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.

Market comments for Aug. 11th: Reality is about to catch up!

The Futures market shows the Dow down 126 in pre-market and the European markets down 1.5% or more. The reality of the recent economic data appears to be catching up to the reality of the hefty prices in the stock market and company valuations. The warning bell has been rung many times over th past 3 months and the rings are getting louder. Oil has broken below $80/barrel for the first time in a while. Then Yen is now down to under 85 to the dollar. Top line Revenue growth has not been the fuel of this past quarters earnings achievement. It has been cost cutting. But that too may be near its end as well as Unit Labor Costs are starting to rise, reported yesterday at +0.2%, and Productivity is starting to wane, reported yesterday at -0.9%. The Trade Balance for June has come in at -$49.9 Billion while it was expected to come in at -$43.0 Billion. The prior month it came in at $42.3 Billion. So this is definitely not going in a good direction. Gold is up over $10/ounce this morning. Exports were down -1.3% and Imports were up 3.0%.

We also expect Initial Jobless Claims to rise again this week. The number expected tomorrow is 465,000 compared to the previous week's expectation of 460,000 but actually came in at 479,000. And on Friday CPI and Core CPI numbers are reported, as well as Retail Sales and the Michigan Sentiment index. So much more news to come this week.

S&P Futures down -16 in premarket and the Nasdaq Futures are down -30. It looks like we may be finally merging reality with the value of the stock market. We are going lower.