The Trend Is Set: Dollar Up, Commodities Down

It appears the market has set a new direction. Over the past few weeks stocks are down. The January effect? Bond prices are up. The dollar continues to rally against most currencies. Commodity prices are declining. These trends should not be ignored because they presage what is in store for the next few months.


China is withdrawing liquidity, which the west cannot afford to do. Yet China has been the one big economy responsible for rising commodity prices. Recent events in Europe reduce the Euro’s attractiveness as a reserve currency.


The strengthening US dollar will harm the US balance of trade and thus the economy. Was this not Obama’s great hope, increasing US exports? As the “peasants revolt” the US fiscal stimulus will have to be slowly withdrawn. That leaves monetary stimulus. Even with Bernanke’s jawboning, higher administered rates are a long way off.