Marc to Market

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Seven Stories in Double - O Seven

magonomics December 22, 2006

Re-acceleration of the US economy Many economists and US debt traders and foreign exchange traders are pessimistic about the outlook for the US economy. However, the equity market, the narrowness of credit spreads, like corporate bond yields over Treasuries or emerging market debt over Treasuries, would seem to agree with the Federal Reserve and ot…

Seven Stories in Double - O Seven

Reviewed by magonomics on December 22, 2006 Rating: 5

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Trust but Verify

magonomics December 01, 2006

There is a battle going on between the Federal Reserve and the market. It is over the outlook for the economy and the appropriate monetary policy.

The Federal Reserve position is clear. As it expected, the economy has slowed. However, as Chairman Bernanke said recently: “Outside housing and motor vehicle sectors, economic activity has, on balance, …

Trust but Verify

Reviewed by magonomics on December 01, 2006 Rating: 5

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Dollar Down, but Bears may be Over-reaching

magonomics November 24, 2006

A run on the US dollar is underway. While momentum suggests there is scope for additional near-term losses, the risk is the dollar bears are getting ahead of themselves, Rather than jump aboard what appears to be a southbound dollar express, traders might be better advised to take some profits and wait for the next train. Money managers and corpor…

Dollar Down, but Bears may be Over-reaching

Reviewed by magonomics on November 24, 2006 Rating: 5

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Risks Mounting In Turkey

magonomics November 08, 2006

Turkey faces only two challenges: politics and economics. These are conspiring to increase the downside risks of the Turkish lira. The news today is that the EC has put off until next month the decision to break off membership negotiations with Turkey There are two main areas of concern. The first is Turkey's refusal to open its ports to Cypri…

Risks Mounting In Turkey

Reviewed by magonomics on November 08, 2006 Rating: 5

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Trust and The Canadain Dollar

magonomics November 03, 2006

The main shock in recent days was the announcement from Canada’s Finance Minister, Jim Flaherty, that the trust form of corporate organization would no longer enjoy its tax exempt status. This was a bolt from the blue. This past spring Flaherty promised that the coalition government would not tamper with the trust’s status. The previous Liberal go…

Trust and The Canadain Dollar

Reviewed by magonomics on November 03, 2006 Rating: 5

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November 7th and the Dollar

magonomics October 27, 2006

Well aware that the US holds midterm elections on November 7 and that most polls suggest the Democratic Party may garner a majority in the House of Representatives and could get control of the Senate as well, investors have nonetheless taken a favorable look at US assets. The equity market has rallied strongly, with new record highs being recorded…

November 7th and the Dollar

Reviewed by magonomics on October 27, 2006 Rating: 5

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The Dollar Saga: Where we are now

magonomics October 20, 2006

The US dollar’s price action in recent days has been significant. Essentially, this week’s developments indicate that the greenback’s recent advance is probably exhausted and a new period of weakness will likely unfold. Yet to be clear, in the bigger picture, what we are talking about is a move from the upper end of its 5-6 month trading range to …

The Dollar Saga: Where we are now

Reviewed by magonomics on October 20, 2006 Rating: 5

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Is the Dollar Still Range Bound?

magonomics October 06, 2006

The last several weeks have been particularly difficult for short-term players in the foreign exchange market. Many have been chopped up as narrow ranges have prevailed—selling lows and buying the highs betting on a breakout which did not materialize. The US dollar appeared to break higher after a knee-jerk drop after news the job creation in Sept…

Is the Dollar Still Range Bound?

Reviewed by magonomics on October 06, 2006 Rating: 5

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Forces that Reflate

magonomics September 15, 2006

Over the past several weeks the US dollar has been largely confined to well worn ranges against the major foreign currencies. The equilibrium implied by range trading environment might be giving investors a false sense of security. There are a number of developments in other markets that warn that the calm in the foreign exchange market might not …

Forces that Reflate

Reviewed by magonomics on September 15, 2006 Rating: 5

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G7: Lots of Thunder, Little Rain

magonomics September 08, 2006

Encouraged by French and German comments implying concern about the weakness of the yen, next week’s G7 and IMF meetings are taking on new significance in the foreign exchange market. Given the heightened uncertainty, speculative players are likely to continue to reduce their exposures in the days ahead. This means that the risk is on the dollar’s…

G7: Lots of Thunder, Little Rain

Reviewed by magonomics on September 08, 2006 Rating: 5

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Notes on the Capital Markets and a Modest Proposal

magonomics August 25, 2006

When assessing the uniqueness of the US economy, the flexibility of its labor markets is often cited as a critical factor. Businesses indeed have a largely free hand in hiring and firing workers. The unionization rate among the private sector continues to trend lower and dissent over tactics led to a split in organized labor about a year ago. Ther…

Notes on the Capital Markets and a Modest Proposal

Reviewed by magonomics on August 25, 2006 Rating: 5

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Where in the World are the Bond Vigilantes?

magonomics August 16, 2006

Investors and speculators have sometimes acted to impose financial discipline when they have concluded that officials are being too lax. The economist Ed Yardeni coined the name “bond vigilantes” to describe such participants when they are doing this. With the third year of a strong global expansion, rising commodity prices and nearly every countr…

Where in the World are the Bond Vigilantes?

