Saturday, July 24, 2010

Recovery 2010: Summer Update

By Joshua E. Stone



There are a few factors pointing to the possibility that stocks have at least seen their lows for the year, if not found a new bottom. As I mentioned in one of my latest charts posted on the S&P 500, I am expecting 1237 as the next target to be reached. Some of the reasons for this include a strong Euro, a robust German economy, and other macro factors like US economic growth and geopolitical forces such as tax policy and the balance of power. Yet other reasons to be optimistic are there as well, like rail loads to name one…and the Yield Curves.
One needs look no further than the Euro to see that some stability has returned to the market. I read an article that was able to indicate 100 pip moves in the Euro on a daily basis never has happened and are actually an indication of a problem in the system. I for one have never ceased to be amazed at how strong the Euro can be….but I have also come to be equally impressed with its ability to become very weak quite quickly. With all the problems facing the Eurozone in the next year or so it’s no wonder either.  In either case, as with anything you can always find something negative in everything. Another Euro factor is Germany, a behemoth of an economy that is on track for a strong recovery. This cannot be dismissed. Germany is the powerhouse of the Eurozone and if they are recovering then I don’t think the woes of a few small states will bring it down. For now the Euro is a viable currency, and it is not going away anytime soon. Notice how the EUR/USD did not even flinch on Friday the 16th in the wake of all the pessimism, a week when stocks were down more than 2% across the board. The support of China for the Euro can’t be underestimated either. 
Another currency that I often look at for determining the direction of the economy and which accurately foretold the entire 2008 meltdown and ensuing `09 recovery is the USD/JPY. Ashraif posted this chart and analysis that I find supports a new uptrend is in order for the currency some time in the not so distant future. This would seem to indicate there is going to be a continued appetite for risk. What most folks don’t get in my opinion is exactly how long and slow it will be; just as I have been saying all along on this blog.
Looking at the USA, we find corporations sitting on approximately two trillion in capital as they wait on evidence of a sustainable recovery and the election cycle to bring in more certainty and hopefully a friendlier disposition towards business, as 2/3rds of jobs are created by business, politicians will be pandering to the votes that are the loudest and demanding one thing: jobs! Already there are whispers of allowing the Bush tax cuts to remain in affect in some shape. This idea seems to be supported by the FED  who explains that it is too soon to pull life support from the economy yet, but at the same time we must stop spending so much.
The Yield Curve should also be looked at, long term interest rates are lower than short term rates, and this indicates longer term growth….not economic contraction.  I don’t have a degree, but smarter folks than me say this is the case. My horse sense from running a farm tells me that it is only logical that if inflation expectations are higher in the longer term than they are in the short term, then in the longer term the economy is expected to continue expanding. That said, inflation expectations are very low, and the money supply has probably peaked for now....so the biggest problem facing the economy is actually deflation. Though I don’t see it as a threat at this point, it is a longer term problem that will be exacerbated by continued inadvertent genocidal tendencies from our political leaders and the lobbies that have them under their more money than god spell.
There is also much more to support the idea that the recovery is not going to double dip, and I suppose many can find even more facts to support the idea of a double dip; I for one am an optimist and do not let the sad state of affairs overwhelm me. I have always found that it’s easier to report on the bad news than the good news, and this is certainly the case for the mainstream media who amps up every detail of bad news in an effort to divide the country for our routine elections; with unemployment the biggest and best lagging indicator of the recovery being the most potent tool in the partisan belt to divide the nation.


To read more articles by this author click here















3 comments:

Anonymous said...

I enjoyed reading your blog. Keep it that way.

fxretracer said...

Thanks for the compliment, please let me know more.
What do you dislike the most? What do you like the most?

Anonymous said...

May just be the Finest subject which I read all month?

Catagories

Search This Blog

Disclaimer

Forex trading involves serious risk and has an extremely high failure rate with new traders. Material on this site should not replace sound investment advice from a licensed professional. A small fluctuation in the market can result in substantial losses to your capital so please keep this in mind and use good money management. Live trades should not be placed without an extensive amount of understanding and education. A demo account should be used to test out strategies. www.fxretracer.blogspot.com or the creator/host or anyone associated/related with the creator/host of this site is not respsonsible for any losses incurred in any market for any reason due to any content on this site or linked sites.