Today was a big day for the markets. The transports continued to show strength and broke key price levels higher. In some minds this will now bolster the highs that we are making into the end of the year and possibly eliminate theories for more serious corrections to come based on a failing Fed effect and tax increases.
In early November I posted this US dollar chart below without really much theory behind it claiming, “Interesting monthly Fib relationships and second term Dems look.”
And while Im not well versed in politics by any stretch, the similarities in price action developing in the Obama terms vs the Clinton terms offers me a chance to hypothesize into the end of 2012 on the scenario we are faced with today.
Many have been calling for dollar strength. From a technical stand point, this theoretically puts stress on the indexes.
Also many are wrapped up in the Fed effect and how each Fed stimulus has faded to a matter of minutes instead of days, weeks and months. The Fed actions are now seen as an unavoidable stress to come and a failing crutch at present.
While I agree with these two observations, the market has seemingly priced out all counter effect bias; The markets are at highs, the dollar at lows, the Fed effect inconsequential and the fiscal cliff is being priced as averted.
The indexes and currencies are at extremes relative to risk, reflecting positive bias.
Still, the idea that we should expect a plateau here and not induce further “risk on” right out of 2013 gates is widely expected and discussed.
To add to the positive bias Greece has been upgraded to B- by S&P with stable outlook today. It cant get any better than this.
“The upgrade reflects our view of the strong determination of European Economic and Monetary Union (eurozone) member states to preserve Greek membership in the eurozone,” S&P said.
“The outlook on the long-term rating is stable, balancing our view of the government’s commitment to a fiscal and structural adjustment against the economic and political challenges of doing so,” the agency added.
Will the belief in a dollar low be brief? Will the markets stay on an aggressive path higher and in a sense leave the very obvious and present lack of Fed effectiveness and tax liabilities behind?
I like the technical confluence that the Fibonacci draws lay out for a possible reversal in the Dollar. As well, the price action within the rounding bottoms match the time line perspective of Presidential terms.
The tax programs that Clinton set forth were as unpopular as what we will likely face now. Which leads me to a layman’s speculative theory on politics and taxes.
Perhaps, again, this is only step 1.
Appease voters by placing a truly “Democratic” stamp on this second term presidential victory. What could be more party preferred and overdue right now, besides a recovery, than taxing the rich. Seemingly.
Basically reverse tactics and unearth prosperity from these same weights- like Clinton.
The time table or ability for such a successful reversal of fate is not at all clear today despite some similarities. What could become more clear however is an American energy revolution, where intermediate term tax cuts could occur for energy producing new business in America.
People could continue to recognize the positives; Cheaper energy, lower budget deficit, new jobs in American energy technology, a strong Dollar.
In effect the new stimulus is not the Fed but the realization of recovery.
Only an objective look at the US dollar price action with the current coincidences in mind could please more people than it taxes. And relatively speaking, both the Dollar and SPY rally together in the following second term years as Gold declines.