Reviewed by magonomics on August 16, 2006 Rating: 5

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Beware the Ides of August

magonomics August 11, 2006

The historic significance of August 15 tends to be under appreciated. It is the day in 1620 that the Mayflower set sail from Southampton with 102 Pilgrims aboard that were destined to change the world. As they celebrated their anniversary 15 years late, the Plymouth colony was hit by its first hurricane. In 1914 the Panama Canal opened, which was …

Beware the Ides of August

Reviewed by magonomics on August 11, 2006 Rating: 5

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Curiouser and Curiouser

magonomics July 28, 2006

In response to the disappointing preliminary Q2, the market took bond yields lower and the dollar with it. The market downgraded the likelihood of a Fed hike on August 8. Indicative pricing in the Fed funds futures market implies the odds of a hike have fallen to about a 33% chance, the lowest since mid-June and well off the 85% chance seen at the…

Curiouser and Curiouser

Reviewed by magonomics on July 28, 2006 Rating: 5

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Bernanke Preview

magonomics July 18, 2006

Given the heightened uncertainty about the near-term outlook for US monetary policy, this week’s semi-annual congressional testimony by the Federal Reserve Chairman will be closely scrutinized for clues. Federal Reserve Chairman Ben Bernanke’s semi-annual testimony before Congress this week is looked.
The risk is that the market is disappointed. F…

Bernanke Preview

Reviewed by magonomics on July 18, 2006 Rating: 5

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Could Bernanke be Dollar Negative?

magonomics July 14, 2006

The US dollar has recovered nicely from the sell-off that culminated in the immediate aftermath of the disappointing jobs data at the start of the month. These gains were scored despite the movement of interest rate differentials against the US. The fact that the premium the US offers over the euro-zone has narrowed also means that US debt instrum…

Could Bernanke be Dollar Negative?

Reviewed by magonomics on July 14, 2006 Rating: 5

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Policy Dilemma Eases

magonomics June 16, 2006

US data in recent days helped ease concern that the economy is not strong enough to withstand the kind of tightening the Federal Reserve may need to enact in order to return inflation and inflation expectations back within officials comfort zone. And make no mistake about it, the pendulum of market sentiment has swung hard, abandoning the one and …

Policy Dilemma Eases

Reviewed by magonomics on June 16, 2006 Rating: 5

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How Now Greenback

magonomics June 09, 2006

We can identify thee main considerations when trying to ascertain the near-term outlook for the US dollar: market positioning, interest rates and the G7/IMF. Let’s review each, but to cut to the chase, the first two seem dollar supportive, though the third may exert pressure in the other direction.
Market Positioning
The market had amassed substanti…

How Now Greenback

Reviewed by magonomics on June 09, 2006 Rating: 5

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Strong Dollar in Word, Benign Neglect in Deed

magonomics June 02, 2006

The disappointing May employment data caught the market wrong-footed. The pricing of the July Fed funds futures contract had implied almost a 75% chance of a 25 bp hike later this month prior to the data and the combination of weaker than expected payroll growth and a moderate rise in hourly earnings have seen the odds fall toward 40%. As one woul…

Strong Dollar in Word, Benign Neglect in Deed

Reviewed by magonomics on June 02, 2006 Rating: 5

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Fed Dilema Resolved; Treasury's Just Beginning

magonomics May 26, 2006

Prior the US April jobs data, the Fed funds futures had been straddling the fence, with a roughly 50/50 chance of a hike/pause. The weaker than expected job growth resolves the dilemma and shifts the odds convincingly toward a pause. The Federal Reserve will signal to the market next week that it is prepared to pause, barring significant surprises…

Fed Dilema Resolved; Treasury's Just Beginning

Reviewed by magonomics on May 26, 2006 Rating: 5

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Inflation Pause at the Fed's Pause

magonomics May 19, 2006

Over the past six months, we have warned that the market has consistently under-estimated the magnitude and duration of the Federal Reserve’s monetary tightening cycle. Unwaveringly we forecast Fed funds to be at least at 5.5% by the end of this year and we recognized upside risks to our scenario. We had thought that the Fed would pause in June an…

Inflation Pause at the Fed's Pause

Reviewed by magonomics on May 19, 2006 Rating: 5

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Rising Sun or Just Another Day?

magonomics April 07, 2006

Japan is emerging from an economic period that is largely comparable with the US Great Depression. The Bank of Japan has signaled an end to its quantitative easing strategy under which it provided something on the magnitude of 5-6 times the amount of liquidity Japanese banks required. It has slowly begun reducing that excess liquidity.
The gradual …

Rising Sun or Just Another Day?

