Market comments for Oct. 25th

Are we all excited today to see that the G-20 ended their Finance Ministers session agreeing to "try" no to do harm to each other? Traders seems thrilled today as the Dow is up about 65 points at this hour and going above the 11.200 level I said we would get to back in mid September and it may even go to the 52 week high of 11,258 before the elections.

However, I caution all you believers that this is a real Bull market Rally that Friday was the lowest Volume day since last December. When can you remember an October where Volume was so low? I can't! The Volume has disappeared this month and the Volatility Index is hitting lower lows each day, it seems, although today it is up a bit. About 10 days ago it was as low as 18. From a historic perspective, it has been much lower over the past 10 years. It was as low as 10 from about 2005-2007 and signaled the quiet before the storm which followed. In 2008 it soared to 90. So we are by no means at the lows on the VIX. But there seems to be a quiet before this election and many analysts believe that the election is already baked into the market and most likely it will selloff just when the news is in on the results. You know, it's that old "buy on the rumor and sell on the news, game.

G-20 meeting: Effect on markets, Gold and currencies

As most of you know, the past few days has seen the G-20 meeting convene of Finance Ministers and their pronouncements that they would pledge to avoid weakening their currencies to boost exports and to let markets increasingly set foreign-exchange values.. Hopefully that means of the U.S. Dollar as well, as we seem to be on a tare to drop the value of the dollar, as fast as we can. In advance of any stock market trading this week, I thought a few charts were in order. I noticed that the on the last 3 trading days in anticipation of this meeting, there has been a slight shift upward on the ratio of the Dow/Gold ratio, as is seen in the chart below. Whether this is a reversal in trend or not is too early to say, but I will be watching it closely next week.

Now see if you can tell what has caused this movement up. Is it because the Dow has moved up or because Gold has dropped? This is important because Gold is tied to all currency valuations and is reported here in terms of U.S. Dollars. Below are the 2 charts in question.


You know there has been a lot of pressure put on China to raise the value of its currency, the Yuan, as they have kept their currency relatively low for many years. It has risen less than 2% in the past year, while Japans currency, the Yen, has been forcefully dropped by the Japanese recently as a counter to the dollar dropping. You can see from the chart below how the value of the Yen has been rising against the U.S. Dollar going back many years.

So let's assume you have a constant currency value as is the case of China and an ever steady Yuan, in this equation where currency is in the numerator and the price of Gold in the denominator, you can see that the resulting ratio goes lower and lower.

It is difficult to compete with people who get paid less than a dollar a day. Most of the world is finding out just how difficult it is. And yet, we all knew this much before the economies of the world went Global. Remember we too had someone, Ross Perot, who warned us of the giant sucking sound of jobs leaving the U.S. but the business leaders in this country thought somehow they could sell more goods in these foreign lands or at least get cheap labor to build their products here, rather than hire U.S. workers. That began the end of the Middle Class in America. We are all now suffering as citizens because of this folly. Business people do not have real concern for the common person. Their concern is totally based on Profits. That is why the Healthcare system in this country is so messed up save but a few Not for Profit endeavors which struggle every day to survive.

Paul Krugman sees Depression is inevitable

I am taking the unusual step to add here the Op Ed piece of Paul Krugman writing in the NY Times. I have been telling my readers we are headed for a big drop in the markets of cataclysmic proportions. Now Paul Krugman uses the word DEPRESSION in his article, not as a passing comment about the 1930's, but rather, where we are headed. Here are his own words:

OP-ED Ccolunist
The Third Depression
By PAUL KRUGMAN
Published: June 27, 2010

Recessions are common; depressions are rare. As far as I can tell, there were only two eras in economic history that were widely described as “depressions” at the time: the years of deflation and instability that followed the Panic of 1873 and the years of mass unemployment that followed the financial crisis of 1929-31.

Neither the Long Depression of the 19th century nor the Great Depression of the 20th was an era of nonstop decline — on the contrary, both included periods when the economy grew. But these episodes of improvement were never enough to undo the damage from the initial slump, and were followed by relapses.

