The Dollar, to Infinity and Beyond!
At the end of a year it is natural to look back and access what you have accomplished or didn’t quite accomplish. I also like to look forward and try to set up themes that I think are relevant. My 2009 Predicitions actually worked out pretty well and amazingly I followed through on most of the themes for a considerable amount of the year. Looking forward, I am getting more confident that the worst is behind us when I think of the Credit Crisis. Growth statistics in the U.S. are looking better based on most analysts accounts and economic numbers from the BRIC countries are extremely encouraging. China is Raising GDP predictions and the Indian Rupee is appreciating aggressively as global investors look to re-enter the stock market. Brazil is an amazing economy. It seemingly never entered a recession and is poised to grow as the Olympics and World Cup are going to be hosted here.
For 2010 I am looking for stabilization first, growth second and employment gains a distant third. I think we are seeing the first signs of stabilization. In December 2008 we were in the middle of the Credit Crisis. People were being fired in great quantities and companies were closing daily. No one was spending money. Even people who had jobs were so unsure of keeping theirs that they did not spend. This year is different. There are still many people out of work (a lot that I know of who have been out for over a year) but those employed feel much more secure and are spending. Check out the mall’s, restaurants and bars. They are quite full (this in New york City anyway). This to me is the first step toward recovery. People with jobs begin to spend (built up demand from 6-9 months of spending little), inventories get depleted and have to be built up again. Overtime for current employees is the first step followed by adding temporary workers then permenant hires. Although I feel that permenant hires are 5-7 months down the road, by this time next year things should be considerable better.
Predictions for 2010.
The Dollar.
It depends on what you are comparing it to but overall stronger (and i think possibly considerably stronger). Against Europe it really has no other way to go but up. Greece downgraded, Spain a potential downgrade. Europe a major lender to Dubai. Why buy the Euro? I think this currency could be a major (negative) mover this year. Against Emerging Markets I think the Dollar can still weaken. I think that rising interest rate differentials (see Global rates below) for the first 9 months of the year will keep pressure on the Dollar against this region.
U.S. Rates.
I see rates in the U.S. staying very stable. I do not think that the official rate will move at all until possible (I repeat Possibly) the fourth quarter of 2010. The Fed will make sure that the recovery has taken solid footing before doing anything with rates. The risk is inflation but I think that is a risk the Fed is willing to take (and I agree).
Global Rates.
Higher! Starting with Latin America I can see Brazil and Chile raising rates in the second quarter of 2010. Both countries have signaled that they are prepared to do so as long as the recovery continues on course and I think they will lead the charge in the western hemisphere. In the East, Korea and India should be first with Taiwan close behind. Look for an appreciation in the Chinese Yuan to begin at the end of the first quarter 2010, but I think there will be little profit potential as a large appreciation is already built into the forward curve.
Stocks.
This is a tricky one. I think the Dow will move higher but I am not sure how much higher. I would be a cautious buyer but would not look for similar gains to this year. 11,000-11,500 level seems like it can be achieved.
Random Stuff.
Lebron James will stay in Cleveland. Why leave? He is larger then life already, can do basically anything he wants and will get paid more to stay in his home state.
New York Mets: As frequent readers of my site know I am a big NY Mets Fan. The team was a major disappointment last year and is shaping up as one for 2010. I certainly hope this is not the case but I see them finishing no better then third in the NL East from their moves so far this year. Lets face it the “major” move so far this off season has been to drop a Putz (J.J.) and add a Dickey (R.A.).
Tiger Woods. By the end of 2010 everyone will put this scandal behind them. Please see David Letterman and Eliot Spitzer (well at least that is what Tiger and his sponsors hope for).
Remember these predictions mean very little….even to me!
Good Luck and Good Forex Trading
Argentina
Argentina is usually one of my favorite currency’s to trade. It is a high yielding and as such great for my Triad Theory. The spot also moves in a very deliberate pattern. The problem is that it is very illiquid and investors have been hurt many times by the governments actions that at any sign of trouble traders are quick to flee. I am currently positioned short Dollars (like I am almost always) but the market is not trading very well. The offered side of the market is almost non-existent and corporates and fund types are all looking to hedge or exit positions in front of the holiday’s. Today it was rumored that the Central Bank was in buying Dollars (I could not confirm this) and as such traders were not showing attractive offers to clients.
I think that the BCRA’s policy is more likely to be to prevent a large appreciation of the currency rather then lessening inflation. Inflation currently between 15-25% depending on who produces the numbers is a problem but an even bigger problem would be a much stronger currency which would prevent a recovery in the Argentine economy. Today although there was buying interest among corporates and investment names the spot only depreciated a little (.2%). This says to me that it is more a case of illiquid markets (reflected in the outright price rising and not a move in the exchange rate) then a fundamental shift. The currency has remained quite stable over the last few months as Capital Flight has subsided in the weeks following the elections. Remember there was speculation of a large devaluation of the currency to occur after the election. That did not happen and traders reentered the market to take advantage of yield. If domestic demand rebounds and the current positive market sentiment toward Emerging Markets continues (as well as a successful conclusion to the Debt -exchange which the market has been waiting for) then being a receiver of Argentine rates is a good position. This can be done through and O/R forward or an IRS.
