A Bit of Good News Goes A Long Way

Professional money managers base their decisions on what to buy and when to buy on cold hard facts. Amateurs, for the most part, do their buying on hope and what their gut tells them. So far the amateurs are leading the markets higher, or so it seems because professionals shouldn't be acting like this.

Lat week the Aussies raised their interest rates and the markets responded by pushing equities, bonds and commodities higher. It's not supposed to work that way. Yes, we've seen the dollar get crushed lately, which should make oil sparkle, since it is traded in dollars. But, we shouldn't be seeing everything going up all at the same time, certainly not bonds and gold.

To give the investor their due their is a lot of money that has been idling on the sidelines and looking to be put to work. Any excuse to jump in seems to work. My concern is that gold is trading at all time high this year. This increase is signaling inflation, and seems to be sustainable while bonds are also holding their own. Bonds, if there is inflation, should be pulling back while gold should keep on trucking. That's not what happened and something has to give. Either we're seeing the a glimmer of inflation or we're not.

Our domestic equities have also held their own, moving higher as the dollar losses ground. Stocks in the S&P 500 are multi-national, meaning they make money here and there and everywhere. A weak dollar works just as well for our domestic based companies as it does for our overseas friends when the dollar goes kaput.

Geithner and Bernanke both agree we need more stimuli to get our economy percolating rather than a rate hike. Unemployment is predicted to hit 12%, home sales and prices are weak, commercial real estate is near life support, retail sales are anemic, workers have not seen their wages increase even though manufacturing had a touch of an increase but just a touch, and to be blunt we're not out of the woods by any stretch of the imagination. Increasing interest rates at this point is probably the last thing on this administration's mind. The economy is still fragile and while the investment folk like to point out that they 'look ahead' six months when making their buying or selling decisions there doesn't appear to be a lot of really great news on the horizon unless you do what the Wall Street folk appear to be doing which is squinting really hard and keeping their fingers and toes crossed.

The Aussie rate hike doesn't look like it'll start any stampede to higher rates by other central banks, although it did give a boost, of a sort, to the markets for a day or so.