The Sharpest Stock Rally Since 1644

07-09-2011 • OfTwoMinds.com/blog

Doesn't it strike you as a bit too perfect? The central bank ceases officially propping up of risk assets to the tune of $100 billion a month, and in the normal course of events it would be natural for doubts about the future to weigh on risk assets. Instead, they all go nuts in a straight line up. Interesting, to say the least. The entire ramp in corporate profits was a see-saw result of the Fed trashing the U.S. dollar. Dollar goes down, profits earned abroad in non-dollar currencies go up. Simple. But unfortunately for the Fed and global Corporate America, the dollar, despite the Fed's numerous arrows in its back, is still alive and is heading for its see-saw date with the euro, a.k.a. the DXY. If the euro implodes--and what exactly is holding it up other than empty promises and ECB duct tape?--then the dollar will necessarily rise, regardless of other conditions. And when the dollar rises, Corporate America's ever-rising profits hit the reef and sink. It's really that simple. The stench of official desperation is in the air. The release of oil reserves, the stunning rally on threadbare "good news," the touting of absurdly trivial increases in consumer debt--it rose by $5 billion in a $14 trillion economy, oh happy day, we're saved!--it's all so transparently designed to manage perceptions, because perceptions are what drive the "animal spirits" of borrowing and spending.