Friday July 29, 2005 - 11:35:58 GMT
Share This Story
Black Swan Capital - www.blackswantrading.com
Who controls the present?
"Who controls the past controls the future: who controls the present controls the past.”
George Orwell, Nineteen Eighty-Four
It appears yet another “Asian central banks to dump US bonds” scare has come and gone—for now.
CHART T-bond futures
We have no clue what bonds will do from here. Heck, we have enough on our hands trying to figure out currency direction. But if we play the wave-chart numbers game—as we did in the chart above—just maybe there could be another bond rally in the offing.
Either way bonds go from here, is not our point this morning. What is the point, you ask? Well, the price action in Treasuries and the dollar, one week after the Chinese decided to re-peg their currency, shows how quickly the market can shift its expectations; even when expected future outcomes are validated and verified by academic economists and experts everywhere who emerge to enlighten us during such dark times. Do these experts ever consider the drain on our natural resources caused by all their wasted ink, paper, and hot air? (Okay, I see the logical extension of the last sentence. To “wasting hot air”—yes, we plead guilty. But I assure you, we use very little ink. And paper? Heck, a lot the times we use both sides in our office.)
Right around this time last week the experts said Asian central banks were about to dump the lowly US Treasury bond faster than you can spell remnimbi. But, that never quite made sense to us. And it didn’t to Mr. Milton Ezrati, senior economist a Lord Abbett & Co., as quoted in the Journal today: "I suppose if the Chinese were willing to commit financial suicide, they could impose some pain on the United States," he said, regarding the potential of Asian banks to dump Treasuries.
One of the problems we consistently see is that some experts seem to assume Chinese communists tell the truth. But we shouldn’t just pick on the communists. After all, most governments by their very nature seem to have trouble with “truth issues,” shall we say.
So, from now on, whenever we see a major “government” announcement that could shift the balance in asset markets, let us apply what seemed to serve former President Reagan well while negotiating with the Soviet Union: “Trust, but verify.” Or put more succinctly by traders past: When in doubt, stay out!
But even that is easier said than done. There is never any certainty in trading. There are only degrees of certainty in the mind of the trader. It is this lingering uncertainty that tends to draw investors under the spell of the crowd—it’s comforting. And it is this crowd mentality that leads to such swiftly changing expectations, regardless of how flimsy the catalyst appears in hindsight, as we saw late last week.
“The ways in which a crowd perverts any event of which it is a witness ought, it would seem, to be innumerable and unlike each other, since the individuals composing the gathering are of very different temperament. But this in not the case. As the result of contagion the perversions are of the same kind, and take the same shape in the case of all the assembled individuals.”
Gustave Le Bon, The Crowd
Bottom line: Buy bonds. Just kidding! It’s Friday! And it’s 5 o’clock somewhere!
Black Swan Capital
Forex Trading News
Daily Forex Market News
Forex news reports can be found on the forex research
headlines page below. Here you will find real-time forex market news reports
provided by respected contributors of currency trading information. Daily forex
market news, weekly forex research and monthly forex news features can be found
Real-time forex market news reports and features providing
other currency trading information can be accessed by clicking on any of the
headlines below. At the top of the forex blog page you will find the latest
forex trading information. Scroll down the page if you are looking for less
recent currency trading information. Scroll to the bottom of fx blog headlines
and click on the link for past reports on forex. Currency world news reports
from previous years can be found on the left sidebar under "FX Archives."