Reviewed by magonomics on April 07, 2006 Rating: 5

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Capital Thoughts as Q1 Winds Down

magonomics March 24, 2006

The first quarter is winding down. For most investors it has been a good quarter. The performance of the US stock indices have risen more than they did all last year. Major bourses in Continental European bourses, like Germany, France, and Italy rose 10% thus far. The UK’s FTSE posted a respectable 7% gain. Japan’s Nikkei was rallied nearly 40% in…

Capital Thoughts as Q1 Winds Down

Reviewed by magonomics on March 24, 2006 Rating: 5

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Don't Discount the Dollar

magonomics March 17, 2006

The US dollar has fallen about 2.25% against the euro and the yen over the past week, its poorest weekly performance in a couple of months. Every one has their own pet theory to explain the move, but the risk is that the move has been exaggerated and that a more stable dollar tone will emerge in the coming days.
Many explanations of the dollar’s sl…

Don't Discount the Dollar

Reviewed by magonomics on March 17, 2006 Rating: 5

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The Dollar and Emerging Markets - Is the Rally Over?

magonomics March 10, 2006

As the first quarter winds down, the sharp rise in G7 interest rates, especially in the US and Europe, and expectations of future tightening of monetary policy, have undermined equity markets and sparked a violent sell-off in many emerging markets.
There are two key concerns for investors. The first relates to the outlook for the US dollar. Can the…

The Dollar and Emerging Markets - Is the Rally Over?

Reviewed by magonomics on March 10, 2006 Rating: 5

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New Dollar Update

magonomics February 28, 2006

The bullish dollar case I argued remains intact as February draws to a close. The bull case was based on a conviction of the underlying resilience of the US economy, which in turn would prompt more Fed tightening that the market appreciated. Widening interest rate differentials would lend support to the greenback.
At the end of last year, the marke…

New Dollar Update

Reviewed by magonomics on February 28, 2006 Rating: 5

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Great Another G8

magonomics February 10, 2006

Hosted by Russia, the leading industrialized nations will meet this weekend. There is no reason to expect new initiatives that would impact the global capital markets and especially the foreign exchange market. Energy and Iran appear more salient for policy makers than the markets per se.
There was trial balloon floated by the US for the IMF to tak…

Great Another G8 Great Another G8

Reviewed by magonomics on February 10, 2006 Rating: 5

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Dollar Bull Case Updated

magonomics February 03, 2006

Last week we outlined a bullish case for the US dollar. It was predicated on US economic data confirming that the soft Q4 05 GDP was a fluke and that the economy was off to a sufficiently robust start of the year to absorb more the diminishing slack in the economy. This in turn would compel the market to re-think the likely trajectory of Fed tight…

Dollar Bull Case Updated

Reviewed by magonomics on February 03, 2006 Rating: 5

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The Bull Case for the Dollar

magonomics January 27, 2006

The disappointing Q4 2005 US GDP report and the subsequent dollar decline is unlikely to have a lasting impact on the market. In fact, there are good reasons to expect the US dollar to strengthen in the days ahead.
The 1.1% pace of growth in Q4 2005 was the slowest since Q1 03 and breaks the string of 10 consecutive quarters of 3%+ growth. Neverthe…

The Bull Case for the Dollar

Reviewed by magonomics on January 27, 2006 Rating: 5

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Hot and Cold Money

magonomics January 20, 2006

There may be a general misunderstanding about two issues regarding capital mobility that emerged this week. The first involves how East Asia is coping with the deluge of foreign investment flowing into the region’s equity markets. The second is the apparent Iranian decision to move their investments out of Europe for fear that if sanctions are imp…

Hot and Cold Money

Reviewed by magonomics on January 20, 2006 Rating: 5

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Two New Currency Products

magonomics January 17, 2006

The foreign exchange market is primarily an over-the-counter market. The $2 trillion a day market is conducted primarily over telephone and computer lines, with banks still the primarily market makers. However, anecdotal reports suggest that there has been a surge of interest in the foreign exchange market over the past couple of years. Due to the…

Two New Currency Products

Reviewed by magonomics on January 17, 2006 Rating: 5

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The View From 10,000 Feet

magonomics January 13, 2006

The New Year has begun with a bang. Global equities have rallied. Bond markets have generally firmed. The dollar has slipped against most of the major currencies and regional Asian currencies. Emerging market currencies in general are off to a good start, led by the South African rand (+~5%) and the Brazilian real (+~3%).

The View From 10,000 Feet

Reviewed by magonomics on January 13, 2006 Rating: 5

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Corporate Bond Offerings: A Source of Dollar Demand in 2006

magonomics January 03, 2006

We have generally played down the significance of the tax holiday given to US corporations for repatriating offshore earnings in explaining the US dollar’s rally in 2005. For a number of risk-management reasons, US companies tend to keep the vast majority of their overseas earnings in dollar-denominated instruments. Nevertheless, because the law i…

Corporate Bond Offerings: A Source of Dollar Demand in 2006

Reviewed by magonomics on January 03, 2006 Rating: 5