EU Bails Out Ireland; Pressure on U.S. Dollar Resumes

Ireland agreed to terms for a bailout over the weekend. And while the
U.S. dollar rallied today against the euro, investors should expect that
trend to reverse in the near future with the dollar continuing its long
term slide against major world currencies.

The European Union’s willingness to support indebted member nations is
bullish for the euro. Also, the Fed’s QE2 will continue to weigh on the
U.S. dollar.

Is This the Dip to Buy?

It’s Veteran’s Day, I’m taking a moment to recognize
the sacrifice and dedication of our military.

The bond markets are closed today, so we’re losing
an important catalyst for the stock market. Without the running gauge for
the U.S. dollar, traders will have to depend on recent news to drive the
action today. And that may not be a good thing…

Cisco (Nasdaq:CSCO) is down huge after its
earnings report last night. The company beat earnings by a couple
pennies, but offered guidance that was well below expectations.

What the End of the Bond Bull Market Means for Investors

It’s been a while since I read Bill Gross’ monthly
Investment Outlook.

If you don’t recall Bill Gross is one of the most
influential fund managers in the world. As the founder and CEO of PIMCO,
he oversees around $1 trillion in assets. Ad he personally runs the PIMCO
Total Return Fund, with assets above $500 billion.

Gross is a bond guy. And he’s done quite well over the
years, posting consistent annual returns in the 8%-10% range.

Bill Gross: Government Debt is a Ponzi Scheme

Today Bill Gross told reporters at CNBC that massive influxes of capital from
the Federal Reserve “is in fact inflationary, and, if truth be told, somewhat
of a Ponzi scheme.”

Over the past seven months, Mr. Gross has slowly dumped hundreds of millions
of dollars worth of U.S. Treasury bonds in preparation for what he believes
is the end of the bull run in bonds.

Bernanke’s Burden

I don’t want to temp fate. I’m not trying to jinx it. I
understand that stocks (and gold, and oil) are rallying on the Fed’s promise
and the falling dollar.

But this rally just doesn’t want to reverse.

Yesterday was wide open for the bears to take prices lower.
Financial stocks, usually thought of as stock market leaders, were absolutely
crushed. It was a rout. Bank of America (NYSE:BAC) got creamed for 5%. Citi
(NYSE:C) lost 4.5%. Even JP Morgan (NYSE:JPM), after a good earnings report,
was down as much as 4% at its lows of the day.

Why a Trade War with China is Bad News

We’re in the home stretch of 2010. The favorite, Weak
Recovery, is ahead by a nose. QE2 and Falling Dollar are right behind. Toxic
Asset and Solid Earnings have been unable to mount a charge.

But two horses — Man ‘o Trade War and Europe’s Problem —
are moving on the outside and could decide the race.

There are so many conflicting catalysts, sometimes it seems
as though you have to pick your horse, place your bet and see what
happens.

Two Trends to Watch

The weak economic recovery has created a very volatile
stock market. Wide swings in investor sentiment give us “it’s getting
better” rallies and “double-dip recession” sell-offs.

We’ve enjoyed one of those “it’s getting better” rallies
that’s boosted the S&P 500 85 points, or 8%, from 1,040 on August 31
to a 1,125 close yesterday. The move was supported by improving
employment data, better than expected retail sales and spending numbers
and as surprise jump in manufacturing activity.

But these days, investors don’t maintain their
convictions, or stock positions, for long. And economic data is having a
hard time building on its momentum.

What Will Obama Say?

Yesterday, buyers mustered the strength to build on
Wednesday’s strong rally. In fact, the bulls pushed the S&P 500 above a
key resistance point at 1,085.

I’ve talked at length about how pessimism was at an extreme
and a bounce for stocks looked likely. Recent economic data has been good
enough to support the notion of an economic recovery, and while not setting
records, it is at least strong enough to avoid a double-dip of
recession.

Most of the recent data was in line with expectations:
factory orders were up 0.1%, productivity was down 1.8% and labor costs were
up 1.1%. However, Wednesday’s strong new home sales for July (up 5.2% when a
loss was expected) was probably the single most important data point.