ETF Expert

The economy is getting better… or is it? More jobs were lost in September than August. Jobless claims are up. “Published” unemployment is at 9.8%.

Jobs are a lagging indicator, you say? Manufacturing unexpectedly slowed from September to August. Factory orders fell for the first time in 4 months. And we don’t even have an excuse to ramp up Chicago’s infrastructure after losing the Olympics bid.

Maybe the economy is getting better in terms of GDP. “Cash for Clunkers” alone may contribute a full percentage point to Q3’s initial estimate.

But how about the investment markets? They typically react to the news of the day… all of which was negative. And yet, after an initial selloff of 1% across the board, several forces lifted stocks right back off the tarmac.

First, money managers everywhere are desperate to buy the dips. Their clients are calling to get back in as they endeavor to keep up with the mythical Jones’s. More important, however, the U.S. dollar carry trade is creating artificial demand for riskier assets.

It’s clear that weakness in the fragile economy means that Bernanke and crew will keep benchmark rates low for an extended length of time. And that means the world’s investors get to borrow dollars at ridiculously-low yields to invest the money in higher-yielding currencies, higher-income-producing stocks and/or assets that can reasonably be expected to appreciate in value.

Recently, I identified winners of the U.S. dollar carry trade. And truth be known, I fully expect this intermediate-term trend to be intact. Short-term pullbacks will be met by buyers with cash on the sidelines as well as leveraged investing worldwide; that is, riskier assets will move higher as the U.S. dollar is weakening and/or kept at artificially low yields.

A correction of 7%-10% could happen for any reason. And one could actually argue that we’ve seen a 5.6% pullback from the 1080 intraday high on 9/23/09 to the 10/2/09 intraday low. (But that’d be pretty lame market correction.)

More truthfully, a correction that challenges the S&P 500’s 1000 level could become evident should the PowerShares DB Dollar Bullish Fund (UUP) climb above and stay above 23.3 in the next few weeks.

Nevertheless, we shouldn’t see anything close to a bear market with this much willingness to borrow the U.S. dollar. The only way those forces change? I’d be concerned if the U.S. dollar proxy PowerShares DB Dollar Bullish Fund (UUP) made a serious run at a 200-day trendline. That’d be a long climb of 7.2% for the greenback as it stands today.

If you’d like to learn more about ETF investing… then tune into ”In the Money With Gary Gordon.” You can listen to the show “LIVE”, via podcast or on your iPod.

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