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As for the stockmarket, given that we've just completed another quarter of 4.3% growth and economic statistics remain remarkably robust in spite of hurricanes and higher short term interest rates one wonders when this monster economy might actually slow down from its awesome performance thus far. We have a theory that could produce a kind of blow off move in stocks for 2006 and usually when a market has this kind of momentum going for it, especially into years end, then it should run at least thru the next quarter, although we have been saying for some time now, that this market could actually run three quarters straight from its liftoff point back in October, putting it well into next year and on top of that we have an increasingly prosperous World out there, driven by absolutely unprecedented Global stockmarket to help power it and that is the operative word: Overseas buying power without historical equal.

The point we are getting at, which we promised to explain is how the undulations of currencies have spurred international growth in recent years. Initially, it was a weakening $US Dollar and a war driven economy, that set the tone for explosive growth in 2003, and yet at the same time, the surprisingly strong performance out of Europe was impressive enough against anemic growth in contrast.

At that time, the US markets set the Globally strong tone along with some of today's strongest markets Worldwide such as Mexico and its Latin counterparts, Australasia, India and most of the other markets that are still setting new all time highs to this very day.

However, while foreign currencies such as the British Pound, Euro, Swiss Franc and Japanese Yen were strong, stockmarkets of those countries underperformed at least initially until they got more 'comfortable' with their stronger than expected currencies and at the same time US stockmarkets surged as the Dollar continued to weaken in the fourth quarter of 2004. Then the sudden jolt of a weakening Euro and its counterparts, actually caused a strong pullback in most markets initially, but as the year went on, the Euro related markets began to accelerate higher and outperform US markets by an increasing percentile. At the same time the US market was correcting and even though it rallied strongly off its various low points, as the year wore on, the S&P 400 MidCap and Russell 2000 remained virtually unrestrainable and actually set new all time highs on several occasions revealing a very strong undertone.

Perhaps the most stunning example of market power reacting to the strong US Dollar and dramatically weakening Japanese Yen has been the Nikkei 225, which has soared exponentially over recent months in one of the most impressive stock market advances ever.

As we close out what for almost every World stockmarket has turned out to be an amazingly historic year in 2005, we're again now witnessing somewhat of a phenomenon as US markets have become increasingly 'comfortable' with a strengthening US Dollar, which has become somewhat of an elixir for not only US Stockmarkets, but Global markets too and most amazingly of late, Gold, Silver and other Precious and Base Metals as well. So, what is really happening here? Are US Stockmarkets and Global Metals markets already anticipating a weaker US Dollar in 2006? Very possibly yes. But, at the same time metals markets have never ever had such bullish fundamentals as exist today, with demand soaring from an increasingly prosperous World and a growing demand supply deficit of 1,000 tons per annum, that is virtually irreversible for the next 7 years, so the situation could turn extremely bullish.

Given the reactions to Global currency fluctuations, a increasingly weakening US Dollar, should such a phenomenon begin to occur in 2006, would have to not only be inordinately bullish for the US Stockmarket, especially the Dow Jones Industrials, where in some cases as much as 70% of earnings are generated from overseas as demand for US exports would strengthen, but also would have to be inordinately bullish for Gold, Silver and virtually all metals and minerals in general as well as the entire commodity spectrum. At some point in time the US Stockmarket will more likely diverge from Gold's strength, but that may be some time away from now.

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From the Desk of Savant

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