• Ben Graham Shows S&P 500 Still 27% Too High as Buffett Loses $119 Billion
“In other words, monetary policy that kept interest rates low for an extended period of time, tax policy that favored debt over equity, regulatory policy that allowed financial institutions to operate opaquely, and social policy that pushed home ownership regardless of affordability, all combined to create artificial economic demand that could only be financed with debt because the savings (i.e. equity) to purchase them did not exist.”
“Following conventional economic thinking, the government believes that the solution lies in policies designed to reflate the value of these assets. The problem with this approach is that it is based on the incurrence of trillions of dollars of additional debt to create the demand needed to purchase these assets. Debt begetting more debt is a poor prescription for sustainable long term economic growth.”
Michael E. Lewitt
FX Trading – Topping Off Jack's Monday Missive; Plus, Dollar Correction Time?
I threw in the Lewitt quote above as a sort of extension to Jack's Currency Currents missive yesterday. As much as we're told we need a quick fix to get the American economy back on its feet, that idea is wrong.
It's not going to be a quick fix that sufficiently rids us of our economic woes. It's not going to be a government policy of demand stimulation that rights our wrongs. That approach is not the means towards long term, healthy economic growth.
It remains to be seen whether such a policy can even be a temporary solution, much less lead to any real foundation building from which we can rise up. But considering the culture that's spreading across the country (for reasons beyond the scope of this publication), the “No Pain, No Gain” mantra carries little credibility anymore.
If you're looking for a departure from the current approach to this economic malaise, then I guess your hope rests on strategically coordinated tea parties. Of course, you could always hold your breath ... but I wouldn't advise it.
Is the Dollar Out of Gas for Now?
While most market followers are trying their hardest to find a bottom, we're wondering if we're finding a top.
We don't much concern ourselves with the trivial bickering that goes on among equities analysts – the really stock focused individuals always seem to find a buying opportunity in any market situation ... and they make sure to tell you. As for us, we think stocks have further downside before a major bottom is in. But enough of that ...
Narrowing our view a bit more ... looking at the US dollar's nearer term prospects ... a top could be forming.
To be sure, we think the US dollar still heads much higher before a major top is in; the sea change in the global economy will continue to prop up the dollar by weighing on other currencies. But right now, price action is hinting at a potential correction.
Last Wednesday the bears took control. And though the bulls have fought back, their efforts have thus far gone unrewarded. The US dollar index has failed at breaching its highs set on Wednesday before prices sharply reversed and closed lower.
And despite yesterday's valiant efforts to retest the highs, the bulls are losing out big time to the bears again today. The US dollar is sharply lower. And hugely important, the buck is testing Friday's lows.
A 90 minute or a daily chart shows the dollar testing key support ...
On top of that, the US dollar’s new buddy – gold – may be leading the way lower. Certainly prices of the yellow metal have turned over sharply in recent weeks. Is it indicating a departure from safety that became the driving reason behind gold and the buck rising together since as early as December?
Is it time for the US dollar to play catch up? If it’s a short term move favoring risk taking, then maybe the green follows the gold on its trek lower ...
Maybe we should ask the equities guys if they think stocks are offering historic values. Do they know Nouriel Roubini says Dow at 5000 before this mess is over?
Looking at the US dollar as it’s paired up in the foreign exchange market, it made powerful moves to new highs versus emerging market currencies; it’s made powerful moves versus the Japanese yen; it’s fighting against key long term resistance/support versus the euro, Canadian dollar and British pound.
The dollar’s been blowing and going; perhaps it’s due for a rest. And perhaps today is the day dollar bulls clock out for some time off.