A renascence in investor’s demand for stocks, possibly triggered by better-than-expected earnings reports for many US companies, has led to sharp rallies in commodities and higher yielding currencies. Indeed, the [B]Dow Jones Industrial Average rallied more than 2500 points since October and the Standard & Poor`s 500 Index is trading above 981, an eight-month high. Meanwhile, AUDJPY, NZDJPY and CADJPY have been well bid as investors forget about risk and focus on achieving a higher yield for their investments. However, even though there are reasons to be more optimistic, the current rally in stocks is not supported by improvements in real economic fundamentals. In my opinion, we are poised to see a reversal in stocks and commodities as trader’s book profits and economists start questioning a model of economic growth purely driven by stimulus plans paid by tax-payers money. The US public debt now stands at 11 trillion continuing to increase an average of $3.92 billion per day. More importantly, apparently the US Treasury is monetizing the government deficit by printing out money for the Federal Reserve to purchase bonds. Eventually, inflation will spike higher because there is more money for the same quantity of goods. Among other things, this will force the Fed to increase the benchmark interest rate which could plunge the US economy into stagflation.[/B]
source: Wikipedia
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