Posted on 12/22/2003 8:06:08 PM PST by arete
Buying treasuries, especially long-term ones, is about the only arrow he has left in his quiver. He may be hoping to entice foreigners into the game by hypnotizing them with rising treasuries prices – but $400-plus gold is now blinding their greedy little eyes to the splendors of dollar-investing. Will they jump aboard this treasuries-train? It doesn’t look that way. They already know where this train is headed.
Interest rates must come down and more debt must be created to keep the illusionary recovery alive. These indeed are interesting times.
Richard W.
Excellent Roger Arnold shows today as Roger is back from vacation and discusses the why and how of the need for the FED to start buying treasuries.
First Hour of the Roger Arnold Show
Second Hour of the Roger Arnold Show
Richard W.
Yep, looks like the FED is going to be handing out money. That ought to be fun.
Richard W.
Just who do you consider "the rest of the world"?
Richard W.
Second, let me offer a small piece of very profitable advice -- never think that you know what is GOING to occur, and never, ever, think that your political/economic views have anything to do with your making a profit via trading.
Your and my politico-economic views are similar, but the market is the market, and doesn't give a cold kwap about them.
The only profitable method of argument about the future behaviour of any mkt is: IF (such-and-such) occurs THEN (so-and-so) will occur. In short, mkts are anticipatory discounting mechanisms of the future.
Just at this moment, and speaking of forex only, this translates roughly to: IF (the U.S. gov't takes no positive action to ''defend'' the $ and/or does not raise interest rates to boot), THEN (USD will continue to decline **for a time** against EUR, GBP, and the usual suspects). The ccy mkt's anti-dollar bandwagon is rolling and has a pretty fair amount of momentum just now.
The next 9 days mean nothing, btw -- I strongly suggest that you draw NO inference from the action in the ccy mkts. It'll be mostly book squaring for year-end, in any case.
In currency trading, macroeconomic developments are very important, but their implications filter in only slowly to the mkt; much more immediately, the effects of the anticipation of interest rate CHANGES are felt, and more importantly still, ccy mkts are HIGHLY inertial -- or, in plain English, a trend, once in place, will tend strongly to continue in its current direction. So, unless you happen to be a technically-oriented ''swing'' trader, trying to profit from ''normal'' short-term mkt fluctuations, what do you derive from these possibly inconvenient facts (which, btw, admit of no exception in history)?
Well, I've a few thoughts on this point, and already have some capital in place backing my view, and you are perfectly free to inquire as to details at your convenience...but, mate, if you EVER try to trade ccys, short-term, long-term, don't care, just on the basis of your macroeconomic or your politico-economic view, you're going to give up a WHOLE lot of dollars to no purpose.
Let's don't do that, ok?
Best to you,
SAJ
That would be my guess, although I will continue looking for and posting interesting and informative economic and financial articles through the holidays and pinging the Market WrapUp regulars to them.
A Merry Christmas and a Happy New Year to you also!
Richard W.
The FED is still battling a slowing economy and even though there are many who feel that deflation is of little risk, that may not be the case. So far, the way I see it, the best the central planners have been able to do is delay the day of reckoning.
Richard W.
Your and my politico-economic views are similar, but the market is the market, and doesn't give a cold kwap about them.
The only profitable method of argument about the future behaviour of any mkt is: IF (such-and-such) occurs THEN (so-and-so) will occur. In short, mkts are anticipatory discounting mechanisms of the future.
I really enjoy your posts becaused they are consistently both reasoned and informed. Any assumptions I'm making now are strickly guess work and speculative in an attempt to get a better picture of the reality. I do believe though, that the real story and the real battle is still between the FED/government and deflation. I think that this has caused many market distortions and that indeed, the market could actually be sending a false message. It is a battle of historic proportions and import -- can the monetarists pull it off or will the Austrians be proven right. The markets are betting on the monetarists it would seem. Prematurely, I believe.
Have a happy Holiday Season!
Richard W.
