Once again, stocks are advancing today. Commodity
prices have been driving the action lately, and that’s the case again
today. And much of the reason is China.
Inflation has picked up China as demand for goods
chugs on unabated. China’s government has been taking steps to cool
inflation, including raising down payment requirements for real estate
purchases and raising reserve requirements for banks.
In fact, there was speculation that China would
raise rates over the weekend. China did not act on interest rates, and
that’s one reason commodities, and stocks, are rallying today.
*****I promised you some reader mail today, so let’s
Bob asks about the U.S. dollar Index: I enjoy
very much reading what you and Jason have to say regarding what is
happening in the markets. Do you think that you could one day devote a
paragraph to explaining (in plain English) the USD Index? I know it is an
important indicator of how the dollar is faring in the world, but I don’t
know how to interpret what I see. Keep up the great work.
As you know, the U.S. Dollar Index (USD) is one of
our favorite charts. There has been a very high inverse correlation
between the USD and stock prices. When the US dollar rallies, stocks tend
to be weak, and vice versa.
We have watched the Fed continue to engage in monetary stimulus, which
has the net effect of weakening the U.S. dollar. The Fed is able to
continue this policy because inflation has continued to track below
target levels. So long as you don’t travel abroad, the increased wealth
you (hopefully) are enjoying translates to increased purchasing power. Of
course, if you convert your dollars to euros, you’ll see that your
purchasing power doesn