onsdag den 30. juli 2008

The ability to delude yourself may be an important survival tool - Jane Wagner

As the title suggest either I am totally wrong, which is utterly likely or "the market" need serious dose of reality or maybe is this about how asynchronous the world markets are right now.

First day back in the job and the headlines deems more trouble ahead:
  1. WTO break down for real. This is serious blow to globalisation and add to the ever present theme of how globalisation has gone into reverse gear - as transportation costs have taken more than 50% of some products price. (leading ultimately to local production - like steel is now cheaper to produce for US market in the US relative to China)
  2. Fed extend TAF facility
  3. SEC extends no short on US financials
  4. State of New York going towards bankruptcy http://www.nypost.com/seven/07302008/news/regionalnews/crisis_puts_ny_in_sell_hell_122211.htm
  5. Australia worse of than the US http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/07/30/cnoz130.xml

In other words the game continues - I am surprised, and yet not, that foreign exchange volatility so low - 1 month EUR volatility atm <>

I find most people I talk have turned bullish the US dollar - the cyclical aspect in place - I am getting tonse of reasons why the US dollar should have turned prime among themStephen Jen of MS who writes elegantly yet does he have magic wane?

His arguments goes:(my summary)

  1. ECB done hiking rates
  2. Fed funds bottom of cycle
  3. Oil and US dollar - arguing stronger US dollar and lower oil will benefit all countries - hence work
  4. USD vs Asia already moved significantly
  5. Failure of GSCE crisis to take EURUSD above 1.6000 seen as weakness

Its all well argued but as per usual I disagree, not that anyone cares!

I find a more compelling argument for relatively stronger US dollar in the weak EMG currencies, the first moves is ALWAYS into US dollar first before finding a new harbour - I am still of the opinion that this was normalisation of EMG risk which made for strong US Dollar short-term, next comes the move into JPY and EUR again.

Secondly, it seems the overseas part of the US investors base is getting cut back - to more normal levels, which also favors US dollars.

On the rate front though; there is no doubt in my mind; The US likely to ease before hiking and the ECB likely to hike before easing - both will ease in the end, but the US is going from bad to worse the numbers will prove this in the next 2Q - and where I before saw 2008 as worst part of this crisis I now fell we need to move into 2009 to see full impact on the micro level on the economies.

I also note the rallies happens on low volume while drops happens to big volumes, it is likely this is all a song-and-a-dance before the market goes into holiday mood?

Note also reliable good friend of mine sees strong t-bonds into month-end. He has been in the past -


Need more overview having been off; feel compelled to add EUR calls vs US Dollar, to remain long December EURO calls in rates, to looks for buyign crude, shorted AUDJPY on above story plus major moves in STIR rates.

The world has become smaller again - all talk of decoupling should stop and soon, the sooner the worlds owns up to this RECESSION the better - what we need is for economic agents to change behavour not to pretend this is NOT happening. More tomorow. Happy to be back - I apologies for being all over the place just getting my thought straight here.


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