First, check out these headlines from the front page of the Bloomberg site yesterday. Do these look like the stuff of big stock rallies?
But as noted in my most recent Martenson Report, my expectation was for a return of the Dow to the 9800-10000 level.
One of the prime reasons for a rally was that the dollar was due for a fall. Anybody who has been watching the currency and stock markets over the past two years knows that an unusually tight and inverse correlation has existed between the strength or weakness of the Yen (primarily) and the US stock market.
Yen up = stocks down.
Today the Yen went down and stocks went up. Is it that simple? Not entirely so, but to a much larger degree than the average person would suspect.
Today the dollar fell by a record amount against the Euro. It was due for a pullback, but this is a pretty solid move right here:
I find it disconcerting that major currencies are trading like Internet stocks. Moves of 3%-10% are not supposed to happen in markets this large. It’s like watching a school bus navigate an F1 race track at 100 mph. Or an elephant on a bobsled run.
It’s just unnerving. I had to peek between my fingers at these charts today.
Part of the reason I found it unnerving is that we now know how much borrowing the Treasury has been doing lately (emphasis mine):
WASHINGTON, Nov 3 (Reuters) – Facing the need to borrow up to a staggering $2.1 trillion in the current fiscal year to fund economic rescue programs, the U.S. Treasury is expected to significantly expand its debt securities arsenal.
The Treasury Department said on Monday it would need to borrow a record $550 billion in the October-December quarter, including a likely $300 billion in financing for Federal Reserve liquidity operations.
The total was $408 billion higher than previous estimates announced in July 2008 due to outlays for economic assistance programs, lower tax receipts and lower issuance of non-marketable debt securities to state and local governments.
The Treasury anticipates $368 billion in borrowing in the January-March quarter.
So the Treasury is right in the middle of borrowing $550 billion in this quarter alone, and now the dollar is backing up a bit. That kind of cause-and-effect could be real, but I have my suspicions.
The dollar strength recently has been explained in various ways, "deleveraging" being one of the better ones, but nobody really knows. The fact that the central banks made so few noises about the largest ever currency moves during a time of heightened financial uncertainty tells me that the dollar strengthening served their purposes.
Most oddly, even as the stock market went up strongly, even after the announcement of huge new US Treasury issuances, T-Notes were bought today. This is quite unusual. Normally with the stock market in rally mode, money is flooding over there and there is less available to snap up treasuries.
Bottom line: There’s suddenly a LOT of money in the system looking for something to do. This bears watching. And so I will.
by lemonyellowschwin