2 Positives, 1 Negative & A Solution For The Sinking Dollar


On the surface, it looks like a crash was averted today and the market rebounded to end mixed.  However, the internals were pretty nasty still showing that investors are still willing to sell at these depressed prices.  More supply, not enough demand.  That’s the negative.


I’m seeing two positives which could be good for a rally.  First, I posted a picture of my crazy investor indicator which measures how much fear I’m seeing in the equity markets.  The fear is now (after Friday and today) at a level not seen since July of last year based on my measurements.  Why is this good?  Because, it’s a contrarian indicator.  Once the fear reaches these types of levels, that means most of those people have already sold.  So selling is exhausted and any bit of buying makes the markets go higher.  We’re getting to those levels.  It may take a couple of weeks but we’re finally getting real fear. 

The second positive I’m seeing is the fact that some of the leading economic indicators I monitor and the ones that have kept us out of this awful market are moving sideways and stabilizing.  They aren’t moving up and I’m not saying we’re not already in a recession.  But, they are at least stabilizing and the stock market is highly correlated to this.  So, instead of continuing to get negative surprises, perhaps we’ll get more benign economic data in the coming weeks.  Boy, the economy must really stink if I’m hoping for benign economic data. 

The Dollar

I posted a picture of the Euro vs. oil last week to illustrate that commodities are moving up right now lockstep with the fall in the U.S. dollar, not necessarily because of supply and demand.  We believe the U.S. Treasury should be selling gold and buying dollars right now to prop up the dollar for a couple of reasons.  First, this would show a real effort by our government to keep our dollar strong.  Foreign investment would accelerate I believe into U.S. investments.   Secondly, commodities would fall helping consumers with gas and food prices.  Lastly, this would help offset the inflationary stimulus the Fed is producing right now.  The stock market would run up 1000 points if they did it and said they did it.


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March 2008
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