Last night, Japan did something it hasn’t done since 2004. It sold yen to push the value of its currency lower. A weaker yen helps Japanese exports and is a tool for fighting deflation in the country. Japan officials didn’t say how much yen they sold, but it drove the dollar 3% higher against the currency.
As we know, a stronger dollar will push oil prices lower. And it will affect stocks, too.
Japanese stocks are up 2% across the board. We’ll see if it affects U.S. stocks to that degree. Declines are likely to be short-lived as the market adjusts to the yen intervention. This will be the dip to buy for investors who missed the start of the current rally.
Speaking ofdeflation, bond fund giant PIMCO recently laid down a derivative position that would cost the company $810 million if the U.S. economy experiences a 10-year deflationary spiral.
PIMCO believes inflation is the bigger long-term threat. Now, PIMCO is not forecasting runaway inflation, but it’s clear that PICMO, like Warren Buffett in his recent comments, does not see the double-dip recession as likely.
Bearish investors should take note when big money takes macro positions like this.
The Empire StateManufacturing Survey, a measure of manufacturing activity in New York, fell to 4.1%. Any number above zero shows growth, but economists were looking for the index to hit 8%.
In a separate report, Industrial Production for August came in as expected.
These reports would seem to confirm what we already know: that the economic recovery is moving slower than we would like. Of course, the economy is still growing. And it appears that the “soft patch” we hit at the end of the second quarter is easing.
Is that enough to keep investors bullish and buying stocks?
If you’re bullish, and believe the U.S. economy will continue to grow, then there’s nothing about these reports that will change that.
And let’s not forget yesterday’s retail sales numbers. Retail sales for August were much better than expected. Consumer spending accounts for around 70% of economic growth, so after employment numbers, retail sales is the number to watch.
Gold hitanother new high yesterday at $1,274.95 an ounce. And it’s likely to move even higher. As countries around the world seek to keep their currencies weak to bolster exports, gold will continue to be seen a store of value.
Not only that, but this is the time of year when gold miners adjust their hedging contracts. In order to lock in higher sales prices, miners will buy futures contracts that will allow them to sell at higher prices. That puts upward pressure on gold prices.
And the gold rally can be a self-fulfilling prophecy. As investors buy shares in the Gold Trust ETF (NYSE:GLD), the trust buys more gold. It reportedly bought 6.08 metric tons of gold yesterday.
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As always, let me know what you’re thinking: [email protected].
Wyatt Investment Research is led by founder Ian Wyatt, who serves as Publisher and Chief Investment Strategist. Our team also includes a group of talented research analysts and editors who aim to uncover great investments and present those investment ideas to our growing group of loyal subscribers.
Ian Wyatt is an active investor, a well-regarded investment expert and an Internet entrepreneur. He is the Chief Investment Strategist at Wyatt Investment Research, and plays a leading role in each of the company’s investment newsletters and trading services. As a well-regarded market expert, Ian has written for Marketwatch, Zacks Investment Research, Seeking Alpha, Yahoo! Finance and The Burlington Free Press. He has been interviewed or quoted in articles in well-known publications including AOL Finance Blogging Stocks, Kiplinger’s Personal Finance Magazine, Barron Magazine, Barrons.com, Forbes.com, The Dick Davis Digest, The Dick Davis Income Digest, The Wall Street Transcript, TheStockAdvisors.com, Money Show Digest, The New Jersey Star Ledger, The Wisconsin State Journal and The Seattle Times.