Observations

Why is the stock market rallying, when US banks are failing, the eurozone is in a mess, and China is tightening?

Our leaders, like all bureaucrats, do not have the capability of preventing crises. They are the ones who create them. Look at what happened to banks, Ginnie Mae, Freddie Mac, and the housing sector. Now they have nationalized them and are adding, on top of all that, the student loan business. The excuse is to cut costs and encourage good education. Can governments be so efficient? Or, is it social engineering? One thing they know. Print money because this is the only thing rallying the market – liquidity. This is the only real reason.

Why are bond yields still so low when everyone warns about inflation and the dangers of default?

Deficits represent an obligation to pay interest to the bondholders. We have to pay the interest, out of our own pockets. Look at the Greek tragedy. Our standard of living will continue heading down. Taxes and regulations are increasing. People are not hired. Income growth is the lowest of the past expansions. We just cannot afford higher bond yields or higher inflation. It would drive the country into a total collapse.

Why is the US dollar strong when there are so many concerns about the US deficit?

The dollar peaked in 2001 and declined 36% by 2008. It has been firming recently, but it is still 31% below the 2001 top. If the dollar continues to strengthen it signals there are more profit opportunities in the USA than in other countries. Since 2001, however, the dollar has been sold, suggesting that there were better opportunities in other countries.

Why is China’s stock market lagging the rest of the world?

China is still an underdeveloped country with $6,500 GDP per capita compared to our $46,000. The markets have a knack for saying the truth. It suggests that all the bullish stories coming out of China are not reflecting the real China.

(These observations appeared in The Peter Dag Portfolio on 4/11/10)

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 by Timer Digest

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