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The Commoditization Of America V2
Every stock trader's outbound was secretly replaced with a FOREX line last night. If not, someone please explain the -0.98 correlation between the SPX and the DXY. Fundamentals win the day again... not. (alas hitting <HELP> for explanation provides no solace)
Now even volatility (haha) is a function of dollar repreciation.
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fundamentals? please - that's SO pre-crisis....
Why are the values of DXY negative in this graph?
merely inverted.
The relationship is inverse, a weakening currency is the functional equivalent to an interest rate cut. As relates to international debts it is also the functional equivalent of a default, as you are repaying debt with worth-less currency. Kinda like borrowing in gold and repaying the same weight in silver. Either way a weakening currency provides a boost to the squiggly lines that economists love so much, while the peoples can buy less with what they have.
escape by inflate....winning the war by attrition. Bernanke is occupied in congress so he can't log into his eTrade account and hit the kill switch on the USD. see you in hell, USD.
This is something I don't get. Inflation now would raise interest rates. This would worsen both the personal and governmental debt crisis, leading to lower net revenue. I can see the government wanting inflation during periods of economic growth, since it reduces the real value of the principal owed and increasing revenues manage the higher interest payments. Inflation now just seems like a potential death blow.
It's like tapping a home for equity or getting a 2d or 3d mortgage on it to pay higher interest credit card bills. If the obligations were incurred prior to an extended spate of significant inflation, you're in the clear. Liabilities gathered pre-infation can be paid off with inflated dollars.
$1.6MM housenote taken on in '06, may have taken 30 years to pay off. If inflation really takes off in the ensuing years, one could pay off the loan by 2015, because your salary will grow on paper, due to the inflationary impact. '15 dollars could be worth a fraction of '06 dollars on a unit:unit basis.
The USG is diluting the dollar, so they can pay back the immeasurable debts accrued, maintain loose monetary policy and prop up a wheezing economy.
But wouldn't the banks that the USG owes money to just raise interest rates to make up for the loss?
I am sure that there is a provision in those contracts that allows them to do that regardless of what has been originally agreed on in the contract. Think credit cards...
Don't worry. Collapse in demand is in the process of ending any talk about inflation. It's moving FAR ahead of pricing.
The forex market has been rigged by those CURRENCY SWAP lines, that the Fed has extended until February, 2010. The only problem is when the bill comes due, but they can't raise the local debt. Mr. Obama sure is on a tight schedule to reform healthcare. If the Fed ever gets the ability to raise their own debt, WATCH OUT!
This rally has been a dollar (weakness) driven event from the get go. It is no small coincidence that the equity markets and risk currencies all bottomed on the same day in March. The big question mark hanging over these currency moves as relates to equity markets is how high can the Yen go before it breaks Japan's back...how high can the Euro go before it breaks Eastern Europe.
If these currency correlations hold then any equity appreciation from here will be on the back of a wave of doom that will come crashing down on some random corner of the world. What bemuses me to no end is that Europe and Japan are sitting back idly while all this crashes at their feet.
What else can they do? They're Ponzi schemes with flags.
They're Ponzi schemes with flags.
LOL! Perfectly succinct.
Like everything I write. Just see my book, The Eminent Domain Revolt. I met some REAL Dark Forces writing that.
i'm glad you said all of that because I've been thinking the same. I find myself watching the DXY in order to maintain stop losses on stock positions. Market Watch had an article that touched on excellent tech stock earnings were partially due to currency conversions with a weakening USD.
They must have a Bernanke & Geithner get out of debt free card.
Tyler, please click the "<Help> for explaination." link in the upper left hand corner of your screen. The TRESSECFEDSIGTARP disclaimer is hidden after the jump.
And 1 between SPX and Gold.
No, the big point is who the hell died and decided that the entire worldwide equity markets are not allowed to have a single shred of independent thought!!
So rather than the DX reflecting a flight to safety from equities, (theoretically) its the volatility in the FX that is affecting stocks?
Still trying to figure this out.
(Noooooooooo wth this CAPTCHA is infuriating)
What has the correlation been between the 2 indices over the past 10 years? I know the market over the past 8 years rose on dollar weakness, but was correlation this strong?
dollar will strengthen on Q in front of next auctions. Good pump for the banks and now the bleed and risk trade comes off to bouy the auctions.
I think this all boils down to a "pain now or pain later" effect.
Our policymakers could take the hard way out and protect the value of the dollar by writing off massive losses letting bad businesses fail-- and letting the equity markets correct hard in the short term. Some days (like today) there were be an ebb in newflow that supports this view, directly or indirectly (i.e. the latter might be like, "well, Europe sucks more than we do").
But we've taken the other route, namely "let's delay the inevitable and take the pain later" approach. This will erode the value of the dollar in exchange for short-term gains in the equity markets.
In the end, this trade will continue to work-- even absent the fundamental evidence to the contrary-- until it doesn't.
Since I'm still trying to navigate this site and don't quite know where the suggestion box is, I will place it here. Is it possible to have a comment count on each post like it does on the front page before you click to see the comments? I have to refresh the page to see the additional comments made and a count would be beneficial in knowing if more comments were posted instead of having to go back to the front page to see the count.
Probably. Where do you want us to put that exactly? I can't tell from your description.
