Tuesday April 18, 2006 - 10:39:10 GMT
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Black Swan Capital - www.blackswantrading.com
Gold, oil, toil and $ trouble?
She (Louise Yamada) believes the energy complex has entered a 20-year bull market cycle, which may have occasional corrections, but heads upwards nonetheless. "We think oil could go to $80 and I think over time we could see it go even higher," she says.
Louise Yamada, quoted in Barronâs
FX Trading â Gold, oil, toil and $ trouble?
Good TIC data and the dollar tanks on the news yesterday.
From Reuters this morning:
âUpbeat data showed more than enough capital flowed into the United States in February to offset its huge trade deficit, but that failed to stem the dollar's losses.
ââThe sentiment is turning dollar negative -- probably the biggest factor putting the dollar under pressure is the rise in oil prices and rise in gold prices,â BNP Paribas senior currency strategist Ian Stannard said.
ââOn oil -- there's probably more of a risk aversion move taking place on the back of concerns with regards to supply which is a negative for the dollar,â he added.â
Being of the skeptical nature as we are, we wanted to see for ourselves whether rising crude oil and gold prices were putting the dollar under pressure, so we went to the charts.
And, sure enough, the dollar peaked when crude oil ebbed back in mid-November of last year. Gold didnât ebb much, but did put in a fresh high right around the same time mid-Nov after about two-months of consolidation. Is it coincidental or causal? Take a look:
One question that comes to mind: Where is the âinflation expectation cum interest rate hike cum yield differentialâ to support the dollar in this scenario? Maybe this all goes to the âgrowth thing.â
Itâs not a stretch to believe rising commodities prices and FIFTEEN Fed hikes might FINALLY take a bite out of Mr. US ConsumerâŚ
From Jacqueline Dohertyâs The Trader column in Barronâs this week:
âUnlike the past five years or so, liquidity is slowly draining out of the U.S. via the Federal Reserve's 15 consecutive interest rate hikes. âMonetary policy acts with a big lag,â says Ravi Malik, a senior portfolio manager at Froley Revy Investment Co. âYou have to anticipate [its results] because by the time it shows up it's too late.â Malik believes the results will include lower housing prices and eased consumer spending, which ultimately will slow the economy in the second half of the year from its current strength. Stocks may start to anticipate this sooner rather than later.
âJust as the U.S. economy slows from its current red-hot pace, the Asian and European economies look set to pick up the slack and the emerging markets remain bulwarks of strength. Global markets seem to have sensed this shift. U.S. financial assets -- stocks, bonds and the dollar -- are down 35% relative to the world's financial assets over the past three years, notes Bob Prince, co-chief investment officer at Bridgewater Associates.
âIf this continues, it will become tougher for the U.S. to attract the foreign investment on which it's so dependant. Then there's the potential unwinding of the yen carry trade, where investors borrow cheap money in Japan and invest it in higher-yielding markets like the U.S. In February the Bank of Japan ended its policy of pumping excess funds into the economy and Japanese and last week the 10-year Japanese bond rose to 1.975%, the highest rate in just over five years.
âWayne Nordberg, a senior director at Ingalls & Snyder, an investment-management firm, expects the dollar to decline 10%, which will be enough to make U.S. assets unattractive versus those in the rest of the world. âSometime this year, in September or October, you'll see the S&P down 20%,â he warns.
Well now, isnât that just special! So back to where we started: Was the TIC data rear-view mirror stuff? Is it all downhill from here as far as US asset demand is concerned?
Weâve seen the dollar doubters spew their view many times during its rally since late December 2004. Who knows, they may get it right soon or later. For now, the path of least resistance in the dollar is down. From a trading perspective, thatâs probably about the best we can do.
Black Swan Capital
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