Friday May 6, 2005 - 10:50:20 GMT
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Black Swan Capital - www.blackswantrading.com
Place your dollar bets
“Let us define history, in its troublesome duplexity, as the events of record of the past. Human history is a brief spot in space, and its first lesson is modesty.”
Here we go again. Another non-farm payroll report out. Another set of bets placed in front of it. These are the three primary outcomes:
1) Strong jobs
2) Weak jobs
3) Consensus jobs
A 1 in 3 chance of guessing the outcome of the report—decent odds! But, probabilities change significantly when it comes to the reaction in the stuff we are beating upon even if we assume we guess the report outcome.
1) Strong jobs – Belief mechanism: The Fed really was signaling a more aggressive stance than realized. The punchbowl is being drained!
Result: bonds tank, dollar rises, commodities fall, stocks rally
2) Weak jobs – Belief mechanism: The Fed was signaling just one more hike and its job is done! Reflation/carry trade is back—party on hedge fund dudes!
Result: bonds rally, dollar tanks, commodities rally, stocks fall
3) Consensus jobs – Belief mechanism: The Fed is doing the right thing – waiting for a little more evidence before it commits. Don’t worry, be happy!
Result: bonds, the dollar, commodities, stocks chop around
There is only one problem with the summary of belief patterns above—it is extremely close to useless when it comes to making real money! If it were that simple I would be writing from the yacht instead of the office; that’s assuming I would ever be awake this early if I had a yacht.
Be careful out there—it is rarely as easy as it looks.
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