Currency Currents - September 11, 2009
Key News
• China’s industrial production rose more than forecast in August. (Bloomberg)
Quotable
“Run for your life from any man who tells you that money is evil. That sentence is the leper’s bell of an approaching looter.”
Ayn Rand
FX Trading – Divergence confusionism…
A very astute member of Black Swan services pointed out the latest growing divergence between the bond price action the last couple of days, and the dollar…The question: What does it mean?
The short answer may be that global markets are now normalized and the tight correlations we’ve been witnessing the last several years, during both the boom and the bust, are changing.
The chart above compares the US$ index with the 10-year Note futures. The reason this is a divergence, compared to the recent past, is because higher 10-year Note prices have usually defined risk aversion, and risk aversion is usually met by a rising dollar. We know that’s not happening.
But this divergence, or differing environments i.e. risk aversion versus risk appetite, can best be viewed comparing the 10-yr Note futures to the S&P 500 futures index. Since mid-August, this pair has started to move together—higher stocks and higher bond prices.
If this represents some outside portfolio flow into the US, why is the US dollar getting creamed?
And if the US dollar is getting creamed, why are people buying paper denominated in US dollars—10-yr Treasuries?
This isn’t the only major change in correlation we are witnessing, we see a major “divergence” (divergence based on past price action, doesn’t necessarily make it a divergence now; we need Mr. Hindsight’s visionary powers to prove that) between the Japanese stock market and USD-Japanese yen pair. Good news for Japan is finally also being reflected in the Japanese yen. In the past, any good news—reflected by the stock market—was usually met with a weaker yen as it juiced local risk appetite to go offshore for yield. Maybe this can be more easily explained by the weight of portfolio flow into Japan on optimism the new regime will make some real changes.
Back to the buck vs. 10-year Note “divergence”….
Does a weak currency have to be met by weak bond prices i.e. does selling the currency automatically mean selling the bonds? Not necessarily if the government is issuing and buying at the same time (or maybe domestic consumer savings is growing rapidly and going there).
Buying bonds domestically and using the currency internationally as rocket fuel to boost other asset markets in the hopes of reviving demand based on asset wealth effect i.e. implicit weak dollar policy, could be the game Uncle Sam and his advisory staff are playing.
There has been much talk, and obviously much price action, to support the idea the US dollar is now the world carry trade currency i.e. with short-term yields being so low—grabbing the mantle from Japan. Maybe!
But if we consider real yields (nominal minus inflation) on the 10-year Notes, the US is still among the highest of the major currency countries. We are not sure if this indicates there may be a floor on the dollar, as global investors can buy relative safe yield cheaply. Or whether it means nothing at all and the US dollar has become the carry trade currency of choice.
Or of course a third options, the bond guys see troubles ahead and are positioning before the double-dip hits the fan. Place your bets.
Black Swan Capital LLC
www.blackswantrading.com
Currency Currents - September 09, 2009
Quotable
“Money is not an invention of the state. It is not the product of a legislative act. The sanction of political authority is not necessary for its existence.”
Carl Menger
FX Trading – Dollar blues…Ugly policies…Hampered markets…gold over $1,000
• Gold through $1,000
• Oil back over $70
• UN wants a new reserve currency
• China alarmed by US money printing
• Obama asks senate to increase debt ceiling
Boy, you know it’s bad when the UN gets into the act and people actually take them seriously.
Is this a crystallized negative sentiment extreme in the dollar? We will only know that with the gift of hindsight of course, but there may be more to go given how nicely government policies seemed aligned to prolong the down turn. Plus, there is another 10% or so left on the downside before the dollar tests its old low made back in March 2008.
The stuff we are seeing and hearing is likely to concern even the most ardent dollar supporter. Maybe we saw a lot of them capitulate yesterday. A friend of mine from Chicago emailed, he said take a look at the volume in the UD dollar index; it’s huge! Does it mean anything?
