Wednesday January 17, 2007 - 12:09:05 GMT
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Black Swan Capital - www.blackswantrading.com
A crude fixation
â€˘ The dollar's strong start in the new year is causing some currency-watchers to rethink their expectations for a swooning dollar in 2007. Just a few weeks ago, the conventional wisdom held that the dollar was headed downward due to slowing growth in the U.S. and a renewed focus on the country's yawning deficits. The dollar has bucked those expectations, rising more than 2% against the euro since the start of the year. (WSJ)
â€˘ Key Reports Due (WSJ):
7:45a.m. MBA Refinancing Index. Previous: +17.3%.
7:45a.m. ICSC Store Sales Index.For Jan 13. Previous: +0.7%.
8:30a.m. Dec Producer Price Index. Expected: +0.5%. Previous: +2.0%.
8:30a.m. Dec Producer Price Index, Ex-Food & Energy. Expected: +0.2%. Previous: +1.3%.
8:55a.m. Redbook Retail Sales Index. For Jan 12. Previous: +1.7%.
9:15a.m. Dec Industrial Production. Expected: +0.1%. Previous: +0.2%.
9:15a.m. Dec Capacity Utilization. Expected: 81.8%. Previous: Unch.
1:00p.m. Jan NAHB Housing Market Index. Previous: 32.
2:00p.m. Fed's Beige Book.
â€śThis is not the first time that the world has 'run out of oil. It's more like the fifth. Cycles of shortage and surplus characterize the entire history of the oil industry.â€ť
FX Trading â€“ A crude fixation
In our last installment, we asked whether it was growth (i.e. decline in global growth not yet visible via headline numbers) or a milder than normal winter that was pushing crude oil prices lower. We forgot to add another possibilityâ€”politics; as in geo-politics.
A view surfacing of late, to explain falling crude (or rising supply) is the idea the Saudis are keeping plenty of oil in the market in order to help the U.S. avoid a hard economic landing i.e. lower oil prices are effectively a tax cut for Mr. Consumer. For a hard economic landing might put even more pressure on President Bush and Co., the Saudis would prefer less pressure on their â€śfriendâ€ť so that he can focus on Iraq and Iranâ€”a couple of areas of concern for Sunnis in the region concerned about Shia radicalism.
Pure conjecture it is, as we know little about the dynamics in the crude market, and know there are a whole lot of moving parts, and things going on behind the scenes. But back to the key question: Can the U.S. avoid a hard landing?
Seems like an odd question, in that most have already penciled in completion of a soft one and accepted the view the Fed ainâ€™t cutting anytime soon. And if the Fed ainâ€™t cutting and the soft-landing is complete, the dollar is looking good, thus the nice run so far this yearâ€¦.
US$ Index vs. Crude Daily:
Call us skeptical (Iâ€™m sure we have been called a lot worse, and probably for very good reason), but we think the jury is still out on housing. And as housing goes, so goes the dollarâ€¦maybe!
CHART Housing Index vs. US$
Jack Crooks, Black Swan Capital
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