Two good articles; The first article makes the case for a market breakdown, highlighting a few economic and technical factors. Some of these factors have already been discussed on the boards but others have not. Regardless, thought it was a well put article that encapsulates the views of the bears( Note: I am not agreeing or disagreeing with underlying bias that is presented by the author. By now you all know were I stand on the market long term, but short term I will not divulge my bias for obvious reasons). The second article talks about the rise and fall of the U.S dollar (well written).
Stock Market At Important Testing Phase
How to Kill a Dollar
The dollar has had its ups and downs, but the downs have clearly dominated of late. The greenback has lost more than a quarter of its value against other currencies, adjusted for inflation, over the last decade. It is down by nearly 5% since the beginning of 2011, matching the lowest level plumbed since the Bretton Woods System of pegged exchange rates collapsed in 1973.
An obvious explanation for this weakness is the United States Federal Reserve’s near-zero interest-rate policy, which encourages investors to shift from dollars to higher-yielding foreign assets. Predictably, the Fed’s critics are up in arms. The central bank, they complain, is debasing the dollar. It is eroding the currency’s purchasing power and, with it, Americans’ living standards.
Even worse, the Fed is playing with fire (side note - don't lit the fire again; you will pay again. Do not underestimate). Its failure to defend the dollar, the critics warn, could ignite a crisis of confidence. At some point, the Fed’s tolerance of a weak dollar would be taken as a lack of commitment to price stability. Frustrated investors would then dump their US Treasury securities. Bond yields would shoot up. The dollar would plummet. There would be financial distress and a deep recession.
My thoughts (bigbull): I ask the following; could the Fed be behind the recent market breakdown and if so, could a bigger correction be in the mix? Think about it. The Fed needs to control inflation (via commodity prices) to be able to postpone the Dollar decline. Since everything in this economy is a function of the dollar, any break below 70 on the DXY would bring about some major dislocations in the bond market that could send yields soaring. Once that happens, its gamer over. The Fed enters a liquidity trap where it cannot lower rates (since they are already at zero) and no matter how much more stimulus (debt) is created by the weight side of the government, it simply will not have a large enough effect to counteract the existing debt to bring about enough growth and lower unemployment (the crux of the problem). Remember that the Fed wanted higher commodity prices to spark corporate profits and save the private sector (due to the massive inventory build that took place in early 2009); now he wants to do the opposite and lower commodity prices to stave a double-dip. Can the Fed or the government really do anything to realistically turnaround this economy? I'm afraid not unless some major restructuring takes place. Of course, this means the wipe out of trillions of wealth worldwide, something the banks (elite) really distaste. They can draw up more short term conclusions, but oh boy will that create a bigger doozie. I'd have a wide open eye over the next few years.