So to the chart I went. Sure enough, it was huge. You can see it at the bottom of the daily dollar index chart below:
One of the ardent dollar bull themes has been that China will disappoint (we know that because it has been a key theme of ours that hasn’t panned out). It looks like China will be China and do all they can and want to keep the music playing; we know they have the money to do so. That may be the dollar game changer, in that a major risk bid to help the buck won’t materialize.
Not that we give the US administration (this or any other) much credit the orderly dollar decline we’ve seen since the US dollar index hit 90. But we wonder if the Treasury isn’t just fine with the shape of the dollar move; the dollar does play the key role of liquefying global assets (the role of a global reserve currency).
In more sane times, assuming there were such, leaders of a country cared about the quality of their currency knowing it reflected a store of wealth, not just paper to increase their political power through spending. Many US administrations in a row seem to have had no concerns about any of that; the current one however takes the cake.
In the midst of a dangerous period for the US economy and dollar, the current administration wants to completely radicalize the US economy (healthcare change), add regulation, and increase taxes. It is almost hard to believe. Thus, it is no surprise why Switzerland supposedly displaced the US as the most competitive economy according to the World Economic Forum Global Competitiveness Report published yesterday—another piece of negative dollar sentiment we forgot to list above.
Austrian School economist Murray Rothbard wrote a book called America’s Great Depression. It was published in 1963. It is for my money the best single source of analysis that gives one a real understanding of why the Great Depression became the Great Depression.
It explodes the ridiculous fallacies of all the Keyenesian lovers and neo-Keynesian pseudo intellectuals, read Paul Krugman, who seem too deep-down hate the market and find government control so much more appealing and comforting. In other words the Keynesian’s (not to suggest this was Keynes reasoning; jury out there) seem to love power of spending and market manipulation.
Government spending; its’ a phrase that still rings in my ears…
When I was in graduate school a long time ago, I had a very interesting, smart, lively, and entertaining free-market professor of economics. A rarity indeed! His name was Dick Armey. Professor Armey moved on to be Republican leader in the House (very quickly), I think. Prof. Armey was a master at exploding the leftist clap-trap regarding economics. He was fun to watch. One thing he used to always say to us in class was this: Taxes moves money but spending moves resources. Not I am beginning to understand it.
Government spending on the scale we are seeing moves resources in a big way and creates all types of market price inefficiencies. Plus, almost all of government spending represents consumption, not investment. And in the midst of depression, it is savings and investment that are keys to recovery, not consumption as the Keynesian School touts; and yes, sadly we are all Keynesians now.
Saving and investment create wealth. Period! The two are joined at the hip. Yet Keynes believed one can magically separate the two, for some reason—I guess it fit in the General Theory equation. It was a bad mistake that has cost us many years of disastrous government economic policy and provided cover for statists everywhere.
But back to Mr. Rothbard, and an example of government policies that significantly prolonged the Great Depression by hobbling the market’s regeneration qualities:
1) Prevent or delay liquidation. Lend money to shaky businesses, call on banks to lend further, etc.
2) Inflate further. Further inflation blocks the necessary fall in prices, thus delaying the adjustment and prolonging the depression.
3) Keep wages up. Artificially maintenance of wage rates in a depression insures permanent mass unemployment.
4) Keep prices up. Keeping prices above their free-market levels will create unsalable surpluses, and prevent a return to prosperity.
5) Stimulate consumption and discourage savings. We have seen the more saving and less consumption would speed recovery; more consumption and less saving aggravate the shortage of capital even further. As a matter of fact, any increase in taxes and government spending will discourage saving and investment and stimulate consumption, since government spending is all consumption. Some of the private funds [taxed away] would have been saved and invested; all of the government funds are consumed.
Hmmm…and we wonder why the so-called stimulus isn’t providing much traction and why many see a double-dip ahead! It is to laugh if it weren’t so sad.
