The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

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We still maintain that one should not over-think things right now. This is a summer rally on very light volume in a questionable, at best, economic environment. And we are in the peak of vacation season.

Yesterday, the usual late SPU gaming manufactured a rally. Sources said JPM bought 500 SPUs into the NYSE close. This is equivalent to 1.25m SPY shares.

The dollar continued its losing ways as Chinese officials appeared in DC to hector US officials about the rapidly diminishing value of their US government bonds, agencies and other dollar-denominated assets.

Historians will look back at Bernanke’s decision in Q4 2008 to give European nations about $500B via currency swaps as one of the biggest Fed follies of all time. The deflationary scare of October & November 2008 created panic buying in the dollar and US bonds.

Instead of taking advantage of the transitory condition, the Fed pumped even more Old Maid dollars into European hands. The inevitable flight from the Old Maids is not only pushing the dollar lower, it’s also harming US bonds and agencies. China is beyond irate and is expressing, once again, its concerns.

The dollar flight is a principal reason for the four-month equity rally. However, if or when the linear relationship, and linear thinking, abruptly ends, markets will stage a violent adjustment.

Bonds continued their descent on the dollar and the humongous Treasury auctions that will procure $235B via various instruments.

It will be interesting to see how bonds react after the two-day meeting of Chinese and US officials ends today. There could be the usual trading rally that appears at the end of auctions. But US bonds, like the dollar, is an even more odious Old Maid than the dollar – because the buck has no maturity.

For many years, even during the housing peak and rollover phase, New Home Sales have appeared jiggy and have been spun even more jiggy even though the metric represents contracts, not closings.

We remarked during the housing peak that New Home Sales were almost half of Housing Starts; and basic math dictated that there would be a huge inventory and housing bust in the near future.