I was surprised by Bernanke's first-ever news conference yesterday, but I guess I shouldn't have been. I truly felt that the US dollar was set up to for a reversal to the upside, thus suggesting Bernanke would let go of a whopper during the conference that would stun the markets.
But he didn't. The dollar got hammered. My analysis was way off.
Luckily, my thesis didn't take long to be proven wrong. I bought puts before the new conference and sold them for a quick scalp when things looked to remain benign.
Still, I continue to feel that in the context of more than 20 years of price history, the dollar is much closer to the end of its decline than it is to fulfilling the most widely expected crash in the world.
But there are cross-currents that are clouding the waters. Perhaps the market itself is sensing there are big changes afoot, but it doesn't yet know how to react. These changes are both fiscal and monetary in nature, namely a change in tone in Washington toward more fiscal conservatism, and toward a less accommodative Fed policy after QE2 ends in June.
Perhaps the focus should not be on the S&P but elsewhere for the real clues.
For example, cotton was the darling of the commodity markets for several months and has quietly faded into oblivion as its price has suddenly fallen 32%. Lumber is down over 31%. Sugar is down 38%. Cocoa is recovering slightly after falling 21%.
One thing to note is that these are softs, and that grains have not fallen from their highs. Nor has energy or metals.
But a picture begins to emerge. When times are tough, you don't run out to buy homes or clothing. You probably use less sugar and cocoa, but more bread and rice.
Until the dollar revives from its slumber, possibly coincident with a top in the ultimate speculative market, silver, oil will likely continue to squeeze the consumer and the S&P will frustrate the shorts.
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