Faith in dollar is becoming hard to muster when you consider the current set of policies seem designed to lock the US into years of inefficiency and below potential growth. The only saving grace, and it’s no panacea, is that US policy will be “out Keynesian-ed” by its competitors. Not something to wish for I know.
This currency game has always been a game of choosing the least ugly. And a whole bunch of ugly we are getting. Maybe in that light, gold over $1,000 should not be a surprise.
Jack Crooks
Black Swan Capital LLC
www.blackswantrading.com
Currency Currents - September 08, 2009
Key News
• Stocks Cheapest Since ‘89 Show Why Analysts Say Economists Wrong on Growth (Bloomberg)
Profits for companies in the S&P 500 will rise 25 percent next year, according to the average estimate of more than 1,500 equity analysts tracked by Bloomberg. That’s 10.9 times faster than the expansion in gross domestic product foreseen by 53 economists surveyed last month. The ratio of income to GDP growth is the highest on record and compares with an average of 6.1, based on data compiled by Bloomberg going back 60 years.
• Putin Blinking on Increased Exports Signals Oil Weakness as OPEC Convenes (Bloomberg)
• How China Cooks Its Books (Foreign Policy)
For the long term, China is banking on its main export markets — in the United States, Europe, and Japan — recovering and starting to consume again. The hope is that in the meantime, rosy economic figures will placate the masses and stop unrest. But, if the rest of the world does not rebound, China risks the bursting of asset bubbles in property and stocks, declining domestic consumption, and rising unemployment.
Quotable
“For, he that expects nothing shall not be disappointed, but he that expects much - if he lives and uses that in hand day by day - shall be full to running over.”
Edgar Cayce
FX Trading – Capitulation Questions and Reader Mailbag
In an article by Wolfgang Munchau appearing on Eurointelligence.com, the case is made that Europe (particularly the Eurozone) will experience a withering pace of growth during the recovery phase of this global economic crisis.
Besides all the reasons given for why Europe will flop around like a fish on dry land, this point was made:
“Both the US and Europe will go through an adjustment period, during which growth will be lower. The US will be first to recover: it is a more dynamic economy, has a more coherent framework for macroeconomic policy, and, unlike the EU, has a genuine internal market which is not unraveling.”
It is a point we’ve made several times, and it is one that’s been touched on by several analysts over the last year. But interestingly enough it’s gone mostly ignored by investors.
Today the US dollar has broken to fresh daily and weekly lows. Leading the charge against the buck is the euro. Despite the longer-term trudge that’s shaping up for the Eurozone economy and recent pieces of negative monthly data like today’s report on falling industrial production in Germany, the euro is taking off like a rocket:
Most notable in the above chart is that the euro has broken out to new highs versus the buck. For a good amount of time the euro had been tracking sideways after a failed breakout attempt in late July. In that time we watched US stocks (risk appetite) push to new highs. Now it’s the euro’s turn.
Are we witnessing capitulation here? Could we see a blow-off move against the buck? Or is this just one step in an uptrend that could take the euro much higher from here?
As one of the above stories in the Key News section points out, analysts and investors are diverging from economists, i.e. risk appetite remains strong despite sour fundamentals. That seems to be the case with the euro – currency traders are buying … with their eyes turned away from the Eurozone’s economic blemishes.
It’s about herd-mentality, I guess; it’s about group-think, I guess. So if you’re trading these markets right now, this is what it’s got to be about … because it sure isn’t about fundamentals.
Besides the euro making some noise, everyone’s favorite yellow metal has somewhat quietly catapulted itself back up over the $1,000 an ounce mark.
