Wednesday October 5, 2005 - 11:34:48 GMT
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Black Swan Capital - www.blackswantrading.com
•European service industries such as banks and airlines grew at the fastest pace in 14 months in September. (Bloomberg)
•Key reports due today (Global-View.com):
14:00 GMT/10:00 EST- US- Sep Svc ISM PMI: vs. 65.0 in Aug, see 59.0
14:30 GMT/10:30 EST - US- API and DOE Energy Inventory Surveys
“Successful trading requires a systematic approach. The complexity or theoretical underpinnings of any system is less important than the practical fit between the trading system and the personality of the trader which enables the trader to have some kind of an edge.”
Inflation is the talk, as in the chart we see below (courtesy of the Federal Reserve Bank of St. Louis, “Monetary Trends). But in the background, others are thinking about some scary stuff.
Chart: Monetary Trends
For example, this excerpt from Stratfor.com sent to us by a friend [our emphasis]:
“It is interesting to note that, despite his career-long habit of staying out of the United States' internecine political debates, Greenspan has, in the past year, developed a propensity to speak his mind (albeit in extremely couched terms). In most instances, such discussions involve pontification about the problems that his successor will face. These range from the budget deficit, to the instability in the housing market, to the touchy, vote-losing issue of unsustainable Social Security payments.
“The common theme winding through these discussions is simple and striking: the United States is living dangerously. Freddie Mac and Fannie Mae, the two quasi-state mortgage mega-firms, have almost totally crowded competition out of a $5.5 trillion debt market -- raising the prospects that the potential fall of only two companies could crash the entire country's financial structure.”
Yikes! A debt spiral of that magnitude would probably take care of any inherent inflation concerns—to say the least.
A recession is always seems considered a “bad thing” by the financial press. But a recession plays a cleansing role for the economy—the invisible hand swats away the inefficient users of scarce capital so that it can be allocated to those who most deserve it. The problem comes in when nanny government—very much like the one we have now—decides it must play the role of the savior from the “ravages of recession.”
Can you say “stagflation,” or worse, “Japanese style quagmire”? Sure, we knew you could! (Apologies to the late and great Mr. Rogers)
Anyway, that falls into the category of forecasting, something that doesn’t always do much for our currency trading account, which requires staying in the here and now with an eye toward what the market is telling us. And for now, the market seems to be saying yield is the driver despite all the potential scary stuff.
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