This weekend brought news of a flare up between the US and China. If you have followed any of our weekly recaps or webinars then you have heard us talk about how important having a good relationship with China is to the US. The current dispute is over cheap tires coming from China. The White House approved an increase in an import tariff by 35% this year, 30% for next year and 25% for the year after. China has lodged a complaint with the WTO. The Steelworkers complained that 5,000 jobs have been lost since 2004, because of the cheap tires from China. In the grand scheme of things, 5,000 people is a drop in the bucket compared to the 9.7% national unemployment rate. I would prefer to keep China happy at a time when we NEED them to buy our monthly treasuries to keep our paying the interest on our debt. Only time will tell what backlash this tariff increase will bring from China. They may decide to send a message and not buy our debt. This could be catastrophic in the big picture. Our Dollar has already taken out some shorter term support levels. Gold has reached above the $1,000 mark. Oil has remained relatively steady given the fluctuations. A weaker Dollar should drive oil prices higher.
The problems that we see are the big picture macro fundamentals. We have rallied in a market for quite some time while the underlying fundamentals of our economy have not improved. Unemployment is at 9.7%, with 5,000 new layoffs from Eli Lilly Co, foreclosures are still making new highs, our countries deficit is out of control and our government wants to spend more. If we continually devalue our Dollar, what confidence will any foreign nation have in our country?
Gold is pulling back slightly. This is a natural occurrence given the recent run up because of the fall off in the Dollar. Hopefully we see a nice consolidation and we can see it finally push to new highs. This will depend on the support we see in the Dollar and how our markets are reacting to the China rift over tires.
The Dow is sitting at key resistance levels. If we can consolidate in a tight range up here, then we can pop up to the 10k level. Failure to downside would most likely test the 9,250 levels of the recent lows. Asia is taking the China-US tariff issue a little more to heart. They were down 2.3% on the Nikkei 225 and down 1.08 % on the Hang Seng.
If you haven’t watched the webinar on the Dollar’s Demise, then you can find it under the weekly webinars on the Gold Members home page.
Economic
Earnings
Stocks > $2.5, Volume Average > 500,000
Original Source: Options University