Thursday November 29, 2007 - 12:22:54 GMT
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Black Swan Capital - www.blackswantrading.com
An Odd Day for the Markets?
â€śThese institutions reject egalitarianism. They put excellence before equality. They do not believe in a "level playing field" for opponents, but, with Vince Lombardi, that "winning isn't everything, winning is the only thing." They demand our best. You fall short, you are gone. They are intolerant of excuses and self-pity.â€ť
-Patrick J. Buchanan
FX Trading â€“ An Odd Day for the Markets?
Yesterdayâ€™s news and action â€¦
U.S. Durable Goods Orders: Weaker-than-expected
Existing Home Sales: Weaker-than-expected
S&P 500: Up more than 40 points (2.89%)
Dow Industrials: Up 331 points (2.5%)
Do you notice the incongruity? Stocks soared, capping their strongest 2-day move in the last five years -- all after more disappointing economic data hit the wire.
This is nothing new. Stocks have headed mostly higher this year and have done so no matter the news. Investors are simply finding a way to ignore the present and sneak into the future.
After all, trading is about expectations. And when every word out of Fed Vice Chairman Donald Kohnâ€™s mouth at yesterdayâ€™s speech point toward increased risk to the financial markets and the consumer, youâ€™ve got to expect the Fed will be cutting rates.
Rate cuts? Well thatâ€™s reason to party. Turn on the music, get out the confetti and champagne and buy stocks â€“ the Fed wants us to!
Thatâ€™s the rationale as far as I see it.
And of course we look at what a rally in stocks means for currencies. Lately it has meant risk-appetite is in play, and that means a tendency toward carry trades.
Even while the dollar bounced early in yesterdayâ€™s trading session, the stock market rally turned most of those gains right around. Money headed into the higher-yielding group and out of the buck.
Does anyone else have a bad feeling about this? Then again, why should anyone even second guess yesterdayâ€™s action? I guess thereâ€™s no reason to worry about credit market risks, about liquidity drying up and about a struggling consumer when the Fed promises to stand by and provide all the fuel the economy needs to keep on chugging.
A final measure of third quarter GDP is expected to come in relatively strong when itâ€™s reported later this morning. New home sales for the month of October will also be released. It ought to be another interesting mix â€“ letâ€™s see how investors react.
John Ross Crooks III
Black Swan Capital
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