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Why is this a negative? For many reasons but namely it is bad because the costs to produce all products are rising for corporations. This means margins will decline and profits will shrink. On a secondary level, it also means that inflation will probably pick up at the consumer level as the producers pass on some of the costs. In addition, rising inflation at a faster pace than the Federal Reserve had thought, tells us there is little chance of QE-3, once QE2 is done. The markets have been rallying non stop of late because of the massive stimulus of QE-2. Without the drug in the future, it is likely the markets will go into withdrawal and panic. Keep a close eye on the markets in the coming weeks for signals. This could get very bumpy.
While the markets are higher today, earnings are only half the reason. Since the markets opened, the Dollar has been falling sharply. This initially helped the markets remain positive but now seems to be having a negative effect. The PowerShares DB US Dollar Index Bullish (NYSE:UUP) were higher at the open but are now trading at $22.49, -0.11 (-0.51%).
Analyzing the current market activity, one must begin to wonder whether or not the markets are not starting to look at that PPI inflationary number and starting to panic. The markets are starting to sell here, though still positive. I will update my followers in the Nightly Technical Analysis Video via the Research Center. To gain amazing guidance, hardcore analysis, swing trades and education, join the Research Center. Take a free trial today.
Gareth Soloway
Chief Market Strategist
www.InTheMoneyStocks.com
It appears the Dollar may be at a pivot point where a drop is now negative to the markets. Let's figure this out. With the PPI numbers this morning, it is clear inflation is hitting the producers of goods in this country at all levels. This is the step prior to it hitting the consumers at all levels. As of now, it is just cracking the average American in regards to food and energy. However, it is clearly going to be eating away at profits for companies. Margins should be much lower.
As inflation starts to soar, the likelihood of further quantitative easing is vanishing. There have even been calls by some Federal Reserve officials to halt QE-2. While this is unlikely to happen, it is pretty clear with inflation already pumping in the system, QE-3 will not come to pass.
The more inflation in the system, the less stimulus can be pushed through. Think of the Federal Reserve's stimulus and printing of money as a drug to the market, the addict. As the Dollar drops, prices rise, pushing inflationary pressures higher. This is now a major negative. The stronger the Dollar, the more likely stimulus can be needled into the markets veins.
Using this thinking, it is very likely that a stronger Dollar is now what Wall Street demands to keep the drugs flowing. A weaker Dollar will only raise inflationary pressures, cutting into profits and not allowing the Federal Reserve to print endless money. To gain more hardcore analysis, guidance, swing trades and education, join the Research Center.
Related: The SPDR Gold Trust (ETF) (NYSE:GLD) is trading at $134.20, +0.23 (+0.17%). The United States Oil Fund LP (ETF) (NYSE:USO) is trading at $35.58, +0.19 (+0.54%). International Business Machines Corp. (NYSE:IBM) is trading at $163.34, +0.50 (+0.31%).
Gareth Soloway
Chief Market Strategist
www.InTheMoneyStocks.com