Can we explain why the notorious inflation-asset-of-choice is making hay in a deflationary environment? Not exactly, but one reader chimed in with some comments:
READER MAILBAG
In response to our comments regarding whether gold is a safe haven move in what seems to be a deflationary world (Currency Currents last Friday), or whether gold is telling us inflation is dead ahead thanks to all the money our government has pumped into the system, one of our readers sent us this comment:
“It continues to be a mystery as to why central bankers are always looking to yesterday’s battles, in this case inflation. Deflation seems to prevail, despite all the printing of money, because the amount of debt to be deleveraged is awesome! Gold seems poised for a break-out because it is viewed by many as an alternative to all fiat currencies. Simply put, gold is viewed as money. Gold does not need inflation to prosper. It also prospers in deflationary times, as witnessed by the massive deflation of the Great Depression. Its ascent was only curbed in 1935 when FDR fixed the price of gold at $35 and restricted its use to jewelry in an attempt to re-liquefy the banking system. The price restriction was lifted many years later under Nixon.”
Perhaps this is the reason for the herd trampling all over the buck – I wouldn’t doubt it. The diminishing confidence in US fiscal policy takes center stage every day; deficits, deficits, deficits!
John Ross Crooks III
www.blackswantrading.com
Currency Currents - September 04, 2009
Key News
• Natural gas futures are poised to fall further after trading at the lowest in seven years (Bloomberg)
Quotable
“It’s impossible to experience one’s death objectively and still carry a tune.”
Woody Allen
FX Trading – What if…
Central bankers have made it very clear they are leery about taking away the punch bowl.
Mr. Trichet laid out the ECB concerns and potential paths in an editorial appearing in the Financial Times today. Stable prices are his first concern: “First and foremost, should the non-standard measures trigger risks to price stability, we will immediately begin to unwind them and ensure the continued solid anchoring of inflation expectations.”
Perusing The Economist magazine financial data section, we were on the lookout for inflation (at least the common headline variety that shows up in CPI, not the asset inflation variety as in stocks). We noticed that with the exception of the Netherlands at +0.2%, and Greece at +0.6% for July, consumer prices in every major European country are negative or zero (Italy is zero; who would have thunk it?).
But what about those places where we’ve seen real growth like China? Well, according to estimates, China’s CPI fell 1.8% in July, slightly less than the -2.1% slide in US prices. Among the major currency countries, only the UK, at +1.8%, and Australia, at +1.5%, have positive CPI numbers. We imagine the UK may catch up soon.
So, there is reason for central bankers to be leery about removing the punchbowl—global deflation. Capacity utilization rates are falling fast across the industrialized world, as expected, reflecting the plunge in consumer demand. German capacity utilization fell to just 69% in July. That doesn’t bode well for Germany’s highly skilled workforce, and may not bode well for any of us. But this comes at a time when a whole bunch of new capacity is coming on line in China; they are already considered the culprit pushing final goods prices lower and lower. And if China stops stockpiling commodities, as might be the case, we would expect industrial commodities prices to sag also.
Yet all this and gold is soaring to $1,000 and likely beyond say the technical analysts. Is gold telling us inflation is around the corner, or is it telling us gold represents real money and a good place to hide in the coming global deflation?
Policymakers, and those still highly leveraged have to be concerned about deflation. As deflation is the markets way of cleansing. But politicians know cleansing the market could lead to cleansing of the various elected government officials at the same time—we can’t have that. But the broader concern for the global economy is this: If prices continue down and limited traction is gained, what is left? It seems the central banks virtually out of bullets?
We are penning a report at the moment, making the case for global deflation—we will make that available to you next week.
Maybe gold is telling us we are very wrong. But gold plays a lot of roles at different stages in the business cycle, especially one where massive amounts of money have been poured into the market ($35-$40 trillion since the last G-20 I think) and prices are going south. It continues to remind us of Japan. All that money, years of zero interest rates, and the horse never drank.
Jack Crooks
Black Swan Capital LLC
www.blackswantrading.com
Currency Currents - September 03, 2009
Key News
• Chinese Stocks Rise Most in Six Months; U.S. Futures Gain, Yen, Bonds Drop (Bloomberg)
Quotable
“Only the spoon knows what is stirring in the pot.”
