Equityrise,dollarindexandJoneseffect

There is no stopping the equity markets and not only equities but all the asset classes which get benefitted by liquidity (and the ensuing risk on) in the system are on the rise. The Dow Jones yesterday ended the day at 30277 near its all-time high rising 0.4% yesterday. Gold is trading close to 1900$/oz and the other class of assets like crypto currencies, which are used as a cover for the debasing of fiat money, are also on an all-time high.

The dollar index is trading below the crucial level of 90 now. The Dollar Index current level, as much as it is a comment on the dollar’s low demand (given the risk on), also gets impacted by the quick rise in other currencies like the euro and sterling over the last few days. The Dollar Index as a construct is actually the value of the dollar as calculated against a basket of 6 currencies with the euro and pound sterling having a 70% weighting.

The optimism is also on account of expectations that the USD 900 bn pandemic relief bill might get passed over the weekend before the law makers head home for the Christmas holidays. The deal expectation has made the market gloss over other important data which was released yesterday, i.e. the weekly jobless claims data. It came in at 885k against the expectations of 800k by the markets. The initial claims data basically counts the new additions to the jobless tribe. An increase here signals that laying off activity has increased and the story about economic recovery needs a revisit.

Coming back to the equity markets, watching the Dow Jones (and other markets) on an optimism spree makes us remember a character called Indiana Jones which was created by Steven Spielberg in the 1980’s in association with George Lucas.  Jones is a knowledgeable archaeologist in a pre World War II era. He is smart and with a whip in one hand and gun in another, he neutralises his opponents with panache. But the central characteristic of Indiana Jones (which is important in our discussion here) is that he loves to take unbridled risks. His moments of epiphany often arrive in extremely arduous/adventurous situations but given that he is a movie hero, he gets out from them often bruised but nonetheless alive and kicking. Readers should see the allegory for its limited purpose of establishing the context of risk (unknown, unforeseen) and difference between the real world and imaginary world of celluloid (where coming out alive is a given!).