stronger $USD, which impacts commodities, the Toronto Exchange Composite (11,528.23 -27.37 -0.24%) and Venture market (1,272.74 -11.80 -0.92%) took losses.

There wasn’t much change in the major $USD hedges though. Crude Oil was basically flat ($WTIC 72.94 +0.07 +0.10%) and $GOLD (1,014.10 -2.90 -0.29%) closed down a tad.

The corrective move in the US Dollar ($USD 76.28 +0.09 +0.12%) wasn’t much, but it was the string of eight straight losses that was broken that traders noted.

Despite the $USD win, the Euro (147.39 +0.27 +0.18%) and Canadian Dollar (93.85 +0.10 +0.11%) closed a tad higher against the USD. The losers were the Yen (109.82 -0.17 -0.15%) and the Pound (164.48 -0.36 -0.22%), but the losses were small.

The safe haven play of the day was the US bonds. The US long treasury ($USB) lifted about +1% in price (121.50 +1.19 +0.99%) as yields dropped on the 30-year (4.178 -0.88 -2.06%), on the 10 year (3.398 -0.73 -2.10%), and on the 5 year paper (2.378 -0.59 -2.42%). The T-bill yield remained at a cycle low (0.095 0.00 0.00%), which continues to show that traders will park cash without return, a sign of perceived capital market risk.

In the equity sectors, the lifting action of the $USD and the $USB resulting in sinking action in the Telecoms (IYZ -1.6%) and Utilities (-0.7%), which were the worst hit of the nine of ten losing sectors. The Industrial sector (XLI +0.2%) ended as the only sector winner on the day.

With the market in stall mode, the only notable industry group to advance was the Airlines ($XAL +1.8%), as a team of leading carriers are trying to move in on JAL as that company attempts to restructure. This is a very interesting development.

For the Cara 100 company stocks, the winners and losers contained an eclectic mix. The winners were Nucor steel, First Solar and Potash Corp (NUE +3.6% FSLR +2.8% POT +2.5%), while the losers were led by Brazil Foods, Russia’s Mobile TeleSystems and America’s Brunswick Corp (PDA -4.1% MBT -3.8% BC -3.4%).

Earlier Friday, the stronger USD did have a negative impact. Shanghai (2,962.7 -3.19%), Hong Kong (21,623.5 -0.67%), Australia (4,693.7 -0.43%), and the Nikkei 225 of Japan (10,370.5 -0.70%) took losses to close the week on a down note, while India manage to stay barely above the prior day’s close (16,741.3 +0.18%).

Earlier Friday the precious metals market was showing no signs of a directional move. Spot (cash) trades were as follows: for gold (1013.30 +1.02 +0.10% 07:16am ET), silver (17.14 -0.02 -0.12% 07:16am ET), platinum (1335 +7 +0.53% 07:14am ET) and palladium (302 +5 +1.68% 07:14am ET).

At about 7:00am ET, the Euro was down a bit (1.4712 -0.0035 -0.24% 07:04am ET), the DJIA December futures (9746 +9 +0.09% 07:04am ET) were basically flat, while the Crude Oil futures (72.18 -0.76 -1.04% 07:04am ET) were soft.

Comments

[31October:]

The "stronger" dollar is a result of lowered velocity of money and temporary deflation. 42 states lost jobs in August 2009, up from 29 in July. Employers have eliminated 7 million jobs since December 2007. States with drops in unemployment show up that way because the jobless gave up. None of those states actually added jobs.

If velocity picks up, then how far south can the dollar go? Look very far south, maybe Argentina, to find out. Americans do not have the savings mentality of the Japanese, so I suspect that the Fed/Treasury/Congress will eventually get what they want and devalue the dollar by at least 40% to avoid true debt repayment. The paragraph about Treasury bonds being a safe haven play is interesting: I pity the fool who moves into T-bills for safety. Non dollar based energy / minerals stocks will be the safe bet.

The dollar stabilization is just like the time I fell off a cliff. I smacked a ledge on the way down. There was a brief moment when I was not falling.

25 years later, I am not likely to go repelling again. And the lenders whom we shafted with dollar devaluation will not be likely to buy our treasury debt again.

Sep 18 01:56 PM

[alphajack:]

As the economist for a major aerospace corp, I found that declining interest rates and an increasing money supply generally meant increased demand, with market expansion -- but this was not runaway money growth in an economy with increasing unemployment.

I seriously believe that we should keep a watchful eye on what the administration is doing. The world is starting to look at America with disbelief. You can beef up a currency by backing it with a globally accepted medium of exchange, like precious metals or a specified amount of other commodities. The alternative to this may well be devaluation...

Sep 19 04:59 PM

[TaiPan:]

Investors keep buying Argentine bonds, so why not US bonds too? At least the USA pays its debts (albeit in devalued currency), while Argentina regularly pays cents on the dollar.





On Sep 18 01:56 PM 31October wrote:

> The "stronger" dollar is a result of lowered velocity of money and
> temporary deflation. 42 states lost jobs in August 2009, up from
> 29 in July. Employers have eliminated 7 million jobs since December
> 2007. States with drops in unemployment show up that way because
> the jobless gave up. None of those states actually added jobs.<br/>
>
> If velocity picks up, then how far south can the dollar go? Look
> very far south, maybe Argentina, to find out. Americans do not have
> the savings mentality of the Japanese, so I suspect that the Fed/Treasury/Congress
> will eventually get what they want and devalue the dollar by at least
> 40% to avoid true debt repayment. The paragraph about Treasury bonds
> being a safe haven play is interesting: I pity the fool who moves
> into T-bills for safety. Non dollar based energy / minerals stocks
> will be the safe bet.
>
> The dollar stabilization is just like the time I fell off a cliff.
> I smacked a ledge on the way down. There was a brief moment when
> I was not falling.
>
> 25 years later, I am not likely to go repelling again. And the lenders
> whom we shafted with dollar devaluation will not be likely to buy
> our treasury debt again.

Sep 20 02:58 AM

[Gold Bug:]

Marc Faber - US Dollars Will Be Worthless
Source marcfaberchannel.blogs.../


Marc Faber, editor of The Gloom, Boom & Doom Report is, by his own account, "ultra-bearish" on the long-term fundamentals of the U.S. market. (Discussed in detail in this clip.)

However, in the near term, Faber sees plenty of money-making opportunities in stocks. Sure, prices aren't as cheap as they were in March, yet he's confident, "in this envionrment cash will become worthless." As a result, he says investors are, "better off being in equities," for the next two to three years.

Oct 03 07:29 PM