I will add more depth to this in the coming monthly report, but there has been a significant strengthening of the dollar in the last two days. The catalyst for this was the comment from the FED in their FOMC statement that although they didn't plan to change interest rates and didn't see inflation, they were going to reduce purchases of securities in the open market.
My translation of this is that they are beginning to signal that they will begin to drain the liquidity that is sloshing around. When they take excess liquidity out of the system, banks and investors retain their assets and don't have free cash to buy other investments like commodities, bonds, and equities.
Other bad news is out indicating that home sales were down which was a surprise to the market.
Summary
I'm not calling for a total reversal of the trend yet, but if you are nervous you might begin assessing where the exits are. This has been a great run and preservation of capital is what will make this year successful. It is not out of the question to see this dip in overall markets as an opportunity to buy as well, I simply want you to be aware that the USD is showing that it has something left in the tank and as I've described before, it is the key indicator we must watch. If the dollar maintains this new direction it will be a signal that we've reached a near term high of this amazing rally.
Thursday, September 24, 2009
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