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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (20748)	1/7/2005 9:18:00 PM
From: orkrious	Respond to of 116555

good letter, mish

To: mishedlo who wrote (20748)	1/8/2005 10:02:45 AM
From: russwinter	Read Replies (3) \| Respond to of 116555

<Although we see that “some” of the FED members are concerned about inflation expectations> The actual wording was "a number" () not "some". Just the same, although they should be concerned about dangerous inflation, I'm inclined to agree with you that this is more Ministry of Propaganda bluster (somewhat backed up by less Dollar printing post Dec 8th, a game of chicken) to shore up the Dollar, and to squeeze the big anti-USD hedge funds and speculators. Message 20927897 It is important to watch the actual monetary injections as to whether this continues. Watch what they do, not what the say. Also, although these positions can change in a flash, note that the commercials are heavy long EDs, and all the treasuries save the 30 year. I for one am not making bearish ED and note bets at the moment. () In their discussion of the outlook for prices, a number of participants cited developments that could pose upside inflation risks. Although oil prices had fallen of late, they were still considerably higher than they had been in the spring, and the recent decline in the dollar would raise import prices and diminish competitive pressures on many industries. The pass-through from both sources should be limited, but they were still a potential source of upward pressure on prices that could get embedded in higher inflation under certain circumstances.

To: mishedlo who wrote (20748)	1/8/2005 1:17:01 PM
From: yard_man	Respond to of 116555

>>The FED sure bought themselves a “free shot” at stabilizing the markets in February by a “surprise pause” should they need it.<< Please explain, how you think that might work psychologically on market participants. I think a suprise pause would be a disaster. One more rise than anticipated could be born, if they continue to print. But to pause in the tightening -- I think that would be taken as very negative by the equity markets -- somewhat positive by the treasury market, but not so good in the corporate debt market and for the mortgages, I don't think it would have much of an effect. I think the USD would immediately break 80.

To: mishedlo who wrote (20748)	1/8/2005 3:45:52 PM
From: gregor_us	Read Replies (4) \| Respond to of 116555

If the Fed Either Wrote Minutes or Revised the Minutes with the intention of stablizing the USD, by deliberately placing language in the text that refers to the concerning effects of a lower dollar (and I don't think they did--I think this is an unintended consequence of the Minutes being released later, into a week when the USD was perhaps very low and set for a reversal) then I see two problems with their "intention." 1. Engineering a dollar bounce to then give themselves room to pause makes sense on one level. However, since there is no fundamental reason for the dollar to go higher, and, that engineering such a bounce is, therfore, merely one of triggering a speculative flush, then, pushing the USD back UP in such a fashion actually places the USD in more grave danger to the downside. One could surmise the market was already restraining itself at the 80.00 USDX level--and one could further surmise that even breaks below 80.00 may have been short-lived. In addition, one could also conjecture that closes below 80.00 might have laid the foundations for a "real" counter-trend rally, as the market may have finally said "enough" (for now.) But if the Fed has engineered this bounce, that merely flushes out shorts and other anti-dollar positions--potentially leaving the dollar even more vulnerable. The Fed in this scenario has hurt the very people who might have covered below 80.00--say at 76.00-78.00. So if the Fed engineered this for Rate Pause purposes, they are as usual playing with fire. We make the assumption the dollar is less vulnerable to a rate pause at 84.00--rather than at 80.00. It sounds so reasonable, you know? But I wonder that it's not the case. 2. The other problem I see which I mentioned earlier today is that if the Fed does in fact ignite a counter-trend rally--along with Washington figures like Snow--then they are going to be tightening monetary conditions rapidly, as the neutralizing effects of a lower dollar on 5 rates hikes is removed. Am I to conclude from the Fed that the Reflationary Era is over? Do they now want higher rates and a stronger dollar too? I can't believe it. Again, what I have seen from the Fed in the last several years is that they give back everything they take, and they take back everything they have given--using language. And here we have the perfect, book-end example: it begins with the Greenspan's comments in Berlin on falling USD-denominated assets--which gave the USD a shove down the embankment, and now is softened by this week's released Minutes, which then "complains" (lightly) about the dollar's fall. Do they do this by intention? Sometimes I just wonder if they are confused--and of course they are just people. They cannot control the outcomes of their actions. Best, LP