Thursday June 2, 2005 - 11:15:09 GMT
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Black Swan Capital - www.blackswantrading.com
Take me out to the ball game
“The future ain’t what it used to be.”
So, Dallas Fed President Richard Fisher is fond of baseball. Sweet! It’s our favorite game—besides the currency game. Now all we need to figure out is “Who’s on first,” and “What’s on second.”
“’We've gone through eight innings here, 25 basis points an inning,’ Federal Reserve Bank of Dallas President Richard Fisher said in an interview with The Wall Street Journal, referring to the Fed's eight quarter-point increases in the federal-funds rate target since last June. ‘The next meeting in June is the ninth inning. We'll take a look after that. We may have to go into extra innings in this contest against inflation.’"
To carry this imagery to its logical conclusion, imagine Mr. Greenspan out their on the hill (pitcher’s mound) pitching for the Fed. He’s throwing his best stuff…high and hard. Yet every bond manager that has stepped up to the plate so far has crushed the first pitch deep into the upper decks. Given the score, Traders 23 and the Fed 0; it’s a surprise Mr. G is still on the mound.
Does it mean the much vaunted rising positive yield differential, our favorite dollar rationale, is in jeopardy? Some think so. But if we consider the landscape at the moment, we are not convinced.
No doubt dollar looks technically overbought here. And we are seeing some correction this morning. But with the European Monetary Union an open question, the euro doesn’t seem a viable alternative to store funds for a rainy day. And despite the last bit of good news from Japan, it’s still not clear they have emerged from deflations grasp. The commodity dollars are an alternative, but we think there is plenty of concern about a Chinese slowdown, adding to slowing growth globally. That’s not a fertile backdrop for commodity dollars.
So, even if US yields don’t turn out to be all they were cracked up to be, there’s a decent chance the dollar remains supported because despite it’s warts, it’s the best looking in an contest of very ugly participants.
Now back to the ball game. It seems they should have a mercy rule in this league. It just keeps getting uglier for the Fed, as the Traders pile on the runs. But surprisingly, Mr. G is trotting out to the mound again in the top of the ninth inning. Obviously the Fed has no one else to throw. No one is even loosing up in the bullpen.
We’ve been saying since the third inning that because Mr. G’s arm isn’t as lively as it used to be, he needs to deliver some chin music (brush back pitch to keep the bond managers guessing and off the plate, instead of just swinging for the fences). Oh well, just one more inning. That is, unless the Fed can stage a late rally. They are batting in the bottom of the ninth. And they say this new draft pick—Fisher—batting in the number four slot swings a big stick.
The Traders are feeling pretty good. They seem to be coasting. But who knows? If Mr. G can rare back and shut them down in the top of the ninth… It’s baseball. It ain’t over till its over!
Black Swan Capital
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