By InTheMoneyStocks.com on February 11th, 2010 12:43pm Eastern Time
It has been done. The word came rumbling through Europe this morning that Greece will be bailed out. This news may not seem significant but it is major in the big picture. If you bail out one country, you will bail out all countries. Just think of it in terms of financial institutions. The U.S. bailed out one, the first, then by accident let Lehman Bro fail. Oooops! Then bailed out everyone.
This sets a significant new pattern in motion in Europe. Now each country, whether it is Italy, Portugal, Spain or others will be bailed out. This means the printing of money will start and continue. These problems are essentially why the U.S dollar has soared in the last two months since the news of Greece first being in trouble began. The market has an amazing way of knowing what will happen far earlier than Wall Street and the world.
As the bailout announcement was made today, the dollar PowerShares DB US Dollar Index Bullish (NYSE:UUP) spiked higher but it was short lived. As I stated before, this had already been priced in with the last two month rise in the dollar. Shortly after the pop, the dollar fell off a cliff. The dollar falling is the prayers of Wall Street being answered. Off to the races the market has gone. The markets are holding a solid rally at this point.
Why does the dollar dropping mean Wall Street rallies? Simply due to commodities. When the dollar moves lower, commodities must compensate by moving higher. In addition, when commodities rise, stocks that make up the major indexes like the DOW and S&P 500 move higher. This pushes those indexes up and causes the rally.
Not only are commodities rallying today on the dollar inching back down off the pop, but they are also going higher due to the Greece bailout. Why? Because a bailout means money flow and a near term avoidance of disaster which would put pressure on commodity demand. Therefore, not only do you have stimulus money flowing into Europe, but also an avoidance of a collapse of Greece which would hurt the global demand for oil and other commodities.
Learn the markets folks, it is the key to making money!
Gareth Soloway
Chief Market Strategist
InTheMoneyStocks.com
Comments