Caution, Double Dip Ahead

Jim Johnston
Last week was momentous in many respects. The S&P 500 index went down 6 percent. The price of gold on the Comex fell by 8.5 percent. Silver, copper, and crude oil also fell in price, although not as much as gold. The CBOE expected-volatility indexes for the S&P 500 (VIX) and gold (GVZ) were at 40, when the normal level is between 15 and 20 for both. All the major currencies also fell with respect to the U.S. dollar. The Euro, for example, fell by 1.5 percent, and the British pound declined 1.6 percent. This was a major turning point. Up until this time the value of the U.S. dollar was declining as measured by market data, as opposed to the Consumer Price Index. The latter is a notoriously bad indicator and is used almost exclusively by the Federal Reserve as a guide to monetary policy. It has been known since the trailblazing works on monetary policy by Milton Friedman, Anna Schwartz, and Alan Meltzer that the value of the dollar is determined by changes in the money stock....(Read Full Post)