At the top of the comments would be fine like it was on the old blogspot site.
What books should I read to know what all of this means? My reading has been mostly philosophy and law
The Prince
Read that one, I need a crash course on markets and trading
Try the CAIA exams....
a demon of our own design, fooled by randomness, when genius failed: rise and fall of LTCM
I've read Black Swan, and I've just downloaded a textbook ("Investments" Brodie 8th)
Just gonna get on a little pretentious high horse here...Fooled by Randomness was a load of self-indulgent drivel. It was nothing more than a series of anecdotes and observations.
A fantastic book about how information propagates through networks is Six Degrees: The Science of a Connected Age by Duncan Watts. Although it does not obsess on tipping points and six-sigma events, every bit of the book is relevant to the same.
I couldn't read past the part in Fooled by Randomness where Taleb notes how he set out to write a book without footnotes but his friends and editor goaded him into adding a few. If I wanted stories I would have stuck to daytime tv.
Too many economists are stuck on equilibrium (or multiple equilibrium if they're feeling saucy) models to describe phenomena, when networked models are far more accurate representations of the world we all live in.
http://www.amazon.com/Six-Degrees-Science-Connected-Age/dp/0393041425
Reminiscences Of A Stock Operator Edwin LeFevre
If you're trying to make money in the market then Reminiscences Of A Stock Operator and its 21st Century equivalent Trend Trading by M Covel.
Thats pretty much it. Everything else is someone trying to sell you a Fad or themselves. I would avoid Taleb's books. You'd just be wasting your life. Black Swan was a few hundred pages about a concept that could be explained in a paragraph. For someone who thinks he's the combined IQ of NASA , it was very DUH.
Same goes with any book relating to EMH or written by an economist. Or a Central Banker. Avoid.
Atlas Shrugged
Will CNBC report this headline!? GE Capital Debt Cut by Barclays on Inadequate Loan-Loss Reserve
2pm Ron Paul coming up on Bloomberg TV in the next few minutes - - http://www.bloomberg.com/avp/avp.htm?clipSRC=LiveBTV
any way we can get an idea on what is driving what?? cos over here in forex land everyone is watching the equity markets as a leading indicator for the dollar, while the converse seems true in equity land.... i have a strong suspicion its the dollar leading the equity markets (from an economic pov it makes the most sense) but in terms of how information has historically disseminated across markets i can see more of a case for intraday fx being driven by equities...any lagged regressions we can run or anything?
I usually follow EUR/JPY because its a good measure of the amount of risk entering/leaving the global economy & carry trades, US equities also track it very closely....
Or heaadline: Jack Welch, American business icon who spawned a generation of Jack welch clones thoughout America business< receiving taxpayor welfare to fund his pensiion.
This is maybe the result of HFT that props up stock indices without accompanying value (earnings etc.) increases. As stocks go up with no profits from the real economy, the purchasing power of the currency goes down.
Resonates very well with M. Armstrong.
Tyler, is there a lag on the dollar plot? Both charts I see a flat tail. Just curious, I don't have Bloomberg (it is bloomberg, right? :).
Looks like Jamie Dimon sold 600,000 share of JPM @ $36.60. I believe he bot this stock sometime in feb 2009 for $21 when he thought the stock was to cheap. So by selling it now what is he saying?
He's probably saying "how you like dem apples" ?
I wouldnt read too much into that. CEO stock purchase/sales are very poor indicators for px direction.
the dollar will go stronger? against what currency? The euro?
One thing I still remember from pre-crisis times is that there was a enormous problem with the ageing of the working people and the pension problem in Europe. There where hughe discussions in 2007/2008 about how they where going to pay for it.
Now, all those european countries have a hughe deficit this year and their national debts have gone up BIGTIME. European countries have a so calles "SILVER FUND" witch was a piggy bank for the problems ahead. All of those funds have been cleaned out.
The ageing problem was going to hit europe starting from 2010/2011.
So as well Europe as America are both F U C K E D in the long term!
15 years ago my biz partner and one of fellas that worked for us
discussed this very thing about when the boomers (USA) would
begin to retire. There are about 75 million and it would begin
around 2007 (age 62). Total workforce at time was projected to
be somewhere around 120 million. Given this, one can see the
ratio of working to retired not good. We estimated a tax rate
to cover this at around 70%. We figured the Fed would have a
problem...but in the long run would inflate (weak dollar). This problem
will exist for the next 15 years or so. Couple this with the
necessity for boomers to get rid of their leveraged large homes
during this time frame and a much smaller generation X and we
will have a real estate problem. This was apparent to us in the
mid 90's. Well, here we are....and it is worse than we even
expected. So, with all this, fundamentally, we have a lid on the
real estate market and equities for quite some time (manipulation
taken into account, of course). One of the things
we've seen is people in their late 50's and early 60's with
mortgages in the several 100K area. This is not wise. With
all this happening at once...green shoots look more like loose green
s_ _ts to us. LOL!!!
one thing about correlations, if you dont like 'em stick around. they'll change.
This market is a frigging joke. Period. It should have been down in the wake of the worst financial crisis in 100 years or longer. Jack Welsh is a symptom of a much greater problem in America. And I am pessimistic things will ever get better.