Sense on Cents

Has anything truly changed in our economy or markets over the last two months? Market analysts would attempt to gain credibility by overanalyzing each and every piece of data that comes along, but the very simple fact is that little has truly changed since I wrote “Dollar Carry Trade Drives Global Equity Markets” on September 16, 2009.

With the equity markets making new highs for the year, I am not so foolish as to ‘fight the Fed’ or ‘fight the tape’ while fully appreciating that the foundation of our markets and economy remain extremely fragile. In that spirit, what is driving the market ever higher? I resubmit my post mentioned above:

All aboard!!

As the U.S. Dollar Index makes new lows, equities make new highs and the momentum continues. Where is the ‘juice’ coming from? Is this cash that had previously exited the market now reentering? Is this people who had gone short now being forced to cover? Is this ‘new’ money finding value? Is this a pickup in short term day trading? The answer to all of these questions is yes, albeit to varying degrees. However, the most widely held belief for the rally in the market is the dollar ‘carry trade.’

I highlighted this trade last week in my September 12: Month to Date Review of the Markets. On that day, I wrote about the U.S. dollar: (more…)