Don't Fight the G-20

The G-20 met over the weekend and let us know money will be available. The G-20 was founded in 1999 to "bring together systemically important industrialized and developing economies to discuss key issues." It's a very important group indeed.

Together, the 20 countries represent two-thirds of the world's population and 90% of global gross domestic product. A G-20 statement released over the weekend said, "Economic and financial conditions have improved following our coordinated response to the crisis. However, the recovery is uneven and remains dependent on policy support. We agree to maintain support for the recovery until it is assured." The old saying, "Don't fight the Fed" can now be expanded to "Don't fight the G-20." The group's silence on the U.S. dollar's weakness was deafening. Investors have no other conclusion to draw other than the greenback's weakness will be tolerated, if not encouraged.

The Wall Street Journal in an article Monday said that "as long as investors remain assured central bankers will keep the cheap money flowing, money will continue to funnel into risk positive trades, including high yielding currencies." The U.S. dollar is being used as a funding currency for carry trades which I always thought of as gold or currency stuff. But it might just be that the funding is for the stock market even though there are large cash positions. Why not try to invest your cash in higher yielding things ("BAA-rated" paper has declined in yield from 9.5% to around 6%) and borrow at next to zero to buy the momentum driven stock market? It's worth a thought.

What does raise doubts about the dollar's weakness, if you want to search for something, anything, would be the action of the PowerShares DB US Dollar Index Bullish (UUP - commentary - Trade Now) fund. UUP is an exchange-traded fund that saw an abnormal pickup in demand last Wednesday and Thursday. The fund's shares are supposed to move up if the dollar strengthens and the demand for shares was so great that 100 million new shares of the fund were filed with the Securities and Exchange Commission to meet that demand and have some in reserve. There apparently was a lot of call buying that might have triggered short covering and thus the demand for the shares. But maybe as Tom Lydon of Global Investment Trends wrote, "Investors are telling themselves that this may not be the bottom of the dollar, but I want to get in on it early."

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Vincent Farrell Jr. is chief investment officer for Soleil Securities Group and a regular guest on CNBC and other national print and broadcast media.

Prior to joining Soleil in August 2008, Farrell was a principal of Scotsman Capital Management. Before that, he was chairman of Victory Capital Management of Cleveland and chairman of Victory SBSF Capital Management in New York. He was a founding partner of Spears Benzak Salomon & Farrell, which was acquired by KeyCorp in 1995. Vince held a variety of positions in his 23 years at SBSF, including chief investment officer, and he served as the portfolio manager on a number of the firm's largest client relationships.

Prior to joining SBSF, Vince spent nine years at Smith Barney as a vice president, sales.

Vince graduated from Princeton University in 1969 and received his MBA from the Iona College Graduate School of Business in 1972.