As we discussed yesterday, it was meet the new boss, same as the old boss in Japan as Naoto Kan’s re-election sent the Yen to new highs as he was considered the least likely candidate to back intervention. Well surprise, surprise this morning as Japan officially intervened in the FOREX markets and sent the Yen down a full 2.5% as they used their Yen to purchase an undisclosed basket of currencies.
Since the Dollar is up today against both the Pound ($1.55) and the Euro ($1.29), we can assume the dollar is one of those currencies and demand for Dollars means upward pressure on rates so that should be the end of the TLT bounce for the moment. Stock boys want bonds to die so the money can come this way and bond boys want you to fear the stock market so you will let them hold your money (and charge you fees) at ridiculously low rates of interest. That’s they Yin and Yang of the markets.
“Investors were starting to doubt the government’s commitment to its pledge that it would take bold action,” said Yoshimasa Maruyama, a senior economist at Itochu Corp. in Tokyo. Kan and Noda in recent weeks repeatedly said that Japan was ready to take “bold” measures to stem the currency. The Japanese government official said European and U.S. officials were informed of the move in an effort to avoid a negative reaction. It took a while to convince Europe because authorities there didn’t like the idea, the person said.
We’ll see if the stronger Dollar today puts pressure on commodities but we’re in pretty good shape as this rally, for a change, has not been led by commodities as the market is now flat to the August despite an 8% drop in oil prices (see USO on chart):
I often complain about rallies that are led by Financials and Commodities as those are things that suck money OUT of the economy and are not long-term drivers of growth. The entire 2006-7 rally was this kind of rally and I bitched about it all the way up. We also had housing back then, another type of commodity, but that’s so dead now it’s hardly worth mentioning, is it? Actually housing is where we used a lot of commodities like lumber and copper etc. 33 months after the onset of the Great Recession, new home sales are still down 70% and non-residential construction is down 36% – that market is dead, dead, dead.
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