Happy Thanksgiving to all my American friends.  I hope you all have a great day with friends, family and lots of food.  And if not, well I will give you something to think about.

There are few things I am watching and you can take from this what you will.  As a general rule the a strong US$ is good for stocks.  Right now the the exact opposite is occurring, US$ falling and stocks rising.  This can occur as long as their isn’t inflationary pressures.  Commodities indicate inflation pressure.  Commodities are moving higher overall at the moment, but yet no bureaucrats seem to admit inflation is a threat.  So something is out of whack.  If commodities continue to push higher, the $US is likely to continue to fall, and stock will soon follow suit.

If commodity prices start to fall, the $US will likely rise (or vice-versa) and stocks can stay where they are or continue to edge higher.  This is the “peaceful” outcome.  But if things continue to diverge it is very likely we will have sharp movement in the stock market and or currency markets.  This could happen soon or it may take a while, but the movements will likely be sharp and quick if this occurs.  Something like what happened when the Yen carry trade unwound back in 2008.

I am not advocating  a particular trade here…yet, but I am saying we are likely poised for a big moves in potentially all of these asset classes.  Until we see what is going happen I think it best to take profits in stocks.  Trade on a short term if you going to continue to trade either side of the stock market.  The falling $US is a little over cooked in my mind.  The rest of the world has similar problems to the US, and the world needs the US under the current financial system.  That is more a logic argument than anything else.  So I am not saying buy the $US right now, but I am not shorting it heavily at this stage of the game.  Again trade with the trend on the short term, but moves are likely to sharp and quick when this unwinds.

I will point out one additional thing.  It got a bit of press coverage and then disappeared, but a group of people proposed that some commodities, namely Oil, be priced in something other than $US.  If this were to occur, the US dollar would be crippled.  Commodities priced in $US creates a market for $US that would cease to exist without the pricing.  Demand for currencies that export products instead of import products, would skyrocket in relation to the $US.  Of course politicians know this and may find some concessions to lessen the blow, but it would still be a massive currency facial clubbing.  I believe this idea is collecting steam and we will hear more about it in the future.

This is a longer term view, and is based on an inter-market analysis viewpoint. Have a great day everyone.

Cory Mitchell, CMT
Chief Market Strategist
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