Wednesday December 14, 2005 - 11:23:28 GMT
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Black Swan Capital - www.blackswantrading.com
$ correction upon us
“Good taste and humour…are a contradiction in terms, like a chaste whore.”
The dollar correction is upon us.
There wasn’t much action in the bonds after the Fed’s one-quarter point hike and language change yesterday. But dollar bears, or all other currency bulls, delighted in the latest developments.
According to the intelligentsia, the Fed’s attempted tampering with transparency was nothing more than a signal the august body will likely reach its perceived neutral wonderland sooner rather than later.
But was it really the Fed?
• Could it simply be the weight of good news flowing from Japan?
o Strong Tankan survey, rising consumer and investor confidence, normalizing of money flow—might all this give the Bank of Japan needed weaponry to fight off the politicos who wish for ZIRP as far as the eye can see…
• Maybe it was the surprising growth news from Europe?
o Though it’s not “whoop-it-up” time, in light of all the bad news the growth news is a surprise. Maybe it gives pause to those who think Mr. J-C Trichet is simply a one-trick pony; more hikes are up his sleeve?
• Perhaps it is the US verbalized quid pro quo expected out of China on the yuan?
o I think it went something as subtle as this the other day from the mouth of a US Treasury Assistant Undersecretary of Something: “We kept them off the damn currency manipulators list because they promised to act quickly on the yuan.” Okay—nuff said!
• Some say it is the US federal budget deficit.
o The last report we saw this week said revenues up, and don’t quote us on this because it’s coming from our rather unreliable memory, 3% and spending up 15%. In the real world I think they call that bankruptcy—but in central government land it is good old “deficit spending.”
• Others said it was time for the market to throw-off the Johnny-Come-Lately bull riders on the dollar. There were too many one-way bets.
o Actually, we said that. Wasn’t it brilliant?
Well, actually, it wasn’t brilliant. It was fortunate. As traders we never underestimate the role of Roman Goddess Fortuna—the goddess of good fortune and happiness. For we have learned a solid fundamental belief in Miss Fortuna is absolutely essential in order to avoid the clutches of Mr. Hubris.
The weight of all the stuff listed above suggested a playable dollar correction was in the cards. Now the question, which takes more than good fortune to answer—how long will it last?
Black Swan Capital
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