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Monday, September 14, 2009

What is driving the US market higher?

Fundamentals are definitely not driving the market, there are other factors.

Emotion: First there is human emotion. Obama brought new hope, and new reason for the "average person" to hold their stock positions to give him a chance.

Snap Back: When SPX was at 666, it was over-extended down, this is a snap back rally.

Hot China Money: China is hell bent to prove to the world it's economy is hot, and America is not. So China has been pushing loose credit, government spending, and high speculation. Some of this hot-money in asia ran into resources, Asian stocks, and there is bound to be some spill-over to US.

US & Western countries Economic Parlor Tricks: The US government changes accounting rules to allow for better profits, helping drive perception. (but not reality). Giving away 4.5K to consumers to "bribe" them to take on MORE debt and buy a car creates a momentary surge in spending.....but it can't last. The US cannot (well without consequences) bribe people to spend more money. It just can't last. Same with stimulus money.

Companies beating or OK earnings: Many companies revised their targets down significantly in Q4 of 2008, so much so that the challenge to meet or beat earnings was in the cards by the revisions taken. The "short bus" investors don't look at the companies expanding (or more likely decreasing) sales. They look at revised down target, and say "beat". Many beats where by selling inventory or laying off people. These are NOT long term gains, just quarter tricks.


But the one to really focus on is:

USD Devaluation
: As the US devalues, the US market looks "Cheaper" and when US international companies bring back profits from abroad, the money "comes back into the US" larger than what it was 6 months ago. This allows large corporations from "gaining" more than they would have if the USD remained flat or gained.

The USD is about to enter "Freefall territory". The US has to eithe defend the USD or throw it under the bus. If the USD goes too low, (74-70?) panic will set in and instead of the market rising, it will fall. If the USD is defended and rises, the previous good looking international earnings will evaporate.

I'll tie back this USD move in a week or two to show the correlation for the next few weeks.
USD breaking higher will not likely be good for gold/resources.

From WebSurfinMurf's Financial Blog

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