Don't Trust Monday Morning's Good Vibes

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"The causes of events are ever more interesting than the events themselves."

-- Marcus Tullius Cicero

The market is set to open strongly this morning following big gains in overseas markets. The cause of the strength is acquisition activity like that surrounding ABN AMRO Holdings (ABN Quote) and, more importantly, a weak yen. The yen has been the primary market driver recently because of its importance in the carry trade.

The carry trade is where investors borrow funds in Japan at very low interest rates and invest them in other places at higher rates. As long as rates in Japan stay low and the yen does not rise in price vs. the currencies in which investors are concentrated, then the carry trade will continue to work.

Japan is showing no inclination to raise interest rates so the focus is on the yen -- as long as it stays weak, Japanese exporters are happy and the folks who borrowed yen and invested them elsewhere will continue to profit. It won't work forever but it seems that way for now, and that is good enough for the market.

Interest rates in China increased over the weekend and Chinese Premier Wen Jiabao commented Friday that his country's growth was "unstable, imbalanced, uncoordinated and unsustainable."