Regarding history and the ccy mkts, it has been shown repeatedly in innumerable studies that macro (or ''structural'', if you prefer) developments and trends typically only serve to emphasise currency-rate movements, not to dominate or to initiate them. The dollar's problem (or, at least, the mkt's sentiment concerning the dollar's problem) is not -- never has been -- the famous ''current account deficit''. This is lot of hooey. As long as the capital account (i.e. flow of capital) was in countervailing surplus, the current account didn't matter much. If other nations want to swap hard goods for paper, more power to them (the idiots). And, up until early 2002, that's **exactly** what they wanted to do. Considerably less enthusiasm for that idea now, of course.
The problem that has been developing over the past couple of years is that capital flows are shifting, away from the US in fair degree. That this is occurring is not a surprise; with interest rates risibly low and USD working lower, why would anyone **perforce** want to hold USD-denominated assets? This situation (and NOT inflation -- inflation is already here, in large measure, and p*ss on the silly-ass CPI and the even more laughable ''core inflation'' rate, ex-food-and-energy, which is only a valuable indicator if you don't eat, heat your home, or drive) is the reason that short rates will begin a longish-term rise next year. The capital account MUST be gotten back into a favourable state.
Were next year not an election year, I should expect short rates to rise 100-150 basis pts, but, that not being the case, I'm looking for just 50, the first 25 at the May or July meeting, maybe 25 in Sep, and surely 25 or 50 after the election, in Dec. USD will stay weak, with some corrections here and there, until the mkt perceives that rates will begin AND CONTINUE to rise. This process of sentiment revision will be accelerated **if** the hearty rise in stocks of 2003 extends into the new year (I've no position on that).
Its an educated guess, really :-)
I'm not terribly hot on making predictions so what I tend to do is to take a look at direction and chart it to see if it looks like a trend or a blip. If it looks like a trend, I go digging through the historical record to see what it has done in the past. Then check news reports and fundamentals to see what else is going on. If there has been quite a rise, it also means quite a fall. Do a quick calculation and adjust by a fudge factor to cook the first guesstimate, then do some deeper analysis to see how far off I am.
As always, its a guess, but the best educated guess I can make. I'm not an expert, don't claim to be, and I always say that I'm probably wrong.
As things go, I'll revise it as more information comes in.
For my guesstimate, the historical record shows about a 40-60% drop as about the average maximum drop against another currency that has ever happenned. I know there is a down trend and that currencies continue a rise or descent over a long period of time rather than adjusting quickly (unless its a rout).
UDX is calculated against a very small basket of other currencies, the Euro (57.6%), Yen (13.6%), Pound (11.9), CDN (9.1%), Swedish Krona (4.2%), and Swiss Franc (3.6%). I haven't calculated out an estimate of each of those yet. So, this is an educated guess without going to all the crunching *yet*.
The high on $UDX was around 120, and since falls have been around 40-60% against other currencies in the past, and the majority of the currencies that go into factoring UDX are the Euro, Yen, Pound, and CDN, I'll figure the dollar will drop like a rock against all of those and likely in similar manners. So, I took the low number and calculated that out to get 48. Well, I don't think it will drop below 50 because that would set off absolute shockwaves (IMO), but I don't think it will stop at 72 given that there is an effort to devalue going on and central bankers *generally* overshoot. So, my initial guesstimate is that it will come to rest at 65.
I almost always *over* estimate the first SWAG.....and this is the first SWAG. Next step is going to be to sit down and do some real number crunching instead of just taking a stare, reading tea leaves, taking a guess, and throwing a dart.
So, that's how I did my first guess at where it will land. Sometime over the holiday, I'll do some better number crunching and run the math.
The important thing to me in planning is that the dollar is going down and it looks ugly. That's good enough to get started with. The details will help fine-tune as I go along.
I don't know if this is helpful or not.
Its just an outline of how I get started in doing some analysis. Right or wrong....you've got to do what you're comfortable with. This method seems to work OK for me. Its not the best thing in the world, its not the worst. Its given me average results, which is fine. The rest of it is just "gut feeling" which tends also to deliver OK results.
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