Stock brokers are bullish and futures indicate a quick jump in the Dow Jones Industrial index to a psychological ceiling around 12,700.  Commodities are up and the dollar is pointing down - for Wall Street backed by the Fed its back to "business as usual." 

Markets are rational, despite what any would-be central planners will sell you.  Today's indications of a positive trading day prove this even if you would expect Friday's weak jobs report to weigh down on stock values.

The key signal to Wall Street right now is the dollar.  We don't know what's going to happen with corporate earnings, or next month's employment report, or if the credit crunch is past its worst.  Uncertainty could cause price drops as investors take their cash to the sidelines, but there is one statistic backed by public policy:  The dollar will fall.

The Federal Reserve has never been so loud and clear in its intention:  Inflation is rampant, and it is not a primary concern.  The dollar will come down to help us pay our public debt - it will continue to fall so we can balance our external trading budgets - and we're going to use public (inflationary) money to keep the largest banks open even if their executives made bad decisions and lost billions.

So it really doesn't matter what happens in the real economy.  If the dollar is dropping, the nominal value of stocks and commodities should go up to maintain equilibrium.  As long as the government weakens the dollar, stocks will go up.  Food, oil, and to a lesser extent gold will continue to gain.   

How can we be so confident?  Well, Federal Reserve policy is considered to take six months to fully affect the economy.  The biggest infusion of inflationary cash perhaps in recent history only began in mid-March, so the next five months of economic history have practically already been written.   

The economy is shaping up to be the big issue in the election this year and none of the candidates remaining offer much hope in that arena.  Quite frankly, they've all offered more forms of inflation and price floors as a solution.  This is, essentially, a continuation or even acceleration of the policies that created the recent sudden jumps in food and oil prices you may have noticed. 

I know, I know.  If you've been reading you think I'm incredibly bearish and fixate on bad news.  Well, you can be bearish on the U.S. economy and still make a ton of cash.  U.S. stock price growth is nominal, and those "gains" won't look so good when you try to convert them into something you can use or enjoy.

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Copyright (C) 2007 Alain Georgette / Copyright (C) 2006 Frantisek Hliva. All rights reserved.