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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: russwinter who wrote (30737)	4/15/2005 5:23:18 PM
From: mishedlo	Read Replies (1) \| Respond to of 110194

Chinese float or re peg? You are in total fantasy land with that one. gg Mish

To: russwinter who wrote (30737)	4/15/2005 10:06:17 PM
From: orkrious	Read Replies (1) \| Respond to of 110194

Monster commercial long in the Yen, wonder if there's some Asian currency developments coming, Chinese float or re peg? If I didn't know any better, I'd think you read Lance Lewis. here's what he said last night: The US dollar index rallied over half a percent to a new high for the recent move and back to just shy of it February high. The press tried to blame the rally on an IMF statement out overnight that said the US economy should be stronger than Europe or Japan this year, but I think that was probably just coincidental. The real reasons for the dollar’s current rally are the ones we talked about yesterday. The yen and euro both fell nearly a percent. You know the drill here. The TIC data will be released tomorrow morning. Whatever the data is, I suspect the dollar will probably rally on it, and if not tomorrow, then next week. And given the positive correlation between the euro and the S&Ps, we can probably expect the euro to take out its lows for the year in short order based on the fact that the S&Ps did so today. It’s a little counterintuitive I know, but the real “pain” trade here is for the dollar to rally as stocks and commodities fall ( a reversal of the “reflation trade”). Everybody is positioned for the opposite (even the equity bulls), so it makes sense that the market is going to punish people this way. I don’t think the dollar is going to see anything more than a bear market rally, but it could last a while. The Fed is in a box and can’t ease until things get much uglier in the real economy, but the rest of the world will likely be easing very soon if we remain on our present economic course. Treasuries rallied in the short end due to a flight to quality, but the 10yr was only up a few ticks (the yield slipped to 4.35%). And the 30yr was actually down on the day. I’m not sure what to make of that. If the bond market and stocks were to sell off together tomorrow, what would it mean? I‘m not sure, but it would certainly have me scratching my head as to what was going on. Could it be that the Chinese are possibly preparing to make a currency move over the weekend? There’s a G7 meeting this weekend, and the US Congress is trying to pressure China into revaluing with the threat of a tariff. I doubt the Chinese are going to do anything anytime soon (they actually declined to attend the G7 this weekend because they are tired of discussing the yuan), but I do find the bond market action a little strange today. A big downside break in the US bond market would mostly likely be the initial response to any Chinese revaluation because it would mean that a major patron of the US treasury market would be effectively “removed” going forward (i.e.- the Chinese would no longer be regular buyers of US treasuries for their currency peg). How would the dollar react to that? My answer is going to surprise most, but I suspect it would rally, as may have already discounted a Chinese revaluation (certainly, the dollar’s recent action doesn’t suggest that it fears much of anything right now). Likewise, commodities and gold would probably fall for the same reason. In fact, a revaluation or even going to a currency basket would do so much damage to the Chinese economy that it would likely cause a virtual collapse in commodity prices. I’m obviously just speculating here, because there is no way to know what the Chinese are doing or will do unless one is inside the inner Chinese circle. But I thought it was at least worth discussing the implications of the Chinese possibly doing something. In the alternative, it could just be that weakness in the long end of the bond market is simply the bond market looking ahead. Perhaps the bond market knows what the eventual policy response from the Fed will be (they will print money like always), and that policy response will lead to inflation and higher long-term interest rates? Or maybe we’re just seeing more unwinding of carry trades and flatteners as the market unwinds leverage and the “reflation trade” in general? I’m not sure, but we’ll want to watch the bonds closely going forward.

To: russwinter who wrote (30737)	4/15/2005 10:08:52 PM
From: ild	Read Replies (1) \| Respond to of 110194

The following is from today's Fleck: A Trapped Fed: Key to Dollar's Trap Door As I was thinking about the best way to put all this into perspective, I received an email from my favorite foreign-exchange observer. I found his synopsis so succinct and on-the-money that I wanted to share it, rather than offer one myself: "Outlook: $ stays firm(ish) until the market starts to focus on the data, rather than nonsense Fed is feeding them. THEN Treasurys start to rally hard, 10-year back below 4%, back-end euro-dollars take off. THEN, at the same time, the dollar starts turning south again hard, regardless of problems within euroland (which will escalate, by the way, in the months ahead). THEN equities, which have been under pressure for months, start to fall dramatically. THEN, the housing sector gets whacked. THEN Greenspan, desperate to maintain some sort of legacy, starts trash-talking the dollar, finally realizing that he is trapped. THEN this entire cycle feeds on itself. THEN gold goes ballistic. Patience still required, but that is where I see it going, in a nutshell." That's about how I see it going, too.