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As the World Turns (Down)

Posted January 26, 2009

Topics: Geo-politics, Finance & Investing

The stock market remains in a funk, and the deity help us if the Dow's support level of 8000 is breached. Any failure to hold the current market bottom could result in a sharp lurch downwards.

The technical precariousness of the market is reflected in the continued deterioration fundamentally in the global economy. In Europe, casualties continue to mount -- Ireland and Spain are poster children for the basketcase economy. In Asia, while China downshifts and Singapore circles counterclockwise around the drain, South Korea and Japan face daunting challenges.

Meanwhile, on home soil, the juxtaposition of the adoring masses in Washington welcoming our new president and the worried faces on Wall Street underscored the point that we are putting too much hope on one single man to pull us out of the morass. This crisis is far deeper than anything we've ever experienced in our lifetime. That said, it would be refreshing to have a Treasury Department that is run efficiently rather than like the Keystone cops. It would be unprecedented if we were able to pass a fiscal stimulus that was actually able to target high return investments rather than devolve into a super pork fund.

From a trader's perspective, this is hardly the time to start going long this market. Risk remains to the downside until we get far more clarity on the various fiscal stimuli being put into place around the world and until we see whether all this sorrow and woe will spark a trade war.

Last take: it was encouraging that our new Treasury Secretary has China's currency manipulation currently in his scope. It was highly amusing to note the response from the Chinese to Tim Geitner’s call for an end to Chinese currency manipulation. China's top officials claimed, of course, that they had never manipulated their currency to boost exports. What was amusing about that story in the Financial Times is that on the very same page, the Japanese finance Minister was quite upfront about the need to manipulate the yen downward to bolster Japan's exports. Who do the Chinese think they're kidding? And by the way, the other line of attack by the Chinese, which is typical China strategy, was to attack the character of our new Treasury Secretary, calling him immature. Beijing can whine all it wants, but  currency manipulation is harmful to both countries. Reform has to be high on the agenda of the Obama administration.

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