Today is just another example of the inverse relationship between the U.S. Dollar Index and the major stock market indexes. Notice when the U.S. Dollar Index declines intra-day that the stock market indexes such as the SPDR S&P 500 Trust(NYSE:SPY) and the SPDR Dow Jones Industrial Average(NYSE:DIA) instantly inflate and trade higher.

As long as this type of action continues to occur it is prudent to expect more upside for the stock markets. However, every time the stock market inflates it is important to remember that it comes with repercussions and that is the declining purchasing power for the U.S. consumer.

Originally posted by inthemoneystocks



As long as this type of action continues to occur it is prudent to expect more upside for the stock markets. However, every time the stock market inflates it is important to remember that it comes with repercussions and that is the declining purchasing power for the U.S. consumer.

Also when the Index's goes up it drags commodities like oil up, and also consumer staples which leads to inflation.

There is the "inflationary spiral," in which a rise in costs causes prices to go up, which in turn raises costs, which again rises prices, which then devalues the USD and so on.
Wage costs are among the costs that rise in response to higher prices. When unemployment is low, employees can hold out for full compensation for the higher prices, and raises above that. When unemployment is high, however, the employees will have to settle for less, and so costs do not rise as fast as prices when unemployment is high, in a typical economy recovery....but we are seeing inflation with double digit unemployment. Even though the FEDs say other wise all one has to do is look at the price off goods on a 3 year average...or the price of oil over 90. they are trying to raise inflation to devalue the USD not my words but there own.
Another thing I have seen change is the appetite for risk in the EURO is much lower than that of the AUD, and CAD even selling USD's and EURO's against all other currency's (currency's that move with oil, gold, and silver) and the demand to own JAPAN YEN over the USD is troubling very troubling....

And when the price of Oil crosses above $80 per barrel it acts as a drag on GDP, above $100 and the rate of change in GDP crosses below zero. Also, as Oil goes up in price the yield curve lifts in response, as we are currently seeing happen. A rising yield curve is especially bad news for housing which is already flat on it's back. It's a catch 22 situation, or as Chairman Greenspan would say "we are faced with a conundrum".

Good post.

If only the powers that be would not have let rates go to near zero% like Japan. we now have at least 3 decades to look forward to stagnant
growth at best unless they can cut spending and cut it hard and fast before larger nations start needing money like Ireland and Greece have this year. Nations that spent money they didn't have thinking tax payers where always going to be make more money. Giving them the money is NOT the problem the'll just print more the problem will come later down the road via inflation.

Chaps, you'll allow me to disagree. I personally don't see any Catch22 here. The countries that ended-up borrowing too much or spent too much or just ate all the money without using it for infrastructure (in most cases), they will inevitably recover.

Call me cynical, but I don't think that this is because there are market circles. It's simply because there will always come a point when they'll "re-represent" a cheap option against other markets. Look at Argentina's MERVAL (up 46% this year). Did Argentina do something amazing lately? Did I miss some phenomenal new reform? Nothing! It's just cheap, so you go and buy. And as far as commodities going up across the board, well they had huge resources back when they ended-up with the IMF, didn't they?

What really worries me is that there is so much "book cooking" on international level (official government stats, etc included) that there is no way on earth that we can guess what is going on. I hate to admit it, but given all the cooking mentioned above, I wish I were a chef!

Be well

Originally posted by WMR

Chaps, you'll allow me to disagree. I personally don't see any Catch22 here. The countries that ended-up borrowing too much or spent too much or just ate all the money without using it for infrastructure (in most cases), they will inevitably recover.

Call me cynical, but I don't think that this is because there are market circles. It's simply because there will always come a point when they'll "re-represent" a cheap option against other markets. Look at Argentina's MERVAL (up 46% this year). Did Argentina do something amazing lately? Did I miss some phenomenal new reform? Nothing! It's just cheap, so you go and buy. And as far as commodities going up across the board, well they had huge resources back when they ended-up with the IMF, didn't they?

What really worries me is that there is so much "book cooking" on international level (official government stats, etc included) that there is no way on earth that we can guess what is going on. I hate to admit it, but given all the cooking mentioned above, I wish I were a chef!

Be well

The state of an index does not always exemplify the true state of the economy. Most business were suffering tremendous setbacks and closures , vast amounts of people were unemployed and living in there cars months and years leading up to the great depression. And btw Had the Argentine president had the same easy going mentality they would have defaulted when they went through the same bout of hyper deflation were going to see soon if we stay the course of living on borrowed money.

Its insane to say that a business (or Government) that spends 2 million a year and makes 1 million a year will recover when there stock drops low enough. Remember the ticker LEH? I used to buy 150's calls they had a blance sheet larger than most countries GDP then no one would buy them for 20 cents...why because they spent more than they made. This country goes own because China's dumb enough to buy billions of bonds a year just because some sap says its Aaa well its fixing to be just Aa. And when the China bubble DOES pop who's gonna pay our bills? The Fed? The broke unemployed tax payers? Congress will rip through that before New Years....What we need is jobs. Congress needs to quit borrowing and create jobs to keep things going.

<<<Moody's estimates the cost of the funding the proposed tax bill, along with unemployment benefits and other policy measures, may be between $700 and $900 billion, which will raise the ratio of government debt to GDP to 72 to 73 percent, depending on the effects on nominal economic growth.

This means that the government's debt relative to revenues will decline much more slowly over the coming two years, to just under 400 percent from 420 percent at the end of fiscal year 2010.

"This is a very high ratio compared with both history and other highly rated sovereigns," Moody's said.>>>

government debt to GDP to 72 to 73 percent thats a wow number that will no doubt be a major drain on the USD

Interesting article.

http://today.msnbc.msn.com/id/40643129/ns/business-eye_on_the_economy/