Friday March 7, 2008 - 13:23:27 GMT
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Black Swan Capital - www.blackswantrading.com
FX Trading â€“ Bingo!
WASHINGTON (Reuters) â€śGlobalization does not undermine the ability of the Fed, or any other central bank for that matter, to control inflation over an appropriate time horizon,â€ť Dallas Fed President Richard Fisher said in remarks prepared for delivery to a Banque de France symposium in Paris.
"But it does challenge us -- you might say it disciplines us -- to conduct monetary policy more prudently," said Fisher, who is a voting member of the U.S. central bank's interest rate-setting panel this year.
"In today's world, where investors can move their funds instantly from one currency to another to avoid depreciation, the price central bankers pay for inflation is much higher than in the past."
We congratulate Mr. Fischer for getting that exactly right! Fischer for Fed Chairman anyone?
The central bank (and Treasury) implicit weak dollar policy, which only seems explicit to anyone with a pulse, is succeeding in chasing people from the dollar in droves. But our blessed bank best be careful for what it wishes, because there is more than a whiff of dollar panic in the air.
We stress once again, we think this move into commodities has self-reinforcing characteristics and further negative consequences for the lowly greenback:
1) Inflation concerns pushing investors into hard assets
2) Hard assets are appreciating against the dollar
3) Appreciating hard assets tend to boost inflation expectations
4) Inflation expectations push investors into hard assets
Mr. Soros might refer to this as a vicious circle. We would agree.
Itâ€™s a fairly tight relationship as you can see in the chart below comparing the US$ Index to the Commodities Index (Inverted). The Commodities Index is inverted on this chart i.e. the red line going down represents commodities; by inverting it on the chart you can better see the correlation with the dollar.
[Chart not available in text format]
It is jobs Friday; that marvelous day when anything can and will happen in the markets.
Stay tuned. Take care. And enjoy your weekend.
Black Swan Capital
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