Tuesday, August 25, 2009

The Greenback Index Holds the Key to Equity Prices and the Chinese Manufacturing Cost Conundrum...

The rise in the S&P 500 index has been impressive from its March 6th lows of 666, yet it may represent nothing more than a bear market chop if the index cannot eventually muster, penetrate, and close above 1,098.
More and more individuals are beginning to feel this administration's policies are anti-free market, as double digit budget deficits remain unproven funancial 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 will be severe, but especially for the Chinese. Either Obama is for switching 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'll devastate the Chinese renminbi, especially as deficit pressures on the greenback weigh. POTC believes slave wages in China have created a cushy U.S. WalMart consumer at the expense of a decimated U.S. manufacturing base, yet we are not convinced of Obama's aggressive policy motivations, especially on the fiscal side, you? Most agree the current fiscal and monetary path will fissure the greenback's floor, yet most disagree on exactly when. We expect a range bound equity market, S&P 803 - 1,098, unless the greenback falls or rises unexpectedly: 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. Notice both outcomes end up being positive, yet the pain associated with a greenback below 71.63 will be historic and -we think- lead to a Chinese Solidarity-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. We thank you for your trendy Tuesday attention. The Psychology of the Call team wishes you great success as the week evolves~ http://psychologyofthecall.blogspot.com/

1 comment:

Anonymous said...

Bernanke is a weakling imo. IF Obama's fiscal policy stinks, why would he accept the job to do nothing, as monetary policy is on its back.
Dave from Chicago