Dartline™ … Closing Thoughts.

November 17, 2009, 4:00 pm … Closing Thoughts … The Standard & Poor’s 500 index  up 1.02 to 1110.32, as the dollar slumped helped prop up commodity and stock prices – positive for stock market sentiment. For months the market has been trading on economic news or the fluctuations of the dollar. The Dollar Index bounced near the top of its August 28 gap at 74.87 last week, but stalled at the declining 20 day exp. Yesterday it held near the lower end of the gap but today’s bounce has again stalled near its 20 day exp with some downticks noted allowing the stock indices to lift off the lows. … Better retail news pushed stocks higher as a government report showed a rebound in overall sales in October. Traders are looking for signs that consumer spending, one of the biggest drivers of the U.S. economy, will recover during the holiday season. .

NY Times reports a proposal to give banking regulators authority to block accounting standards is “a terrible idea,” Paul Volcker, a former chairman of the Federal Reserve Board, said. Mr. Volcker has been an outspoken critic of “mark to market” accounting that forced banks to take large write-downs in asset values, a position cited by banks earlier this year when they persuaded members of the House Financial Services Committee to demand changes in that rule. But in an interview Monday, two days before a House committee vote on a proposal that would grant bank regulators the power to sidestep accounting standards, Mr. Volcker said he believed that accounting rules had to be set by an independent agency. He voiced concern that rising political pressures on both sides of the Atlantic were endangering that independence. The Financial Services Committee is to vote on amendments to a bill to establish a council of bank regulators as a systemic risk regulator, able to take action if bank activities threaten financial stability.

Are we in the middle of an  asset bubble? Rapid rise in commodity prices would suggest ‘yes’. The dollar is the world reserve currency most countries use dollars to trade commodities. So when the dollar slides, commodity  prices are pushed higher. Pretty simple. Now, the dollar saw a huge flight to safety in late 2008 and early 2009 which is why it strengthened so much. There was no conviction from a fundamental stand  point as the Fed was printing massive amounts of dollars. But given the global uncertainty U.S. treasuries seemed like the best bet not to lose money. So, as the dollar sells off, the money that was  invested in treasuries is flooded out into equity markets and other foreign investments. Thus the  asset bubble that we saw in treasuries has now pushed into other areas.