That was no phony rally -- Thursday's move was real
The market action in the previous session hinged on 2 key factors: The downtick in Treasurys, and the run in the euro.
We learned a lot about what can happen from Thursday's session. If you go back over the pivot, what you found was that a slight downtick in rates on 10-year U.S. Treasury bonds, ever so slight, was enough to threaten to take out the 2% level that had crushed stocks when rates were levitating. You would also find a strong uptick in the euro.
It took two, and that ignited what many are calling a phony rally. In my book, nothing's phony except for flash crashes. The move was real, and it will be replicated if these two indicators continue in that same direction.
We know why rates should matter. We saw such a violent move up from 1.5% on the 10-year that, if you'd wanted to buy a home and had been waiting, you'd have missed the terrific rates as mortgage rates went from 3% to 4%. That clearly caused a pause in buying, as the whole process had been pretty delicate to begin with.
So anything that brings mortgage rates down to 3.75% could have an incredibly bullish outcome, as sidelined home buyers will say, "OK, I missed the bottom, but I know now what can happen, so I'd better go lock-in." As long as rates have been going down, it has made sense to wait. Once you see how quickly they're able to fly up, you know it is a whole different story.
On the other side, you simply cannot get a run like we saw in the euro Thursday unless, again, as I have been saying, Europe is bottoming out. The purchasing managers indices over there were almost all better than expected. The U.K. is looking particularly good. The only place I am really worried about isn't Italy or Spain or Greece. It is France, with its horrendous employment numbers and an even more horrendous government. Without government change over there, France could be a huge drag on any turn. But I think the euro is signaling that growth is around the corner.
Of course, there are many sideshows that people are making into main shows, the yen and gold being the biggest among them. I urge you not to be confused as the day goes on, though. Thursday clearly demonstrated that a move below 2% on the 10-year brings a rally, and that a strong euro breeds a rally -- and if you get both, the bottom was yesterday.
Of course, the corollary is true, too. You get rollbacks, and the market will test Thursday's bottom, and I think it will fail. It's pretty binary when you think of it that way.
Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust.
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Anyway, there are always 2 sides to a currency trade. Yes, the Euro is surging, but is that because of the Euro economy or because the dollar is getting beaten down? I've missed the recent run-up in the Euro, and I'm still on the sidelines trying to get a better read on things.
Regarding interest rates - we could be facing a fairly long period of interest rate purgatory. Small increases in rates can have a devastating effect on borrowers (especially gov), while not doing much at all for savers. Imagine if 30 yr rates shoot up to 6% - most would agree this would be devastating for the housing market. But at the same time, the increase in rates on savings might go from 0.25% to 0.80% - woopty-dooo. To get back to a point where we're rewarding savers, we'll have to endure quite a lot of painful obstacles. It will probably take years of debtors getting killed and very little positive results for savers before we reach the point where most people can realize the true benefits of saving again. I'm not convinced that we, as a society, have the fortitude to endure this. No matter the reward and no matter the long term gain, our shortsighted, consumer-spending-driven, "something-for-nothing", "gotta have it now" mentality will likely derail this process. At the first sign of discomfort, people will be crying out, demanding that the Fed step in and take action.
Gee Brutus, I have to wonder what sources are you reading when you say the Euro economy is surging?? According to the May 31st Kiplinger Letter and I quote directly concerning both this year and next year's growth: "The euro zone. A sluggish increase of a little over 1% for the region next year will nevertheless be an improvement from the slight contraction it will see this year. And given the European Union as a whole is America's No. 2 foreign customer, a GDP bump of just one percentage point adds up to billions in additional export sales. Helping to pull the euro zone out of its trough: Another interest reduction by the European Central Bank this summer and an easing of tough austerity policies."
But of course, who would ever listen to the Kiplinger Letter and think they were above board. NOT!!
Yeah, I like sampling Ales, but would probably go for the whiskey and rye..
I would be watching out closely for those "Lassies" that actually turn into dogs at closing time..
But then again, I've heard that many Pubs never close and the Barkeep lives in the back.
Ahhh,Steve...Hope you are having a good time and learning or teaching something..?
Wondered about the last couple days? But one of, everybody's punching bags was off for a day or two, and not many comments from the pundits..
Never have liked Conversion of monies, going anywhere; Seems like I always came up on the short end of the stick...With some kind of lame excuse.
Never been to Europe...North and South of U.S and several places in the Pacific Rim..
Think we even have a little Confederate Money ??
I've tried to collect bits and pieces of Dinero or Yen from around the world and do have some Deutsch Marks and English pounds/schillings and others that some have supplied to me, for my hobby.
I think the Global Central Bankers are a lot more tuned into each other than ever before...?
Although, there may be a few rabble rousers; Not many are going off half cocked, and causing long term turmoil in Financial or Global Markets..
They World's recession is steadying, but the pockets of depression or severe depression, may take years/decades to overcome, and have been somewhat self-inflicting..
Not following the Forex closely, except precious metals and dollar values, I have little understanding of the plays or how trades are accomplished, and seem somwhat nerve wracking to me.
It's best to stick to what you know or at least have a clue of the operation.
"I was the first to post a comment and apparently they didn't like what I had to say, because they deleted the whole freaking article. Probably just a coincidence."
Not. They do that when the initial comments don't support their position. It's called censoring but when they choose to pull the article, no one can accuse them of it.
Who didn't predict today? The world is dead. It's only about geezers and wealth now. Stop working and go pursue something you think is worthwhile. This degrades into Armageddon really soon.
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Consumers are very status conscious in Asia, Africa and other emerging-market areas. This is especially true in China.
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