Sicilian Proverb
FX Trading – The Benefits are Dwindling; Currencies Look to Even Out
As with most weeks culminating in a US Nonfarm Payrolls report, this one started with some decent price action but will probably become more confined as tomorrow’s report draws nearer.
Yesterday showed that the US economy, according to the ADP employment report, lost more jobs in August than had been expected. Of course, everyone will tell you the ADP report is never a consistent indicator for the subsequent Nonfarm Payrolls report. It will be in the minds of investors though … along with the results from the most recent week’s jobless claims which will be reported later today.
When everyone is ready to pronounce the world as having already embarked on recovery, the lingering unemployment situation remains among the biggest question marks that could disappoint the optimists out there. The current recession boasts the worst jobs pace – unemployment jumping by 4.5% in 19 months, payrolls slumping by 4.8%, average duration of unemployment has skyrocketed to 25 weeks – when compared to the same periods during past recessions.
Not only that, but an article in the New York Times recently estimated the number of unemployed whose benefits will be expiring this year. They anticipate roughly half a million will lose their unemployment benefits by the end of this month, and an additional one million unemployment are scheduled to lose their benefits by the end of December.
And the rate of unemployed is still rising, regardless of whether we’re told to think positively because people are losing their jobs at a slower rate. A lingering unemployment problem, more serious than the typical ‘lagging indicator’ as it is often described, will continue to weigh heavily on the consumer sector and the rebuilding of the US economy.
This is not your grandmother’s recession, or something like that.
In watching the kneejerk reaction to the ADP report yesterday, it seems the risk appetite dynamic remains in play as far as the US dollar is concerned – worse news, less risk-taking, safety in dollars. The direction didn’t hold up, though, and risk appetite is pushing the dollar the other way now.
Yesterday after the kneejerk strength the dollar began retracing the solid gains it made on Tuesday … and continues lower today as US stocks and currencies are buoyed by a strong day in China’s stock market. (I’m not sure what it means when US stocks don’t react to weakness in Chinese shares but are quick to react to strength. Perhaps it’s a bad sign for the buck.)
The US dollar index is currently at a price just below where it opened up on Monday. Is it any surprise though that we’d be back to where we started the week by the time Nonfarm is announced tomorrow? It’s been a vicious, churning currency market characterized by false breakouts and enough intra-day reversals to make the Brett Favre circus appear dull.
John Ross Crooks III
Black Swan Capital LLC
www.blackswantrading.com
Currency Currents - Septemeber 02, 2009
Key News
• European consumer spending rose for the first time in more than a year (Bloomberg)
• China is reversing some market-opening reforms amid the global economic crisis and raising new barriers to foreign computer services and other companies (AP)
Quotable
“Prediction is hard, especially about the future.”
Yogi Berra
FX Trading – Rant: So how about the mind of the market Mr. Expert?
The mind of the past is ungraspable;
the mind of the future is ungraspable;
the mind of the present is ungraspable.
- Diamond Sutra
As I said, I don’t often watch TV. I know many do and seem to find it helpful. For me, it creates confusion. Watching the market each day is enough confusion for me. But unfortunately I did it again, flipped on the financial news yesterday afternoon, after leaving my screens, and there they were, the ubiquitous panel of “experts” to tell us exactly what happened yesterday, why it happened, and what to expect in the future. Ugghhhh……
There are continuous competing voices on TV—as planned. Most of the regulars on the financial shows are regulars because they are compelling speakers—confident, good-looking, and excellent with the appropriate sound bite that usually makes the host smile. Precisely because the shows are setup with competing voices, usually one of the talkers can later appear on the show and say, “See, I was right when I was on the show last time.” It’s an interesting game and at times very entertaining. But, I don’t think it helps us make money.
Usually we can quickly and clearly grasp the mind of the guest on these shows. But grasping the mind of the market is where the real payoff is. And sadly, no matter how many times in a row you may get it right, and no matter how confident you are, there is no such thing as grasping the mind of the market.
The market is a chaotic non-linear system with organic human attributes.
