Homecoming time: Money pours back into U.S. markets

On a wild day for global markets, one message came through loud and clear: All things considered, U.S. financial assets aren’t such a bad place to be.

Investors and traders fled most foreign currencies and commodities -- and stocks of some formerly hot emerging-market countries -- and came running back to the dollar and to Wall Street.

The currency moves were particularly dramatic: On Thursday the euro was worth $1.533. Today it’s worth $1.502. In the last five days alone the European currency has lost 3.5% of its value. Time to reconsider that U.S. "staycation" in favor of a week in Paris?

A stronger dollar implies that money is coming back home, and that may have helped power the 302.89-point, 2.7%, surge in the Dow Jones industrials, to 11,734.32.

By contrast, Chinese stock markets hit new bear-market lows. Russia’s market dived 6.5% as that nation’s conflict with neighboring Georgia intensified. Brazil’s main market index was off 0.8%.

One reason for the new, big love for America is the increasingly popular view that, just as the U.S. led the global economy into the current slowdown, it will lead the world out.

"The thinking is that we’re ahead of the rest of the world in the economic cycle," said Jim Paulsen, chief investment strategist at Wells Capital Management in Minneapolis.

Whether we come out of this first remains to be seen. But some grim economic data from Europe and Japan in recent weeks at least confirm that the slowdown has gone global. In that sense, the U.S. is the devil you know.

The rebounding dollar, meanwhile, is helping to drag down commodity prices. Investors who turned to commodities to offset the sinking buck in recent years now may feel that it’s time to reverse that trade and collect their profits.

And the cheaper oil gets, the better U.S. consumers feel, and the more likely it becomes that the most dire predictions for the domestic economy won’t come true.

Still, it’s worth remembering that 24 hours ago investors were piling into government bonds, and out of stocks, on fears that the global economy was headed for a major train wreck. Somebody get Mr. Market a Prozac.

In any case, a lot of the action today suggested that U.S. financial assets were winning by default -- i.e., they’re seen only as the best of a bad lot.

But sometimes you have to take what you can get.

Photo: Love it or leave it? Outside the New York Stock Exchange today. Ed Ou/Associated Press

Comments

[Armadillo Ames]

I am over 13 but I am an armadillo. On the Internet, I'm told, that doesn't matter.

Yes, it is a scary world out there, but let me unroll myself just long enough to scream.

"One reason for the new, big love for America is the increasingly popular view that, just as the U.S. led the global economy into the current slowdown, it will lead the world out."

(Silent armadillo scream)

Do we believe in magic, here? Is there no specific content to the current U.S. economic collapse, other than "leadership?" Perhaps we should pull out those record child mortality figures again and shout "We're number one!"

OK, the Euro is going down. Because why? Must be the European economy. But wait, the European economy is an order of magnitude better than the U.S. economy, beyond doubt. Perhaps the Euro is going down because of currency intervention, then, to take out insurance against a precipitous decline of the dollar in the wake of the unfolding disaster here in the U.S. OK, so then why are all of those people fleeing Europe to the U.S. stock markets? Because the Euro is going down. Wow, I'm glad that I'm an armadillo, then, because that means that I am not a sheep.

OK, so lots of Euros are getting converted by the sheep into dollars as they flee their Eurozone investments, pushing the dollar up further, and those dollars are going into the U.S. stock market. And that market is temporarily buoyed by the new wool that it has gathered, and lurches upward.

But what happens when the last U.S. consumer runs up to the limit on that last credit card, and all of the $600 stimulus check has been spent on fine Chinese-made goods?

Why, the market dives, of course, taking all of those sheepish dollars with it in an enormous destruction of value. Which, in and of itself, might help the dollar a bit, but in the meantime all of the *foreign* investors will be running for their lives, which will *not* help the dollar.

As that dog in Davey and Goliath used to say, "I don't know, Tom." Sounds altogether too simple a premise - U.S. leadership reasserting itself, in a totally opposite direction. Out with the old, in with the new - and back to the old again. Clean slate. Second chance. Etc.

Curling back up in a ball, now. Tell me when it's over.