Trade DiaryFundamentals have been thrown out the window and technical analysis over the past few months have been at best a frustrating black art. With the dollar being hammered left, right and centre gold has raced past the $1,000 mark and is now steaming ahead with very little resistance.
The gold play seems to be re-enforcing the systematic devaluation of the dollar and as the dollar drops equity risk taking rises. This seems to be the stable and reliable trade till the year end. With inflationary pressures under way and China urging the US to increase rates the FED are in a tough spot. Jobless figures have eased but not to the extend that an improvement can be measured or to the extent that job creation is on the cards.
As the FED prints its way out of the crisis the risk highlighted by the Chinese of artificially creating bubbles becomes a more probable reality. With the jobless figures next year being such an unknown the FED can’t be seen to be overly hawkish but with runaway share prices and commodities the “stronger dollar” mantra has little credence as rates will have to stay low as the risk of further job losses are to high.
The probability of an 11% unemployment rate in the US is one that was regarded as outlandish a few months ago but now seems quite plausible. Once this rate is reached the realisation that a lot of these jobs in construction and financials are gone forever will hit home. Unless stimulus is re-injected we could have an unemployment rate of 11% till 1012 and beyond. In this environment it will be hard to avoid a double dip and the resurgence of the recession.
However that far away in 2010 and we are still in the fairyland utopia of 2009 where everything is attractive, bulls are sexy and bears are on the endangered spices list. Aside from a dollar rally and collapse in gold equities will stay strong into January 2009.
A lot of analysts are apprehensive about the beginning of 2010 but as we have learnt what everyone expects rarely happens. Markets will cause maximum frustration for the maximum amount of participants which could prolong the rally into February 2010. Seeing the FTSE 100 at 5,500 is not unrealistic and a correction of 20% to 4,500 is also not unrealistic. For now though the safe trade is buy gold, sell dollar and buy equities. It couldn’t be easier.
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