The Summer Doldrums: the markets have felt unusually “thin” even for August…volume has been very light…ranges have been narrow…depth has been shallow…it has felt like people don’t want to participate…its been“The Summer Doldrums” in spades for much of August…BUT…I think markets could really start to churn as we get into September.

Jackson Hole: We got a taste of that with the much-anticipated Bernanke Jackson Hole speech. The FT headline declared that, “Bernanke confirms his bias towards easing” and the markets, which had probably not been expecting “much,” reacted….with gold up nearly $40 on the day to its best level in 5 months. (Martin Murenbeeldsays that the “number one reason” for gold to rise is the simulative policies that governments and central banks implement to get their economies going again.)

Bernanke made it clear that the Fed is ready to provide additional stimulus if needed….that he is concerned about the challenges facing the US economy…he is worried about unemployment remaining stubbornly high…under-utilized resources…tepid economic growth…he is aware of the risks of stimulative action…but…he says that those risks are manageable…the gold market seems to think otherwise.    

Market reaction: Following his speech the USD was lower across the board, US interest rates were a bit lower, while stocks, foreign currencies, commodities and (especially) precious metals were higher…clearly the market had not “priced in” what he had to say…the market thinks his Jackson Hole speech is foreshadowing more easing action by the Fed on Sept 13.

Europe: The fiscal/economic problems in Europe, and the fractured political/central bank response to those problems, have been “off the radar” for much of August…BUT…those problems will likely be “back with a bang” in September…and the markets will have reason to worry about contagion from the Euro crisis. (Sept 6: ECB policy decisions, Sept 12: Dutch election, German court ruling on ESM.)   

Asia: Also “off the radar” during August has been the economic slowdown all across Asia, from India to Japan, with the Shangahi stock index hitting 3.5 year lows…while the DJI remains close to a 5 year high.

The American Presidential Election: The markets will have a keen interest in the polls leading up to the Nov 6 election date. The differences between Obama and Romney became more dramatic with the selection of Paul Ryan…all else being equal…the American stock market will rally if it thinks Romney is going to win.

Trading : I posted a note to my blog on August 21 that I had sold my long position in the US stock market and had moved to the sidelines. I had been long for the previous couple of months on the simple theory that the market looked like it wanted to go up…it was climbing a wall of worry…and I would stay long until the market told me it was no longer going up…I sensed that it was running out of steam and chose to go to the sidelines…I did NOT go short…the short term trends in the market from the June 4 lows and from the Oct 4 lows, and the longer term trends from the March 2009 lows are still clearly up.

Stocks: I thought the stock market had a pretty muted reaction to the Jackson Hole speech (especially compared to gold.) I’m sitting on the sidelines with an open mind…August 21 may turn out to be another key turn date…but the jury is still out on that….

Gold: I should have bought gold but I didn’t…it had a great bottoming pattern from May thru mid August and then broke out of a wedge pattern on rising open interest…up over $100 from the August 15 lows…I think it’s short term overdone.

CAD$:  The CAD has only had one higher weekly close (April 23) in the last year. (I think the Friday closing price of any market is very important…it’s the price the market is willing to “live with” over the weekend.) The CAD has been one of the strongest currencies in the world this summer…rising against not only the USD but also against the YEN, the AUD, and the NZD (but falling against gold and the EUR.) I haven’t traded the CAD in my short term accounts but over the past two years I have swapped ~24% of my long term savings from CAD to USD at an average price of ~0.97 USDCAD. I may look to do more of that if the CAD keeps rising…I will probably sell OTM calls against CAD…keeping the premiums if I don’t get exercised and making the swap if I do. This is not a directional bet on the CAD…it’s currency diversification…I don’t want to have all my assets in one currency.

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