As the market rebound has extended, we’ve noted its striking similarities with the rally of 1999—one that might have been the most speculative in U.S. history.
We have mentioned a number of times that China had experienced a very unpleasant “second-hand” tightening due to its peg to the dollar. Its trade competitiveness has suffered tremendously. With a weaker dollar the Chinese Yuan can re-gain some of its competitiveness while maintaining its peg to the dollar. A rare win-win in today’s convoluted world of finance.
Xenophobia continues to be a handsomely rewarded trait for U.S.-based equity investors, with the MSCI World Ex USA Index down 3.8% YTD through December 3rd—and now (incredibly) unchanged from its May 2011 high. Comparable period gains for the S&P 500 are +12.2% YTD and +50% from spring 2011 highs.
Jim Floyd and Steve Leuthold believe that U.S. consumer price inflation has peaked and is headed for the +3% level by mid-2009. With current headline inflation running at +5.4%, that implies there is plenty of disinflation in the pipeline.