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Head and Tail Winds

December 17, 2010 – 5:56 pm

The Euro is still in the news causing strength in our dollar and that is weighing in on stock prices. Though stock prices have been higher this week on good economic data the Dollar/Euro relationship has forced the market to a crawl.

At the same time a better economic outlook is pushing interest rates higher despite the Fed’s QE2 effort to keep interest rates low. I would not fight the Fed in this effort because history has
shown that the Fed usually wins in these battles, but with the U.S. outsized borrowing, which is only increasing, the buyers of our treasury bills and bonds
are demanding higher returns, thus higher interest rates and this has affected the mortgage rates driving them higher as well.

Everything is intertwined: the U.S. dollar, debt, interest rates, domestic and foreign GDP, trade, inflation or deflation, all of it. One thing affects the other and that relationship is becoming tighter and tighter over the entire globe. For the stock market every bit of that information is reflected in corporate profits and that mirrors stock prices.

2011 will be a year of more of the same. It will not get easier or clearer. There is a great sea swell of corporate cash and profits that should result in a year of merger and acquisitions as well as stock buy backs and rising dividends for the new year.

It will be fun!

Good Trading
Steve Peasley

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