Dow above 10,000, euro more than $1.50, but something just isn’t right

A few days ago one could almost succumb to euphoria of CNN anchors who celebrated the DJ 10 000 mark. But than came a cold shower of discouraging comments from investors with the “Peter Schiff mindset”.  The Economist recently ran an excellent special report on the long climb from the current crisis which lies ahead of us. One hedge fund manager was quoted here, when writing to his clients, he encouraged them to enjoy this “government sponsored” bullish stock rally until it lasts. Fed with its quantitative easing helps to sustain an illusion that the worst is over and the global economy is slowly recovering. But not everyone is buying it. It’s been reported that central banks around the globe now hold the lowest percentage of dollar-denominated assets in their freshly created reserves ever. With national debt per tax payer running at $109,925 and its expected rapid increase to 120% of GDP in the next two years, there is no surprise that creditors and holders of huge foreign exchange reserves, such as China, are getting anxious. With dollar loosing ground, prices of precious metals and crude oil are rising fast. Banks still hold vast amounts of toxic assets and balance sheets of companies and households are burdened with piles of debt. There is a “reset button” missing, and the economy is set to drag on its knees for years.  Some IT companies show surprising resilience but the Economist warns against haste optimism and reminds us of the fact that most earnings in IT sector don’t come from consumers but corporate clients and therefore a better proxy to the market is IBM which posted a 7% decline in earnings. Consumer confidence is shattered and massive long term lay-offs threaten to make a permanent dent in productivity, as they weaken skills and working habits. We clearly need a more balanced international trade without recent big trade surpluses on the side of China, Germany and Japan and big deficits in the US and Spain. China has to do more to stimulate its domestic demand and cheaper dollar should boost US exports as well as US investments abroad. But the whole global economy is still fragile and some future disruptive event can wreck chaos again. As Peter Schiff puts it without mercy, Ben Bernanke might be remembered in history as the “man who killed the buck”. Lets hope for the best but plan for the worst, a bumpy but exciting road lies ahead!