Thursday September 15, 2005 - 11:26:16 GMT
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Black Swan Capital - www.blackswantrading.com
A Pound Correlation?
Key reports due today (WSJ):
8:30a.m. August Consumer Price Index. Consensus: +0.6%. Previous: +0.5%.
8:30a.m. August Consumer Price Index, Ex-Food & Energy. Consensus: +0.2%. Previous: +0.1%.
8:30a.m. Sept. Empire State Manufacturing Index. Consensus: 16.8. Previous: 23.
8:30a.m. Initial Jobless Claims For Sept. 11 Wk. Consensus: +31.K. Previous: -1K.
8:30a.m. July Business Inventories. Consensus: +0.2%. Previous: Unch.
10a.m. DJ-BTM Business Barometer For Sept. 4 Wk. Previous: Unch.
12p.m. Sept. Philadelphia Fed Business Index. Previous: 17.5.
“Unfortunately, the ‘stark choices’ fiscal policymakers would face if they fail to resolve the growing fiscal imbalance will eventually confront the Fed. Why? Because continued high deficits and growing debt will drain the economy of investible resources. It will also reduce foreign lenders’ confidence in US ability to resist the temptation to inflate away the real value of growing federal debt – much of which is held abroad. That may lead them to divert their savings from US shores, further draining domestic investment.”
Jagadeesh Gokhale, “Only leadership can defuse US fiscal time-bomb”, Financial Times
Joachim Fels, of Morgan Stanley, on the nasty S word—Stagflation:
“Real bond yields are extremely low already, suggesting that bond markets are already factoring in a significant slowdown in economic growth. However, bond markets are not yet priced for a significant pick-up in consumer price inflation. So, the ‘flation’ part of stagflation should come as a bigger surprise for bond investors than the ‘stag’ part.”
We see the US consumer price data today. The British pound tanked overnight. Given its fairly tight near-term (30-day) correlation with US 10-T bond futures 77% and with gold (60-day correlation) at 89%, is it telling us anything?
Correlations are fun. And they can be helpful. But …
a) The seemingly tight correlation can end at any moment
b) It’s rarely clear who leads and who follows
Chart: British Pound vs. Gold vs. Bonds Daily
…anyway, if the consumer inflation data is tame this morning…maybe the move in the pound was overdone…or maybe it is telling us something.
Black Swan Capital
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