Last night, Japan
did something it hasn’t done since 2004. It sold yen to push
the value of its currency lower. A weaker yen helps Japanese exports and is a
tool for fighting deflation in the country. Japan officials didn’t say how much yen they
sold, but it drove the dollar 3% higher against the currency.
As we know, a stronger dollar will push oil prices lower.
And it will affect stocks, too.
Japanese stocks are up 2% across the board. We’ll see if it
affects U.S. stocks to that
degree. Declines are likely to be short-lived as the market adjusts to the
yen intervention. This will be the dip to buy for investors who missed the
start of the current rally.
Speaking ofdeflation, bond fund giant PIMCO recently laid down a derivative
position that would cost the company $810 million if the U.S. economy experiences a 10-year deflationary
PIMCO believes inflation is the bigger long-term threat.
Now, PIMCO is not forecasting runaway inflation, but it’s clear that PICMO,
like Warren Buffett in his recent comments, does not see the double-dip
recession as likely.
Bearish investors should take note when big money takes
macro positions like this.
The Empire StateManufacturing Survey, a measure of manufacturing activity in
New York, fell to 4.1%. Any number
above zero shows growth, but economists were looking for the index to hit
In a separate report, Industrial Production for August came
in as expected.
These reports would seem to confirm what we already know:
that the economic recovery is moving slower than we would like. Of course,
the economy is still growing. And it appears that the “soft patch” we hit at
the end of the second quarter is easing.
Is that enough to keep investors bullish and buying
If you’re bullish, and believe the U.S. economy will continue to grow, then there’s
nothing about these reports that will change that.
And let’s not forget yesterday’s retail sales numbers.
Retail sales for August were much better than expected. Consumer spending
accounts for around 70% of economic growth, so after employment numbers,
retail sales is the number to watch.
Gold hitanother new
high yesterday at $1,274.95 an ounce. And it’s likely to move even higher. As
countries around the world seek to keep their currencies weak to bolster
exports, gold will continue to be seen a store of value.
Not only that, but this is the time of year when gold miners
adjust their hedging contracts. In order to lock in higher sales prices,
miners will buy futures contracts that will allow them to sell at higher
prices. That puts upward pressure on gold prices.
And the gold rally can be a self-fulfilling prophecy. As
investors buy shares in the Gold Trust ETF (GLD), the trust buys more gold.
It reportedly bought 6.08 metric tons of gold yesterday.
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As always, let me know what you’re thinking: [email protected].