The U.S. Dollar Index Holds the Key to Equity Prices

The S&P 500 index has been impressive from its March 6th lows of 666, yet it may be nothing more than a bear market chop if the index cannot eventually muster, penetrate, and close above 1,098.

Some feel this administration's policies are anti-free market, as double digit budget deficits remain untried/unproven financial experiments. Yet as we stressed in our June 25th piece, the potential collapse of the greenback may hold the key to the United States remaining King, long-term that is. Short-term suffering could be severe though.

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Either Obama is for changing the economic model from free-market to a more centralized western european experience, or he is working toward a greater goal of shifting the manufacturing cost paradigm through fiscal liberal policies that will decimate the Chinese Renimbi, as deficit pressures on the greenback emerge. POTC believes slave wages in China have created a cushy U.S. consumer at the expense of a decimated U.S. manufacturing base, yet we are not convinced of Obama's aggressive policy motivations, but especially on the fiscal side, you? .

Most agree the current fiscal and monetary path will fissure the greenback's floor, yet most disagree on the time frame of this occurrence. We expect a range bound equity market, S&P 803 - 1,098, unless the greenback falls or rises unexpectedly:

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1) IF the greenback penetrates above 92.08, that will be a positive for equities short and long-term.

2) IF the greenback breaks below 71.63, that will be a negative for equities short-term, but positive long-term.

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Notice both outcomes end up being positive, yet the pain associated with a greenback below 71.63 will be historical, and we think lead to a Chinese Soladarity type labor revolution. The massive export driven economy of China would stumble badly, caution.

Here's to a strong U.S. dollar index, as scenario #2 looks too painful in the short-run, but especially for the Chinese people.

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Thank you for your Wednesday attention. The Psychology of the Call team wishes you great peace and comfort as the week evolves~ IF you enjoyed this piece, please tell a friend or family member about our forward-thinking efforts.

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