Dollars Bulls Now Owe It to Tight Coupling

I received an email from a reader that contained an interesting fact:

Seven separate assets currently maintain an 85% correlation (or better) with the S&P 500 over the last six months.

Included in that group is Reuters/Jefferies CRB Index, emerging‐market bond spreads, and not surprisingly, the euro. I’ve been consistently discussing the tight correlation between the currencies and stocks. The reason I’ve cited has been simple: as risk ebbs and flows, buying of US dollars ebbs and flows ... in an opposite direction.

$ vs. Crude...Hmmm! (9 July 2008 Issue)

Can we continue to hang our hat on the view that much of the bad news is already in the price of the dollar? Well, based on the dismal views about the US economy, which we don’t dispute, which we seem to find everywhere we look, the short answer is yes. But it’s not just that belief. Something seems to have changed—though even this is a thin reed of reasoning we grant you.

Back in mid-April the US dollar index made its closing low (and its all-time low in mid- March, the day the Fed saved Bear Stearns). At the time, crude oil was trading at $116 per barrel (heck, downright cheap in retrospect...LOL).

Uninspired Moves in a Meandering Market

Last week I touched on the potential end to the sideways US dollar correction. Then all of a sudden some unidentified reckless group came in to buy stocks and keep them from finishing at lows not seen since 2003. As I also mentioned, that effort gave traders enough reason to flood money into the euro and stop the buck’s breakout effort dead in its tracks.

But common to the market of the last couple weeks, no one’s really wanted to follow through on any of the bigger moves mixed in to relatively morose markets. The euro faded after its big day last Thursday – perhaps because there wasn’t much substance behind the move.

G‐20: No new structures—maybe a reality bite!

No major new global frameworks were hashed out by the G‐20. Dollar is giving back some gains from that late blow‐off move very late in the day on Friday. The pound is staging a nice‐sized bounce.

Crude oil, the global growth thermometer, continues to move lower and lower. We would have expected a bounce in crude if the market expected anything said by the G‐ 20 would help. There seems a sinking realization that global recession will continue to get worse before better. And maybe the simple goal of G‐20 at this stage is to avert global depression, instead of the run of the mill recession, now that there is growing panic about Chinese growth.