See what cheap money can do?

11/09/2009 5:39 pm EST


Jim Jubak

Founder and Editor,

Over the weekend finance ministers of the Group of 20 developed economies, meeting in Scotland, promised to keep pumping money into the global economy.

The official statement read “To restore the global economic and financial system to health, we agree to maintain support for the recovery until it is assured.”

Investors rightly took that to say that central bankers would keep current economic stimulus programs in place and were months away from cutting back on the liquidity that they’ve provided to economies and financial markets.

Just as important was what the finance ministers didn’t say. The session finished without a peep from the ministers about the need to support the U.S. dollar, re-value currencies such as China’s renminbi, or re-balance global trade imbalances.

The result was another big retreat by the dollar. The euro climbed to $1.5006, up from $1.4844 on Friday. The Australian dollar and the Canadian dollar climbed 1.13% and 1.77%, respectively, against the dollar.

With the finance ministers virtually guaranteeing the safety of the dollar carry trade, global traders continued to borrow weakening U.S. dollars in order to buy commodities and stocks. Gold hit a new record high and oil moved back over $79 a barrel. On the strength of rising commodity prices, mining stocks climbed. Shares of Freeport McMoRan Copper & Gold (FCX), for example, were up 4.6% on the day.

Overseas stocks rallied.

Emerging market rose strongly with the iShares MSCI Brazil Index (EWZ) up 3.6% and the Market Vectors Brazil Small Cap ETF (BRF), a Jubak’s Picks, up 3.5%. The iShares MSCI Emerging Markets index climbed 3.7%.

Strongest, though, were the commodities-heavy economies of countries such as Canada and Australia where the strength in commodity prices and commodity stocks was bolstered further by currencies that moved higher against the dollar. The iShares MSCI Canada index rose 4.1`% and the iShares MSCI Australia index (EWA) was up 4.5%.

It’s unreasonable to expect stocks and stock indexes to turn in this kind of performance every day. Or even to climb steadily without a setback. (Remember the demi-correction at the end of October and into November?) But as long as the dollar stays weak and government promise to keep the liquidity tap open, gold, commodities, commodity stocks and stocks in general are headed higher.
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