I am currently short dollars with a duration of about nine months.
Good Luck and Good Forex Trading.
The Euro, is it Doomed?
I have been thinking more and more about the Euro, trying to figure out what the “big” move will be. Recently I have been flawed in my approach to the Euro. I consistently have been thinking of it in relation to the Dollar and I am not sure this is where the big move will occur.
Let me start with the Dollar. The U.S. economy, in my opinion, has started to stabilize. Job losses are slowing and spending is picking up. I think the spending side of the equation comes from a “confidence” that the people currently employed are more comfortable that their job is not in danger. Twelve months ago this was not the case. Having a job, any job at that time, was not scene as being very secure. Although not perfect, I think that the majority of people currently employed feel more confidence and as such are spending more. I do not think this spending will translate into more hiring. I do agree with a lot of the economist who speak of a Jobless Recovery and as such do not think we are out of trouble yet. Therefore the large deficit will stay. Employment will be high, inflation low and rates will stay low for an extended period of time. I see little reason to buy Dollars in the short term. A meeting of Chief Dealers of major international banks recently met and it was the general consensus that the Dollar would remain weak. Not that this should mean anything but that is the overriding perception in the market.
The Euro. This currency has remained remarkable strong in spite of a lot of turmoil going on around it. Why I am not sure. The European banks were hit just as hard by the Credit Crisis but have been able to stay in the shadows of their American (and British) counterparts. Now we have the Dubai Situation and all I can think about is when is the other shoe going to drop? Well I think it has begun. Greece this week was downgraded by Fitch and S&P cut its outlook for Spain. This will lead to the question of Who is next? I raised the question of what are the most indebted European countries in a November 28 post. The question becomes more important as rating agency’s are under pressure and might be quick(er) to act after their failure to see the Credit Crisis develop in 2007-Present.
So then what is the trade? To me it is looking at the crosses. I like being Short Euro against Latin America and Asia. In Latin America Brazil should out perform the rest of the region with Colombia being the biggest lagger. In Asia I like India and China to outperform (I am looking for China to begin letting their currency strengthen again in the late first quarter of 2010) with Korea being in the mix. I do not think there is a big play in China at current levels. Appreciation of the currency is well built in and I am not sure that once the Government lets if drift lower it will keep up with expectation.
Please remember these are longer time frame perspectives. But for a prediction I look for the Euro to be lower against Latin America and Asia by April-May 2010.
Good Luck and Good Forex Trading.
The end of an era…..
I have been trading a long time, in the beginning trading in the futures markets were done on an open outcry basis. Boy have things changed. Here is the link to a You Tube video for an upcoming movie. It looks very interesting.
Good Luck and Good Forex Trading
Taking a Break
Taking a break. This is something I think is important to being successful in whatever you do. With athletes you hear frequently about taking a few weeks off at the end of a season before beginning to train for the next year. I know when my youngest son was playing baseball he put his equipment away at the end of the Fall season (October) and didn’t pick it up again until January. I always thought it was important to give his body a break and to feel the excitement of wanting to get back in the game. I feel it is very similar to trading. Taking a break, squaring up ( Taking a Loss ) and getting away from the markets is a healthy way of seeing the bigger picture of the markets and “recharging the batteries”. I know from my experiences that from time to time I get fed up with the markets. I get tired of waking up early, the stress, the aggravation, the day to day grind. In most Banks it is mandatory for employees to take two consecutive weeks off. This is from a Fed regulation with was established to prevent employee’s from doing illegal things. The theory was that during the two weeks whatever the employee was doing would come out and be discovered. In my Bank we have this rule. I, for one am very glad for it. I look forward to taking two weeks off and I think it has helped make me a successful trader. I tend to trade much better in the second half of the year (as i usually take the middle two weeks in August off), since the break usually gives me the ability to see things a little clearer. When trading becomes difficult (well it is never easy, but when I find myself struggling more then usual) I usually try to square down my positions and sit back and do less rather then more. If I continue to struggle or cannot gain solid footing I then try to take a day or two off. This always helps a lot. I have never had a time where I took a few days off and didn’t have an overwhelming desire to get back to the desk. Usually the day I leave I have numerous ideas running through my head as to what I think the market is doing.
I think the important thing to remember is that whatever you do in life, it is important to take a break once in a while. Sit back recharge your batteries and see the bigger picture.
Good Luck and Good Forex Trading.
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