The Fundamentals, Gold, $, SPX

The fundamentals

American loans are still going bad and not getting better. The JPM report showed that. This is bad. The U.S. consumer will probably stay fucked and the U.S. government will keep monetary policy loose. Zero interest rates may mean that stocks will not crash. Also, companies are doing very well at becoming more efficient. Companies with global sales -- IBM, Oracle, Intel (most tech) -- are doing great. Hence, I feel that any correction will be small (<10%).

U.S. small cap equities may not be the best performing class for the next few years. However, the Chip cycle has started. A new, international bull market is alive.

Gold is still correcting. This correction should take Gold down to 1080s and possibly to 1000.

In SPX, Carl thinks that the correction will stop at 1090 SPX, and then on to 1200. Maybe. I'm not so sure about the 1200 part, but it's certainly possible.

Carl thinks that the SPX will go up to 1200 after the month of January. I find that slightly unlikely. Typically, in bull markets, the SPX goes up around earnings season and retreats after earnings. This, in my experience, is a very strong indicator. So the correction may last through January and February and half of March.

The dollar will be go up as long as people perceive risk in equities and commodity markets. JPM earnings brought down the $. Because the Fed is determined to have a loose monetary policy (and keep interest rates low), there is always potential for a $ carry trade.

However, the dollar's primary competitor for the next one or two years at least is the Euro. The Yuan (or Remnimbi) cannot compete, because China will not let it float. It would cause riots in China. They cannot. Plus, keeping their currency down is a huge net positive, in almost every way. The only negative is that Oil and commodities are more expensive for them. And since they can subsidize the hell out of these (they have enough reserves), this is not a problem. China is doing just fine.

By pegging the Yuan to the dollar, China is not only putting a ceiling above the Yuan (because of the dollar's depreciation), it may also be putting a floor under the dollar. See, the world cannot have the Yuan become any cheaper than it is. If the Yuan gets cheaper, more manufacturing flows out of Germany, Japan and the United States and, in the long run, power flows to the manufacturing countries. In the long run, as the Yuan gets cheaper, these countries become vassal states of China. This is China's plan. Devalue currency, become manufacturing powerhouse, bring wealth to Chinese masses, get Americans addicted to Chinese consumption, and become supreme. Cheap chinese consumption is like the Opium the West gave them. They have learned their lesson well.

So the Eurozone and Japan will fight to retain manufacturing, and, in trying to devalue the Euro against the Yuan (main competition), they will devalue their currency against the dollar. As much as Trichet is an inflation hawk, Mercel and the others will keep him muzzled.

So this rally in the $ may be range bound. The Euro will fight to go down and will probably succeed in taking back 50% of the dollar fall.

Side note: America is not the place to invest your money. Crony capitalism is killing this country. China and India and Australia and Brazil and Canada. While the corporations are doing fine (thanks to the ROW), the people have little buying power,