It teases. It seduces. It coddles. It tricks. It traps. And every moment is truly unique. So one wonders how others can garner so much confidence in their own forecasts.
Do we forecast? You bet. Do we have confidence in our forecasts? Never! Confidence about a non-linear chaotic system can only come in degrees, and even those degrees of confidence are guesses.
Not all hope is lost. There are times when it seems our ability to predict is better than others. Thus we need to take advantage of it if we see it. Trading ranges, pivot points, support and resistance, and the like can help, and do help the trader. But when these change in a chaotic fashion, our predictability probability falls very fast.
But given that Mr. Market is a reflection of us and our methodology, it insidiously eats away at our so-called predictive systems. It’s a continuously skewed Catch-22 so to speak.
I turn to Mr. George Soros on this key point…There are two functions operating in the market:
o Cognitive function
o Participating function
Here is the rub: “The two recursive functions do not produce an equilibrium but a never-ending process of change,” writes Mr. Soros.
“The process is fundamentally different from the processes that are studied by natural science. There, one set of facts follows another without any interference from thoughts or perceptions (although quantum physics introduces uncertainty). When a situation has thinking participants, the sequence of events does not lead directly from one set of facts to the next; rather, it connects facts to perceptions and perceptions to facts in a shoelace pattern. Thus, the concept of reflexivity yields a ‘shoelace” theory of history.”
And put another way, by Mr. F.J. Chu, in his brilliant little book, “The Mind of the Market”:
“Since the economy is extremely sensitive to changes in conditions, even a precise knowledge of a majority of the relevant dimensions of the economy will not necessarily lead to an accurate prediction. This is the ultimate irony of chaos theory or any other similar predictive methodology. The more accepted and credible a predictive system is, the more it influences current decision-making and therefore modifies future expectations. Stated alternatively, the wider the use of an indicator, the less useful ti becomes in beating the crowd.”
Now, there a lot of people out there who already know all of this stuff, but I thought it might be worth a refresher if you have and be helpful if you have not. There are of course many who don’t believe this stuff and do think they can forecast the market, usually they are the ones who show up on TV.
I once spoke with a very smart man. A man who has made hundreds of millions of dollars for himself and investors over the years—his name is Bill Dunn. I don’t know Mr. Dunn personally, unfortunately, even though we live in the same town. But I do greatly respect him and what he has achieved. He is one of the largest Commodities Trading Advisors out there, and one of the most successful investors ever—real Hall of Fame material.
When I spoke to Mr. Dunn, about 15-years ago, we talked a bit about a man named Ludwig von Mises—a favorite of Mr. Dunn’s and me. We discussed briefly the economy, etc. He was very gracious to even spend time with me—I was impressed. I asked him about how he thought x-y-z would impact the prices of x-y-z…I don’t remember the exact question. But I do remember the answer, he said: “I don’t know nor do I care. I’m interested in that stuff, but I never let it impact our trading decisions at Dunn Capital Management.” That was a wake-up call to me at the time.
Here is arguably one of the best investors ever that doesn’t try to forecast or predict, and by the way, you will likely never see him on TV. Years later read an interview of him in a book about trend trading, he hadn’t changed a bit. He said this:
“I ride the bucking bronco.”
Bingo! An ah-ha moment indeed!
Not sure there is a moral to this rant other than this: be careful about prediction and do it in time frame and during periods that appear seemingly better than normal for prediction, based on some knowledge of your edge (system for getting you in and out of trades). And of course, be careful of the most confident TV guests.
Mr. Mark Douglas of Trading in the Zone summed it up well:
“Every moment in the market is unique….and you don’t need to know what is going to happen next to make money.”
Take a position based on some probability that can be inched in your favor, put on a stop-loss to control risk; then ride the bucking bronco.
Right now, we are trying to ride the bucking buck higher…stay tuned.
