This headline in MarketWatch this afternoon has got to be one of the most fatuous in financial history.
NEW YORK (MarketWatch) — U.S. stocks soared on Thursday after a surprising fall in jobless claims curbed worries about the economy.
I’m really supposed to believe that because the US jobless claims decreased by a whole 7000, in a nation where 43 million are on food stamps, that this was the cause of the Dow regaining 293 points? I cannot bring myself to believe this piffle.
The only credible reason for the global rally is slightly more important ‘news’ – a rumour that the Swiss are going to peg the Swiss franc to the euro. In Europe that news caused a big drop in the value of the Swiss franc versus both the dollar and the Euro. The drop was 600 Pips. A Pip for those of you not sad enough to know already, is 1/100th of a percentage point. So 600 Pips is 6 percent. Which in currency trade terms that is BIG.
That, in my view is what caused the rally. The reason it caused the rally is probably because the speculators, AKA the Big Banks, fairly salivate at the opportunity this would present them for speculating against the Swiss Central Bank.
The other effect of any peg, and probably nearer to why the Swiss might contemplate such a move at all, is that it might save the collapse of all those countries who are currently approaching default due to the strength of the Franc relative to their currencies: Hungary and Romania in particular. I really do think the banks I have mentioned repeatedly in this context are feeling very insecure right now and would love some Swiss relief.
What this says to me is that the two questions in front of us are: 1) Will the Swiss really peg to the Euro at any level which means something? And 2) if they do how long for? The answers to those two questions will tell you exactly how long this rally will last.