The sell dollars, buy stocks trade continued today as investors snatched up stocks and other risk assets in anticipation of a long period of low interest rates and accommodative government policies. Statements from Ben Bernanke and APEC sent the dollar reeling again and stocks soaring. This was despite a weaker than expected NY Manufacturing report and a mixed report on retail sales. Investors are simply chasing the high risk names at this point in the rally.
I spoke with an aid to a member of our government this afternoon. He asked me what I would ask Ben Bernanke if I were sitting in the same room with him. I told them to ask Ben Bernanke one question:
“Knowing now that low interest rates and government spending failed to stimulate the economy in Japan during the 90’s and only helped make matters worse following the 2002 recession, can you please explain why you expect this same approach to work out differently this time around?”
I would love to hear a succinct answer to this question….
Daily Futures has all the action from today:
U.S. Economy – Dollar Continues To Fall
The U.S. Commerce Department said that retail sales were up 1.4% in October, better than expected. Excluding autos, sales were only up .2%. In September, sales were revised lower, from -1.5% to -2.3%. The December 2010 eurodollars jumped up .115 to a new contract high at 98.76.
The New York Federal Reserve’s regional index of manufacturing fell from 34.57 to 23.51 in November, weaker than expected but still a sign of expansion.
Federal Reserve Chairman Bernanke told the Economic Club of New York that he was watching the falling dollar, but “longer-run inflation expectations are stable” so the federal funds rate will continue to be exceptionally low for “an extended period.” The December U.S. T-bonds closed up 1.13/32nds at 120.27/32nds, the highest close in four weeks.
Grains and Cotton
Rain is falling today in Missouri, Illinois, Indiana, and Ohio. This afternoon, we will find out from the USDA how the harvest is going. December corn closed up 11.75 cents at $4.0222, the best close in three weeks.
The USDA said that last week’s export inspections of:
Corn totaled 21.9 million bushels, down 28% from a year ago.
Soybeans totaled 59.8 million bushels, up 41% from a year ago.
Wheat totaled 15.0 million bushels, down 18% from a year ago.
January soybeans finished up 23 cents at $10.10.
Canada’s Real Estate Association said that existing home sales were up 41% in October to a record high 42,288 units. The Association expects home sales to be up 6.6% in 2009 and up 7.0% in 2010. January lumber locked up its $10 maximum daily limit at $229.50.
Today’s retail sales report also said that gasoline station sales were up slightly in October, but still down 15% from a year ago. December crude oil climbed $2.55 to $78.90.
December gold closed up $22.50 at a new contract high of $1,139.20 while the U.S. dollar fell to a new contract low. March copper closed up $12.90 at $3.1285.
Japan’s Cabinet Office said that real GDP was up 1.2% in the third quarter, but down 4.5% from a year ago, stronger than expected. The December yen closed up .0090 at 1.1242, the highest close in five weeks.
Eurostat said that consumer prices in the EU-27 were up .5% in October from a year ago.
Statistics Canada said that manufacturing sales were up 1.4% in September to C$41.7 billion. From a year ago, sales were down 18.6%.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.