Key News
* Pound Declines as G-20 Agrees on Bank Pay, Tighter Regulations (Bloomberg)
* Yen Strengthens on Speculation Japanese Companies Are Repatriating … (Bloomberg)
* Fed’s Strategy Reduces US Bailout Pledges to $11.6 Trillion (Bloomberg)
* New world economic order takes shape at G20 (Reuters)
The Event Agenda
Afternoon Run-Down
The Fed got the markets moving this week. Was it anything in particular said by the Fed? Well the key thing I took away from the message was that the Fed is no longer suggesting that its current policies will manufacture the “resumption of sustainable growth.” Of course, they extended the timeline for the asset purchase program, which means they won’t be cutting it short—bad for the interest rate hawks. But I think this statement is layered with caution and means the Fed thinks a double dip is coming.
The markets have since been reversing the recent “buy stocks, buy gold, sell the dollar” daily mandate. But as is typical in major market turning points, sometimes price becomes the catalyst. And after price moves comes the slew of logic to confirm the move.
While the dollar bears have been pontificating the destruction of the dollar and grand conspiracy schemes out of the G-20 to kill the dollar, not surprisingly it hasn’t happened. The dollar has aggressively bounced, gold has dropped sharply back below $1,000 and stocks have finally printed negative closes (three consecutive to be precise).
Anyone holding stocks at these levels, gold at these levels and short the dollar at this level cannot feel comfortable. And a little more steam in this move will begin to squeeze weak hands out of these trades quickly, because the penalty for being wrong in those trades could and likely will be severe.
A stronger dollar has only exacerbated the fall in the pound. Last week while most currencies were rising against the dollar, the pound fell 2%. This week, the pound was even weaker. The negative news out of the UK continues to pile up against the pound. Yesterday the Telegraph reported that the BOE called an emergency meeting of London economists next week to address a failing Quantitative Easing program. That got the pound moving below key support levels and the resilient weakness in the pound has been the cue to sell other currencies against the dollar.
The risky asset trade closes the week looking vulnerable. Here’s a look at some key charts…
Key Charts
The S&P 500 sharply reversed on Wednesday after a knee jerk jump following the Fed statement. The market put in a key reversal signal (an outside day) and has since followed with a 3.5% slide in three days.
Gold has slid quickly back below $1,000. The past two experiences at the $1,000 level were short lived…
Remember, the market is way long of gold. I showed this chart ealier in the week. Here’s a look at the record long market position (white line) relative to the price of spot gold (orange line)…
The pound is down 5% in two weeks and closes on its lows.