Jack Crooks
Black Swan Capital LLC
www.blackswantrading.com
Currency Currents - September 01, 2009
Key News
• Paul Tudor Jones, the billionaire hedge-fund manager who outperformed peers last year, is wagering that Goldman Sachs Group Inc. and Morgan Stanley got it wrong in declaring the start of an economic recovery. (Bloomberg)
• U.K. Consumers Repay Record Amount of Debt as Manufacturing Activity Slows (Bloomberg)
• China’s Manufacturing Expands at Fastest Pace Since April 2008 on Lending (Bloomberg)
Quotable
“Fix the problem, not the blame.”
Japanese Proverb
FX Trading – Political Differential Moves Markets Too
In our analysis of currencies we’re constantly reevaluating the growth and interest rate differentials between countries. The reason is simple: better growth and higher interest rates make investing in one currency, relative to another, more appealing.
But what about political differential? Is that really something that could influence the way currencies behave?
First of all, it’s not easy to perfectly compare the government of one country to that of another country. But it is not that hard to notice the difference between administrations within a single country and how changes may influence economic matters.
Typically, politics matter more in emerging countries where financial systems and governments are less developed and the economy can be more easily influenced by the party in power. We saw South Africa recently elect a new President. And since Mr. Zuma took office, the South African rand has beelined higher versus the US dollar on the early thinking that he can fix many problems and bring solid growth trends to South Africa.
Japan just elected a new administration and so far the Japanese yen has been supported by the outcome. It’s still early but it shows that people are paying attention to the political environment there.
What about the US though? From the outside looking in the US has been a model of political stability and efficiency, relative to so many other governments and regimes. I mean, the US has remained a superpower for very many years now and possess unmatched positions — economy, military, fiscal flexibility, etc. — relative to major economies across the globe.
But being ‘Number 1′ means being on everyone’s radar screen, watched to see how the leader might screw up. That’s why, for instance, the US deficits are such a boondoggle for the US dollar (not to mention the dynamic of reserve status). Especially in this recessionary period, the US isn’t the only one running into deficit trouble. But in looking for reasons why the top dog is softening up, it is the deficit in the US that makes the headlines and is gobbled up.
And yes, the current administration and the rest of the US government can play a big role on deficit expectations. The one currently in office and the representatives currently in control could really make a big difference, adding to current financial muck and undermining the fiscal position with more and greater spending. And as long as these deficits represent the key long-term fundamentals for investors meddling in the US dollar, then government could really become a big downer for the buck.
Yves Lamoureux, from Blackmont Capital, shared with us recently his view on how approval ratings for the current administration might eventually feed into US stocks. In doing so he compares the approval ratings of past US Presidents with corresponding market data to show a correlation between public opinion and price action.
To view the full piece, click on the following link (to Planet Yelnick). I think you’ll enjoy his comments and accompanying charts.
Presidential Approval Ratings and Stocks: Are They Linked?
With those comments in mind, how might the President’s approval ratings impact the US dollar? I suppose there are two obvious scenarios for the buck if things play out the way Yves has presented them; the first scenario seeming a bit more likely to us than the second.
1) US stocks sink sharply following a severe drop-off in Obama’s approval ratings. The risk appetite dynamic remains in place and the US dollar becomes buoyed by the move out of riskier assets.
2) US stocks sink sharply following a severe drop-off in Obama’s approval ratings. The risk appetite dynamic becomes irrelevant and there is a run out of both US stocks and the US dollar.
Either way, Obama’s approval ratings are falling unlike almost any other President before him. It seems his inititiatives aren’t settling well with a fan base that’s mired in recession. He seems to have a tough road ahead of him if he wants to win back support of the people. That may happen naturally if the economy begins to improve, but as most analysts have not been saying in their recovery forecasts — whatever growth we can squeeze out of the economy in the next 8-10 quarters is not going to resemble the pre-recession growth we became so comfortable with.
It will be interesting to see how much this President impacts the overall feeling towards the US economy.
John Ross Crooks III
Black Swan Capital LLC
www.blackswantrading.com