Thursday April 2, 2009 - 12:41:30 GMT
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Black Swan Capital - www.blackswantrading.com
World Leaders Tell Us What They Think We Want to Hear
â€˘ But economists warned the recovery in exports would be fleeting as cheaper bulk commodity contract prices and falling demand for resources took their toll in the coming months. (The Australian Business)
Key Reports Due (WSJ):
8:30 a.m. Initial Jobless Claims For Mar 28 Week: Expected: +3K. Previous: +8K.
10:00 a.m. Feb Factory Orders: Expected: +2%. Previous: -1.9%.
10:00 a.m. DJ-BTMU Business Barometer For Mar 21: Previous: -0.9%.
â€śOne [longer term strategic issue] is very apposite today, and that is the future of the U.S. dollar as a reserve currency. At Bretton Woods, the dollar became the global reserve currency, backed by gold. A quarter century later, Nixon eliminated the gold backing for our currency.
Dollar hegemony has been central to our ability to basically go off the tracks fiscally and financially here. It has enabled us to avoid addressing all sorts of problems with which weâ€™re now afflicted, and it has enabled us to avoid having financial discipline being imposed on us of the sort we have insisted be imposed on every other country under IMF (International Monetary Fund) guidelines.
The role of the dollar as a universal currency for reserve and trade settlement purposes is absolutely central to our international power and reach. Furthermore, we have used the fact that the dollar is an extension of our sovereignty to impose unilateral sanctions all over the place and to manipulate the global banking sector to enforce our policies, even when those policies â€” say, with respect to Iran â€” are not supported by others.
So we have a big stake in this, and when we get the dollar into trouble, as we have done, this is very, very fundamental. We now have China, Russia, Brazil, India, South Korea, at least, and very likely others, calling for the gradual elimination of the dollar as a reserve currency and its replacement by stages with something else â€” in the case of the Chinese proposal, with special drawing rights under the IMF.
Iâ€™ve seen this coming for well over a year, and have been talking about it. Itâ€™s now upon us, and it is not a problem you can send the fleet to solve. In the end, if you create a situation where people donâ€™t want dollars, thereâ€™s nothing you can do about that. So I think this is a strategic issue.â€ť
FX Trading â€“ World Leaders Tell Us What They Think We Want to Hear
Rumors around the G-20 so far seem to be leaning towards positive. No doubt, expectations had been set very low. Not surprising to us, for several reasons. Among them ...
Too many ideas and little focused agreement. Mr. Sarkozy, for one, expected such and voiced his concern. Perhaps itâ€™s uncertainty regarding the proper course of action ... or perhaps itâ€™s lack of conviction and intent. Perhaps these world leaders just needed a mini vacation to London. Itâ€™s nice there this time of year, no?
Last night I watched a short interview on Bloomberg.com with US Treasury Secretary Timothy Geithner. They sat in London discussing his views and expectations surrounding the G-20. I have to say, I came out of it shaking my head a little bit.
Basically, Geithner said very little in the interview. His message was clearly that stabilization of world financial markets was the goal of this meeting. And he groveled over the importance of â€ścoming togetherâ€ť and â€śunifyingâ€ť as necessary in solving everyoneâ€™s problems. After all, itâ€™s not just the US and China â€“ we need to make sure the whole world is taken care of.
There clearly can be some arguments made as to the necessary amount of involvement we, or any country, should take in foreign economic matters.
But Geithner made a lot of points that didnâ€™t seem to jive with his take on the G-20â€™s overall mission. To paraphrase a piece of Mr. Geithnerâ€™s interview, as to what actions need to be taken, he says ...
â€śDifferent things in different countries.â€ť But so as not to undercut the importance of coming together in London he immediately follows citing the â€śstrength of common commitment.â€ť (The interview was littered with that point.)
But I caught ya Mr. Treasury Secretary! It almost sounded for a second like you thought leaders should attend to their own problems since they obviously vary from country to country.
Whether Mr. G believes what he says, or whether heâ€™s paying lip service to the whole G-20 cause, I donâ€™t know. But it enforces my view that this congregation of global brainpower falls somewhere in between a nice gesture and plea for help.
Try to give the public some reason for hope. Do something â€“ anything. Just donâ€™t do nothing.
So far this morning, the risk-taking crowd likes whatever G-20 development talk thatâ€™s hitting the newswires. Stocks are cranking as a result. Perhaps too as a result of fairly decent (not so bad) economic reports out in the US and select areas yesterday.
Of course, we get March US Nonfarm Payrolls reported tomorrow. We know that always has the potential to stir things up. I read an article that made a decent point about the jobs situation: itâ€™s almost as if weâ€™ve set our expectations so low that really discouraging employment data is starting to be shrugged off as old news. ADP is foreshadowing another rough payrolls report.
That means a less-bad-than-expected Payrolls number is where the surprise potential rests. Likely that would prove to be a boon for the risk environment.
The US dollar today is behaving as would be expected: weakening against the pack.
The question now: Will the US dollar begin to trade in correlation with improving US fundamentals, should they be improving? In other words, if the US proves it is coming out of this morass first of the major industrialized countries, will the market expect the yield differential to begin to favor the buck? Or is it the usual risk appetite gameâ€”stronger commodities and stronger stocks means sell the greenback?
(Chart unavailable in text format.)
John Ross Crooks, III, Black Swan Capital LLC
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