Conspiracy Theory
Steve Plant - FXA Plants Corner
fxa.com
9/22/2004
There was one more anecdote from Blandford I wanted to relay. My sister in law owns a True Value hardware store in East Hampton, Massachusetts. I overheard her talking to another family member about nails. It seems nails have not only gone way up in price (thanks to Chinese demand for steel) but have also become harder to get. I was involved in a separate conversation but my ears perked up when I she broached the subject of her own accord to someone else. From what she said, a lot of other items she has to buy from her suppliers have gone up in price too. I guess they must not be very popular or widely used items because otherwise they would have had an impact on our inflation figures.
Every couple of weeks it seems, I reach a day when the conflicting and contradictory information I have been receiving just kind of bubbles over into a froth of disbelief and amazement. And since these pages are my outlet… this is where the bubbling flows. It usually takes a week or so to build, and then reaches a crescendo with some event during the market week. This one started sometime last week, hit its stride this weekend in Blandford, and reached a peak I could no longer contain yesterday. The FOMC rate decision and subsequent market action finally put me over the top. Not that I was, or should have been surprised that the decision to raise rates would ultimately result in LOWER bond yields. That was OK. Nor the fact that yields have fallen as oil has rallied, and is threatening to test $50 again. It was the combination of the two that did it. And then of course… the financial press; through its daytime soap opera network (CNBC) pretty much treated the whole thing like… well… isn’t it obvious? Smug Larry Kudlow describing his perfect little economic world. The only person who seemed agog at the series of events was Bill Gross, who also happens to be the only one on the post FOMC decision commentator panel who actually TAKES RISK. He was pretty vigorously negative on bonds and I’m sure (if I had been able to see him), would have been shaking his head in disbelief. Oh yes… CNBC lost their picture yesterday due to some technical issues. And after I went off in this column on Monday about the unreliability of the web versus the phone or television. Anyway… back to yesterday’s surreality, Bill Gross actually sounded like he was getting hot describing how bond and note yields would be much higher if it weren’t for the Asian Central Banks sopping them up.
So there I am thinking… my God… this has all the makings of an economic conspiracy on a global scale, unprecedented in the history of man. An international jury-rig to keep American consumers buying Asian goods with the help of Asian Central Banks who are financing everything in order to keep their own industrially based economies humming along. And the United States is completely complicitous. The Fed, the Administration… Congress… they’re all in on it. We produce inflation figures that show price pressures are contained while we have the Federal Reserve telling us that the economy seems to be regaining traction. And while the stock market has ceased to become the engine of wealth creation, the property market has taken the reins and is leading all Americans to a future of accumulated wealth and comfort. Maybe its not 30% a year, but 15% in some parts of the country is nothing to shake a stick at. And after all, you know the old adage, real estate NEVER goes down. And above it all, we are being led by a white knight in shining armor, who fights terror and holds forth the banner of democracy. I was starting to feel like Alice in Wonderland. I couldn’t help it, my mind just naturally started to wander in search of some concrete base on which to justify how the markets are moving.
The only problem with all of this is that my personal travels and experiences generate conflicting news and information. If I could stay inside and just listen to the TV, I think I would be OK. But I keep venturing outside, and every time I do, I see things that lead me to question what I’m being told. Yesterday I got news about a hedge fund closing down its macro portfolio after disappointing results. Indeed, a lot of the marquis names are posting sub-par results. A ton of money has poured into the hedge fund industry in the last few years and there are a lot of new funds out there. Isn’t it just a pisser that AFTER everyone hops on board the train it starts to slow down? I am seeing more cost cutting pressure on the banking side this coming quarter than I’ve seen in four prior years at FXA. There has also been a greater than normal amount of personnel movement in the capital markets. I don’t get the impression these people are moving around because they’ve been offered a better deal. So here I am. The official line with the markets in tow, are moving in one direction, and the reality as I see it continues to move in another. But since you can’t (or shouldn’t) fight prices, I am relegated to sitting here venting my impotent view onto these pages where all of 40 people a day read it, for what I can only assume at this point is entertainment value. Perhaps I should let one of the economic nirvana zombies bite me. It would be far easier to stop fighting this and just join the crowd.
The Model Portfolio… has a $2.12 stop for the long three Dec Corn, which will more than likely be hit today. Yesterday’s low was $2.12 ¼. My average price on the trade is $2.36; one from 242 ¾ (Sep 1), one from $2.29 (July 26) and one from $2.39 (Aug 20). The model portfolio is long October gold at $401.90 (Aug 9). It is long Petro Canada (PCZ) at $43.60 (May 11), long Bunge (BG) at $34.20 (May 11). It is still short Reuters (RTRSY) at $44.10 (April 7). It is long Tyson Foods (TSN) from $17.70 (March 23) and a second unit from $19.15 (July 28). It has a $2.85 cent loss on December Cotton (May 20). It is carrying a 20 1/4 cent loss on two attempts to be long December corn (May 25, June 22), a net 4 1/4 cent gain on long December gasoline (June 9), a net 2-28/32 point loss from seven separate bond shorts (Jan 7, Feb 5, Feb 20, Apr 2, April 26, June 7 and July 14). Some of those were contract rolls. The model portfolio also has a 2.3-cent loss on two long Live Cattle futures (Jan 5 and 15), a 16.85 point loss on one E-Mini S&P (March 12), a $3 loss on the Lennar (LEN) short (Jan 6). It has a gain of a little over $5 after five long COMEX Gold trades (Jan 23, Mar 31, Apr 26, May 11 and June 7), and a $3 loss on an earlier long trade (March 23) in Bunge (BG).
Steve Plant
FXA |
