Dow Jones Dives Again, US Dollar Keeps Rising

We note that the Dow took another dip downwards. The index opened yesterday morning at 12,861 – a 5-month low. Market technicians tell us that the action looks bad – like bear market action. And our old friend Harry Schultz says that fear has now replaced greed as the underlying emotion in the marketplace.

We’re not so sure. But we’ve had our Crash Alert flag flying for months…and we’ll keep it up until this market resolves itself. Despite the anxiety expressed thus far, the Dow is still up for the year. Which means it has a long, long way to fall. Some day, stocks will be a bargain again. But the Dow would have to be cut in half, roughly, before that day arrives. Between that day and this, we’d rather watch the game than play it.

“Please beware of charlatans saying the markets must bounce because they are so oversold,” Mike “Mish” Shedlock advised his Survival Report readers today. “In bull markets, stocks can get overbought and stay overbought for long periods of time, but in bear markets, stocks can get oversold and stay oversold. This is a bear market, so the markets might bounce or not. But nothing says they have to.”

Meanwhile, the dollar is going up against the euro (EUR) and down against yen (JPY). Why? A hypothesis: Because speculators are growing fearful…and because they need dollars to pay their debts and their bills.

People have fewer euro-denominated debts than dollar-denominated debts, so the dollar rises against the euro. On the other hand, speculators in the carry trade have huge yen debts. They borrowed at low yen rates in order to buy higher-yielding investments – including subprime CDOs. Now, they’ve got to sell their dollar positions and buy yen in order to repay their yen loans. So the yen rises against the dollar.

Bill Bonner
Markets and Money

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail Markets and Money.
Bill Bonner

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