Market Volatility

The market continues to be very volatile is things progress here. The DOW started the day down, but is currently up. The markets seem to be watching the current economic situation closely. I use the word closely with caution, because I definitely don't think that they are reading in between the lines here. If they were, they wouldn't have any money in the market period.

What I'm talking about, is the strong market reactions to Bernanke's speech, economic statistics such as inflation, unemployment, and home sale. They seem to be reacting to the lending/credit sector as they continue to put out very pessimistic numbers. They also seem to react to the price of light crude oil which is down today and what I believe to be the reason that the market is trading up this A.M. New unemployment statistics come out this Friday and I believe that they are going to impact the markets. I expect the 4.6% unemployment to rise to somewhere in the range of 4.8-5%. I believe this because manufacturing and construction jobs are declining sharply. These are jobs lost in the housing market, as it continues to spiral downwards.

Foreign markets seem to be taking it the worst still. European markets are falling as we speak, and the Nikkei fell another 3% over night. If this is the big one, the global end of the liquidity bubble. We will begin to see the $340 trillion derivatives market get dragged into the mess. Yes, that's a trillion with a "t". That's a story for another day.

I would once again like to focus on the carry trade. The Japanese Yen is now at a 3 month high against the dollar, and still rising as carry traders unwind their investments. Today, the Yen has risen against all 16 major currencies of the world. It has reached its highest value against the British Pound since October, and the same story against the Euro since November. I would like to reiterate a very important point. Global markets are COMPLETELY dependant on a strong Yen carry trade and weak value of the Yen. As these go, so goes the markets.

Remember, that these ridiculous market gains seen across the world are not "real" bull markets. Real is in quotations, because they are not based on fundamental economic growth. They are based on liquidity growth in the form of a larger monetary base and easy lending standards. The global growth in money supply that we are seeing today is unique to our history, and a lot of that money is finding its way into the markets. Folks, just because you print money and throw it into the market, doesn't mean that the stocks are worth more in real terms. It means that the government is robbing you in the form of inflation instead of imposing a direct tax. Think about it...