DOW continues to march on into unchartered territory overnight ending above 15,000 for the first time in history. The S&P 500 is not left behind and also penetrate into all time record high. Is the economy getting better? Just look at the retail figure. Retail figures is one of the best indicator to give you the answer. Most retail figures are in contraction, which gives the market expectation of further central bank easing. Yesterday we saw the Reserve Bank of Australia leads the way again to bring down interest rate to 2.75 %, a new historic low. This move of RBA will possibly set the tone for another round of currency war ( rush to devalue to boost its economy) globally. Not surprisingly we witness ‘weakness’ in the Aussie dollar yesterday.
The above chart is France Index. France economy is still in trouble but stock prices also keep pushing up. Who cares about bad economy as long as I make money in stocks. The question is ‘Will it last’?
Low interest means one of the few things below:
1. Inflation is not a problem.
2. Economy is still fragile and need more stimulus measures.
3. Investors rotate money out of bank deposits into equities. That is one of the reasons why stocks keep running up. But the key point here, are stocks prices are running ahead of its actual value. What happen if the growth is not picking up despite the low rates? Of Course, continue to adopt more stimulus measures by cutting rates and pumping more money (print and print $out of thin air ) into the system
4. It brings down currency value.
5. Low interest always benefit gold prices. But you may ask why gold prices drop so much recently despite global central bank easing. As being mentioned so many times before, ‘Time’ is the key factor. Gold bull is tired after 12 years of ‘hard run’ and need some rest to renew its vigour. Synchronised manipulation of the gold prices downward by certain big players like GS and major central banks are not out of questions. Probably, I should write more about “gold manipulation”. Tell me which world government want Gold as “money”? None! because Gold can’t be printed.
Meanwhile, enjoy the run-up in stock market but not to forget ‘taking some profits’. Nothing goes up in straight line. There is a time to buy and a time to sell.