We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.

And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.

In 2008 and 2009, it seemed as if we might have learned from history. Unlike their predecessors, who raised interest rates in the face of financial crisis, the current leaders of the Federal Reserve and the European Central Bank slashed rates and moved to support credit markets. Unlike governments of the past, which tried to balance budgets in the face of a plunging economy, today’s governments allowed deficits to rise. And better policies helped the world avoid complete collapse: the recession brought on by the financial crisis arguably ended last summer.

But future historians will tell us that this wasn’t the end of the third depression, just as the business upturn that began in 1933 wasn’t the end of the Great Depression. After all, unemployment — especially long-term unemployment — remains at levels that would have been considered catastrophic not long ago, and shows no sign of coming down rapidly. And both the United States and Europe are well on their way toward Japan-style deflationary traps.

In the face of this grim picture, you might have expected policy makers to realize that they haven’t yet done enough to promote recovery. But no: over the last few months there has been a stunning resurgence of hard-money and balanced-budget orthodoxy.

As far as rhetoric is concerned, the revival of the old-time religion is most evident in Europe, where officials seem to be getting their talking points from the collected speeches of Herbert Hoover, up to and including the claim that raising taxes and cutting spending will actually expand the economy, by improving business confidence. As a practical matter, however, America isn’t doing much better. The Fed seems aware of the deflationary risks — but what it proposes to do about these risks is, well, nothing. The Obama administration understands the dangers of premature fiscal austerity — but because Republicans and conservative Democrats in Congress won’t authorize additional aid to state governments, that austerity is coming anyway, in the form of budget cuts at the state and local levels.

Why the wrong turn in policy? The hard-liners often invoke the troubles facing Greece and other nations around the edges of Europe to justify their actions. And it’s true that bond investors have turned on governments with intractable deficits. But there is no evidence that short-run fiscal austerity in the face of a depressed economy reassures investors. On the contrary: Greece has agreed to harsh austerity, only to find its risk spreads growing ever wider; Ireland has imposed savage cuts in public spending, only to be treated by the markets as a worse risk than Spain, which has been far more reluctant to take the hard-liners’ medicine.

It’s almost as if the financial markets understand what policy makers seemingly don’t: that while long-term fiscal responsibility is important, slashing spending in the midst of a depression, which deepens that depression and paves the way for deflation, is actually self-defeating.

So I don’t think this is really about Greece, or indeed about any realistic appreciation of the tradeoffs between deficits and jobs. It is, instead, the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times.

And who will pay the price for this triumph of orthodoxy? The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again.

A version of this op-ed appeared in print on June 28, 2010, on page A19 of the New York edition.

Proud today: President Obama makes us look good again.

I am having the experience today that we have a President we can all be proud of, representing us in London, at the G-20 meeting being held there. He is intelligent, an articulate speaker, a deep thinker and prefers collaboration over demagoguery. This is such a contrast to what we, and the world, experienced under the Bush/Cheney leadership. Just think about this other fact. The protesters are NOT protesting against our President at the G-20 and actually like him. This has been unheard of in the past decade.

It's time to feel good again as an American. Now we all must support this President even though there may be parts of what he wants to do, which we may disagree with. It is time we close ranks as Americans and start a new day. Republicans got the first glimpse of what they have to look forward to, when yesterday the election in the 20th District of NY voted in favor of a Democrat instead of the usual Republican candidate. If Republicans continue to just say No to the President's agenda and budget requests, they will lose everything in the November 2010 elections. I'm tired of them trying to use failed strategies in these new difficult times. It is one of the reasons we are where we are today in the Banking system. Deregulation went rampant under Bush/Cheney. The last election of President Obama should have put their failed approach in the dumpster where it belongs. But don't hope the Republicans will get it as they are more ideologues and they will pursue failed policies to the biter end. Unfortunately we all lose when they do. So let's all help each other rather than just looking out for ourselves. We are stronger when we are together and a team of Americans than when we divide into self serving factions. Yes, I am very proud today and am happy to be able to reflect on the significant changes of the day.