Google and China

The financial media is jumping to the conclusion that recent weakness for stock prices is related to the ongoing Greek bailout saga. But considering that Greece would prefer to have the IMF involved in its bailout plans because emergency loans would be cheaper, I’d suggest we need to look elsewhere for the real cause of the recent mini-sell-off.  


The Indian rate hike is certainly a more likely candidate. Not because India’s economy is driving the global economy, but because this move is another sign that central banks around the world are ending their stimulus policies.   


India’s move comes a full month ahead of the next scheduled central bank meeting. The timing suggests that perhaps inflation is becoming problematic. And it also raises the possibility that India will hike rates again when it meets next month.   


Don’t underestimate the significance of Google’s (Nasdaq:GOOG) possible exit from the Chinese market. 

Happy St. Patrick’s Day

Happy St. Patrick’s Day! In honor of the holiday, the stock market is in the green. The Fed reiterated its pledge to keep interest rates low for an extended time. The promise of cheap money is clearly helping to support stock valuations.

Also helping move prices higher, and supporting the Fed’s stance, is the 0.6% drop in the Producer Price Index. The drop was led by food and fuel prices. Excluding those, the so-called "core" rate climbed 0.1%.

You wouldn’t know fuel prices were lower looking at the price for a barrel of oil. Despite the relative strength of the U.S. dollar, oil has staged a month long rally that’s got it within spitting distance of its 52-week highs. And I expect we’ll be seeing those highs in the very near future.

Anniversary, Part II

I suppose it’s fitting that futures should be down on the morning of the one-year anniversary of the stock market bottom last year. Perhaps stocks will put in a similar reversal today, but even if they don’t, I think we can take a little selling in stride.   


Oil prices are down a bit today as the dollar strengthens. We should note that the dollar and oil have moved higher in tandem lately, proving that there is more to the strength in oil prices than its relationship to the U.S. dollar.   


Expectations for the global economic recovery and a subsequent rise in demand for oil are part of it. But I also think that investors are slowly realizing that there is very little upside for production levels in non-OPEC countries.   


A recent article about Mexico bears this out…

More Upside for March

In early February, stocks looked as though they were breaking down. We had just gotten through the Dubai debt problem. China was raising reserve requirements for banks to slow the rate of lending. And then the news about Greece’s debt problems broke.  The S&P 500 had dropped from January highs at 1,150 to as low as 1,044. That’s a 9% move, and if you recall it was enough to get investors a little nervous. In fact, some were even saying that the global economic rebound was done before it was even a year old.

It was about that time that I started including TradeMaster Daily Stock Alerts’ Jason Cimpl in our daily conversation here at Daily Profit.

GDP Revised…Higher?

The first revision to fourth quarter GDP is out this morning. And amazingly enough, it was revised higher, from 5.7% to 5.9%. This is the first time I can recall a significant piece of data being revised higher in the last year.

Of course, we know that much of the strength in the economy is a direct result of government stimulus policies. Real growth may be running around 2%. But the bottom line is that the government has, and will continue to, support the economy. That should keep us looking for upside for stocks, even though the economy is basically treading water.

Oil and the U.S. Dollar

Investors seem to think it’s now a law that oil and other commodity prices will trade in tandem with the U.S. dollar. In other words, because oil and other commodities are priced in dollars, as the relative value of the dollar falls the price of oil and other commodities will rise.

The relationship makes sense. And for much of last year, it was actually working. But times have changed…

To keep things simple, we’re going to have a look at just two charts today – the U.S. dollar index and the light, sweet crude oil futures chart, the WTIC. As we’ll see, the relationship between oil and the dollar changed in early December 2009.

WTIC chart

On December 7, the dollar started to rally. You may recall that at the time the bearish talk for the dollar was rampant, and in good contrarian fashion, I had been anticipating a rally for the dollar.

Somewhat more unexpected was that oil rallied right along with dollar, as we can clearly see on the WTIC chart…

USD chart

Even now, as the dollar sits at a 6-month high, oil also remain near its 6-month price high. It should be clear that the accepted inverse relationship between the U.S. dollar and oil prices has changed. The relative value of the U.S. dollar holds much less sway over prices now than it did even a few months ago.

We could make the argument that the global economy has improved and so oil demand should pick up. But at present, most estimates for oil demand have not increased. And likewise, OPEC has not made an attempt to cut production and ramp up prices. Something else is in play…