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Economic Review

9/09/2009

Here we go again…exuberant market moves that don’t seem to go in tandem very well…or do they?

The summer session is over and it’s getting back to normal for trading volume but perhaps market direction is baffling the streets.  Stocks have held onto their exuberant gains established over the summer and the Forex markets have opened with a bang, hammering the Greenback to fresh lows.  On the other side of the spectrum the glittering Gold market has taken on the $1,000 mark again.  Good stuff….but what the heck is going on?  Do all of these make sense?

One explanation is the re-flation trade again which infers that the US$ deprecation may be tolerated to inflate asset values.  The falling US$ also has a positive impact for earnings for US multinationals and the falling US$ and rising asset prices is a nice set of drivers for higher Gold prices.  But one market that isn’t reacting to this is the US fixed income market as Yields are holding steady. 

So once again, the proper conclusion to be deduced from this scenario is that something smells very bad from a long term economic perspective.  And if that’s the case, then one of the recent market moves that has transpired is laden with risk.  Can you guess which one?

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