Archive for October, 2009
What’s the Story with the US Dollar?
Posted by Jody Eisenman | Filed under Uncategorized
Over the last six months, the US dollar has fallen about 11%, and is now trading around its’ lowest level in 14 months against our six major trading partners. There have been various theories for this, ranging from the high levels of US indebtedness, disappointment with Obama, high unemployment rates, and a host of others. While explaining currency movements is an extremely inexact science (mostly due to the fact that there are so many factors involved, including heavy bets by currency traders), I do not believe that any of the reasons above are major factors.
I believe that the reason the dollar is falling is this. As long as the world economic outlook is poor, investors seek the safest currencies. For 2008, this was undoubtedly the dollar. Investors were even willing accept extremely low yields on treasuries just to be in what was perceived as a safe currency. This caused the US dollar index to rise from a low of 72 to a peak of 89. As in became apparent that a recovery was in progress, investors moved were unwilling to accept such low yields compared to other instruments, and began “normal” investing again. As such, the dollar index has now fallen back to around 76. If the US wishes to protect the dollar, the Fed will probably be forced to start raising rates, albeit slowly. I do not perceive this as a major issue going forward. See the chart below:
http://www.fxstreet.com/rates-charts/usdollar-index/
In the meantime, the stock market keeps rolling along with another strong weak. The market has exceeded even the most bullish sentiments on Wall Street. I believe this will continue over the near term.
Crazy College Costs and the Economy
Posted by Jody Eisenman | Filed under Uncategorized
As pretty much every American knows, the economy is still in pretty bad shape. Whether you believe that things are turning around quickly, slowly, or not at all, the fact remains that the average American is having a tougher time than they did two years. In fact, today’s unemployment number shows a nationwide unemployment rate of 9.8%, the highest number since 1983. I think it is fair to state that the average college graduate today faces the most challenging job market seen in the last 25 years. As such, college enrollment is down, mostly due to education cost. One would think that colleges should look to cut back on tuition, the same way that many businesses have done over the past year.
Think again. Tuition and fees for public four year institutions rose over 14% last year. Although there are several reasons for this, much of the blame is based on lower enrollment. In other words, since enrollment is down, colleges feel they must raise fees on everyone else! Where have we heard this before? (Hint: think the FDIC and banks, and SIPC and the broker dealers). This is insane in my opinion. Colleges should be looking to cut costs and reduce tuition to it’s’ students. Look at this way. If a broker lost half his clients last year due to poor performance, would he then be justified in raising his commissions on his remaining clients to make up the difference?!
Meanwhile, the unemployment data for today has sent stocks to another lower opening. Once again, the bulls are being put to a test; one that they have met over and over in the last 6 months. Let’s see what happens here.
The Stock Market has Its’ Best Quarter in 17 Years
Posted by Jody Eisenman | Filed under Uncategorized
Although we sold off near the end of September, US stocks posted gains in excess of 15% for the quarter. The Dow and the S and P are up roughly 50% since the March lows. Although many so called experts have doubted US stocks are calling for a retracement, the market continues to surge higher almost every month. The overall depth of this rally has been nothing short of amazing. Since the March lows, the Dow is up over 3000 points. During this entire time, the largest pullback we have had has been only 600 points between mid June and mid July. Every sell off has been met with a wave of fresh buying. Today’s action was indicative. After an early morning sell off of over 150 points, we actually rallied to get in the positive zone by the afternoon, before finally settling for a modest 30 point loss. As I have stated previously, I believe the strength in the credit markets have been the primary push to stocks. Looking at the equity and debt markets today, it seems hard to believe that we actually were in a severe bear market in 2008 and even early 2009. Investors who wouldn’t buy any bonds that weren’t FDIC insured or US treasuries are falling over themselves to grab bonds at an almost unprecedented rate. This has lead to a tremendous stock rally as well. While a pullback could come at any time, I continue to believe that as long as the bond markets remain strong, equities should follow suit.
Many people have asked me where I think the top is. I think it is very difficult to call, as I believe that the vast majority of time, the markets tend to be either overbought or oversold. The same way it was almost impossible for anyone to call the bottom in March, I think it is foolhardy to try and call the top here. As always, I think using stop losses could be prudent.
