Wednesday January 30, 2008 - 12:27:08 GMT
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Black Swan Capital - www.blackswantrading.com
Just in case you may reside on another planet and hadnâ€™t noticed, the US Federal Reserve Open Market Committee, the jolly bunch assembled together representing the de facto global central bank, will deliver its interest rate decision today. If you do reside on another planet, and are looking down at the rather interesting one where the Fed resides, you may have noticed just how many trees have been killed in order to pontificate about what the Fed should do, will do, and how it will effect everything near and dear to most humans today. We have done our part on the rain forest depletion frontâ€”guilty as charged.
Letâ€™s face it. This is a what-if game that can be played out until your head starts to hurt. Mine does!
There a couple of problems when it comes to playing the Fed what-if game.
1. Even if you guess the Fed move correctly, you have to properly parse the statement that accompanies the decision. Then you have to guess how the market will react to the Fedâ€™s view going forward, not just the knee-jerk move a nanosecond after the announcement.
2. But because another heavy weight of market moving reports looms on Friday, Non-farm Payroll for January, it adds yet another element to the analysis of the said parsed Fed view. A whole new guessing game begins.
â€śIt is said that beliefs alter facts. Perhaps a fitting corollary here is perceptions alter Investment Themes. The investment themes of last week or last month that were promoted as so bullish for stocks suddenly seem not to be so bullish. This confirms their transient nature. Market themes are just the changing market stories that are perpetually spun by presumed pundits. In reality they are narratives made up from the most convenient bits of flotsam and jetsam of data, and function most effectively as marketing anecdotes for brokerage firms and the media. If market themes really are facts, why do they require a perpetual interpretation?â€ť
Good question Woody!
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