|
Nothing But Air
Research for Online Investors
by John Dalt
5/18/10
Crude oil is trading lower on a
strong dollar and four weeks of building
inventory.
The U.S. dollar has been on a
tear against the euro for the last two weeks. The euro
has been in a free fall against other currencies. Which
European government provides support for the value of the euro,
or is it standing on Nothing but
Air?
The euro strengthened on the
European stock exchanges before the U.S. markets opened Monday
morning.
When U.S. markets opened the euro
turned lower until around noon. As the European markets were closing the euro
turned higher again. When the euro moved higher, the dollar fell
which fueled a U.S. commodities to
rally.
This rally turned the
market on financials and encouraged broad based
buying.
You saw the result; our
markets regained the losses from earlier in the day and
closed with a slight
gain.
Monday’s results encouraged
overseas markets when they opened early this
morning.
As markets are all inter-related,
the U.S. markets opened higher this
morning.
All the indices were
oversold and needed a bounce to come back in balance
between buyers and sellers. This could also create a nice “short
squeeze” where short sellers would have to buy back
shares to “cover” their
positions.
Short sellers borrow stocks
to sell, when the stock starts to move higher, the short seller
must buy it back to replace it. A short squeeze brings these buyers into the
market, motivated to buy, which pushes stock prices higher
quickly.
Late this morning, Germany’s
market regulator announced a ban on naked short sales of euro
denominated debt, and shares of eleven major banks (buyers of
euro denominated debt). The ban starts at midnight German time, and
runs until March 31, 2011.
This announcement caused turmoil
in currency markets. Once again, government bureaucrats do not
understand how markets work. A
crash lesson ensued, literally. The euro fell another 1% in three hours to a
new four year low. This sent the dollar higher and knocked the
U.S. market down on all major
indices.
We have covered the Greek credit
crisis extensively in the last three
months.
So much in fact, that
MarketToday was going to be on crude oil pricing and
supply.
With developing events
today, we changed course, thinking it might be
interesting to you to understand what moved the market
today.
We are oversold,
again.
It is options expiration
week.
We expect the market to stage a
rally before Friday, so traders can move in and out of some of
their positions. This can happen if governments can restrain
from intervening for the next three
days.
The
Guardian reports this morning, the official inflation rate in
Britain for April was 3.7% The retail prices index was at
the highest level in 18 years, 5.3% The Governor of the Bank of
England blames higher fuel costs and increased
taxes,"The
change in VAT and higher petrol prices will continue to be
reflected in the overall price level.”
There is much talk of the U.S.
stacking a Value Added Tax (VAT) on top of the Income
Tax.
The VAT is akin to a national
sales tax that is collected at each stage of production or
distribution.
Thus it is hidden from consumers
as its cost is imbedded in the cost of all
products.
This creates a vicious circle, an
increase in the VAT leads to an increase in
inflation.
James Hughes, chief economist at
Black Swan Capital believes the U.K. will have higher inflation
for years.
"The perfect recipe for high
inflation is spend more than you earn for a few years, ramp up
public sector debt and increase money supply faster than the
economy is growing – and that's exactly what the UK has done …
However, there is often a lag."
"The UK economy is like Wile E.
Coyote from the Road Runner cartoons who runs off the edge of a
cliff and is suspended in mid air, only plummeting to earth
when he finally realises his
predicament."
James Hughes words
describing U.K., not mine describing U.S., but can be
applied.
To the mailbag:
I am back from Afghanistan,
getting settled into things at Fort
Bragg.
I have a few months here
then civilian life. ----paid up subscriber
C.H.
John’s
Reply:
Good to hear from
you.
Now let’s get to work on
your investments and
future.
The information presented in this
newsletter is based on generally available news releases,
corporate filings, current events, interviews and the editor’s
opinions.
It may contain errors and you
should not make investment decisions based solely on what you
believe you have read here. Do
your own research, it is your money. If
you lose it, it is your responsibility, not ours or your
grandmothers!
The editor may or may not have a
position in any securities discussed. The
editor may have held a position in a security earlier, or in
the future.
MarketToday Home
Page
Back
to Top
| 
