Wednesday, December 28, 2011

Lower Euro, Strong Dollar Sink Risk Assets

Following the lowest volume trading day of the year, stocks headed South as European bourses opened for the first time since last Friday, and, as is the usual case whenever europe becomes a focal point, stocks and commodities fell out of bed right at the open and continued to slide throughout the session.

The Euro hit the low for the year against the US dollar, checking in at an exchange rate of 1 Euro = 1.29416 US Dollar. Put another way, the US dollar was stronger than its been all year against the currency of choice (well, hardly a choice, rather an edict) on the Continent.

With so many hedgies short the dollar - a big mistake in some quarters - stocks looked too rich for most of the few remaining souls still trading in 2011. Being long the Euro is like thinking you'll start a camp fire in the middle of a hurricane. It simply goes against all logic, but that is the prevailing thinking of the investor class. May they lose all of their gains by Friday.

The lack of trading volume on Wall Street did not materially detract from the impulse to sell anything and just about everything. Oil, gold and silver all fell along with equities. All 30 Dow components finished the day in negative territory.

Oil eased off quite a bit as threats coming from Iran began sounding more like posturing than actual escalation, the general feeling being that the US military, if need be, would open the Strait of Hormuz in a matter of days if the Iranians eventually do try to shut down oil shipping lanes. Even for a nation as politically polarized as Iran, a general stoppage of oil shipping out of the Persian Gulf would be suicidal, though suicide is not out of the question when it comes to Iran.

Whether the US and its UN allies decide to impose sanctions and embargo Iran's oil shipments, which go primarily to India, China and points East is a matter the leaders have left open until the New Year, after Iran concludes its military exercises in the area.

Dow 12,151.41, -139.94 (1.14%)
NASDAQ 2,589.98, -35.22 (1.34%)
S&P 500 1,249.64, -15.79 (1.25%)
NYSE Composite 7,396.99, -111.38 (1.48%)
NASDAQ Volume 1,063,998,750
NYSE Volume 2,349,797,500
Combined NYSE & NASDAQ Advance - Decline: 1138-4556
Combined NYSE & NASDAQ New highs - New lows: 138-123
WTI crude oil: 99.36, -1.98
Gold: 1,564.10, -31.40
Silver: 27.23, -1.51

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