The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

All form but little substance . . .

08/11/2010

Today’s 265 point drop in the Dow was not a great deal of fun, but it was also not all that important. The volume was less than 1.1 billion shares, which is quite light. It is much more significant when there is heavy volume, like 1.8 billion or more, because it suggests many investors are “voting with their stocks”. This is August, investors are vacationing and not voting. The Dow is only down 2.5% from the first of the year. Lots of “sound & fury” this year, huh?

Today’s rally in the dollar is also not significant, nor sustainable. After yesterday’s decline, some bounce-back was normal. In addition, the dollar remains the “fear currency”. When the world gets nervous, investors worldwide want to hold dollars, which causes the dollar to appreciate. The report out of China this morning showed some slowing but not much. Unemployment rose in Korea but not much. Investors got nervous worldwide and bought dollars. That’s why the dollar got so strong earlier this year, during the Greek debt crisis.

My advice: Have a nice vacation!

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