monday market mutation, page-7

in this upside down world we now find ourselves trading, there could be a santa rally. The reason is this: The dollar has dropped 17% in 2 years and 37% in 6 years, with more to come especially if a bank(s) bailout is required in usa (cos it will be huge and the fed will print the amount required). So if you're a domestic usa investor, or have huge holdings in usd that you're stuck with (thats most of asian/middle eastern sovereign funds), buying us stocks means you might keep pace or at least not lose as much - assuming usa equity prices in nominal terms hold up.

Its clear that major usa investors are flocking to tech (no bad debt to content with) and consumer staples and energy. Theres renewed speculation that the current rise in oil is because its running out, and usa refiners can't get enough. These sectors are probably more than enough to counter the banks' deteriorating performance. Then give banks a small push by cleaning out management and promising things are ok, and whizzzzz... a santa rally! Next reporting season isn't til jan 08 I think, and the new accounting/auditing standards (requiring more transparent mark-to-market disclosure of value of debt on and off balance sheets) won't come into effect til 2008 as well.

I wouldn't touch us assets with the proverbial pole, but when economic prosperity equals a high stock market then buying usa equities is one way for asia to rescue the usa even as the usd falls. Especially as the usd falls. As I said, I wouldn't touch usa equities but there are large pools of money that both strategically (rescuing usa) and tactically (minimising declines in usd value) might see the sense of it.

On top of that, theres just the huge amount of money the fed is pumping into the system, plus any actions by the PPT. There may even be a coordinated bailout between asian economies and the fed. The cost of that might be a massive transfer of ownership of usa equity assets but the fed may not have a choice if thats what asia demands as the price of their cooperation. cheers!